Dodd-Frank Unintended (?) Consequences. Was The Goal To Hurt Lower and Middle Class Families?

Dodd-Frank Act Hammering Low-Income Americans

The Dodd-Frank Act was designed to reform Wall Street and protect consumers, but in fact it is making lower-income Americans worse off financially and cutting them off from traditional banking services.

"Dodd-Frank punished Wall Street at the poor's expense, turning mainstream banking into a luxury available only for the middle class and rich," says Abby McCloskey, program director of economic policy at the American Enterprise Institute.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama in July 2010 in response to the late-2000s recession, made changes in the regulatory environment that affect almost every part of the nation's financial services industry.

It is estimated to cost the eight largest banks alone up to $34 billion a year. Those costs are passed along to consumers.

As banks "hunker down amid Dodd-Frank uncertainty, they have cut $70 billion in credit cards in three years," McCloskey writes in Forbes. As a result, 40 percent of low-income families report their credit cards were canceled, limits reduced, or applications for new cards were denied, a survey revealed.

The act also capped the fees bank-sponsored payment companies such as Visa and MasterCard charge retailers to process debit card purchases.

To make up for lost revenue resulting from Dodd-Frank, banks have raised fees sharply on a variety of products. In 2009, 76 percent of banks offered free checking; in 2012, only 39 percent did.

"Priced out of mainstream banking, low-income earners are turning to alternative finance measures, such as payday lending and check cashers," McCloskey points out.

Payday lenders charge from $15 to $100 on average to lend a borrower $100 for two weeks, equal to an APR of as much as 391 percent — if the money is paid back on time.

McCloskey concludes: "There must be broad reform to lift the costly regulatory apparatus that is stifling financial services for low-income consumers."