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What is the Dodd-Frank Act and How does it Affect you?

The Dodd-Frank Act is short for the Dodd-Frank Wall Street Reform and Customer Protection Act.  This a piece of financial reform legislation that was passed in 2010 in response to the potential financial collapse that happened in 2008.  This piece of legislation is huge, in fact it is over thousand pages long and it will be slowing implemented over the next several years.  As of currently, we do not know the full extent of the legislation since not all policies from it have started but as it stands it has established several new government agencies to oversee various components of financial economics.

Well that was all very fancy words to say that unfortunately, we are still waiting for the other shoe to drop when it comes to the Dodd-Frank Act.  Most of the Act involves monitoring of huge companies that are deemed too big to fail.  Should these companies become weak again, (because we already spent trillions of dollars propping some big name companies up) the monitoring agents have the authority to liquidate or restructure big firms so tax dollars do not have to be spent to bail out these companies.  The same consideration is in effect for those insurance companies that fall under the same category.

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With banks federal agents also have the authority to systemically break up a company if it needs to, but the biggest difference that the average person will see is when they go to apply for a mortgage.  Mortgage lending companies and banks are supposed to provide documentation for understanding the terms of a mortgage before the customer signed on the dotted line.  The same consideration is also added to auto loans.

For investors, the Dodd-Frank Act have asked credit rating agencies to give information that is meaningful and reliable for the companies and groups that they evaluate.  Prior to 2008, credit rating agencies have been accused of giving information that is misleading that would point to a favorable investment, even if the company’s financials was not strong.  When the company failed to meet earnings expectations or if they failed, in general then the average investor lost money.  If you believe you are a victim of misinformation towards an investment, then seek out a good stock broker fraud attorney.

Because of all the new regulations that will eventually be put into place, critics of the Dodd-Frank Act state that it will stunt economic growth and who will actually pay for in the end are those in the working class in America.  Not only would it become increasingly difficult to find a job, but it will also decrease the chances of those people with jobs to receive pay raises and slow the pace of standard of living growth.

Though very few critics have actually stated the obvious, but if the United States government is placing all of these new regulating agencies to becoming active it will cost money for those people who need to be employed as well as other operating costs.  Over time the average tax payer may see an increase to their tax bill in order to keep all government agencies afloat.