Panelists Fret About the Effects of Dodd-Frank on Financial Innovation

The controversial Dodd-Frank Act scored just 20% in an impromptu popularity poll Sunday afternoon, with its only support coming from someone in the federal government. The quick straw poll was hardly representative as the mere five respondents were panelists at a conference for payments executives, but the results do reflect the controversy generated by the law that produced the Durbin Amendment and the Consumer Financial Protection Bureau.

The vote came when attorney J.C. Boggs, a partner at King & Spaulding in Washington, D.C. and moderator of the “Dodd-Frank: 5 Years Later” session at the Money 20/20 conference in Las Vegas, asked his panelists for a one-word answer—positive or negative—to the question about the effects of the sweeping law. Congress passed Dodd-Frank in 2010 to correct the problems that led to the 2008 financial crisis. “Negative” got four votes, while the only “positive” came from Duane Pozza, an attorney with the Federal Trade Commission.

“There has been a serious focus on protections for consumers,” said Pozza. He added that “we see an enormous amount of innovation” in financial services despite concerns about regulations crimping the financial industry.

Other panelists contested that assessment, claiming that technological innovation in financial services has been moving away from heavily regulated financial institutions and toward less-regulated companies outside of the banking industry. “It has a real impact on innovation and the financial technology area, and the future of banking as well,” said attorney Joseph P. Vitale, a partner at Schulte Roth & Zabel LLP who works out of both Washington and New York City while representing financial institutions in legal and regulatory matters.

Vitale said the 838-page law has already generated 10,000 pages of regulations, and the job of implementing Dodd-Frank is only two-thirds done. “It’s been good for lawyers … a tsunami of work,” he said.

In addition to raising banks’ capital requirements and taking other measures to control financial risk, the law included the Durbin Amendment, which imposed debit card interchange price controls for big banks and also included transaction-routing requirements intended to spur network competition. The CFPB, meanwhile, has a broad mandate and currently is looking at the prepaid card market for possible regulation.

Joe Colangelo, executive director of the Washington-based Consumers' Research think tank, said the law had various unintended consequences, including fewer free checking accounts and few new banks. “We think a lot of those things have to do with Dodd-Frank; I don’t think they were intended,” he said.

Critics have said banks have cut back on free checking to compensate for the loss of debit card interchange from the Durbin Amendment. Recent research by Bankrate Inc. found that only 37% of the non-interest-bearing checking accounts are completely free, down from 76% in 2009.

Panelist Tonnie Wybensinger, a former Congressional staffer who is now vice president of government affairs at the Financial Services Roundtable, a banking industry lobbying group, said only two new community banks have been chartered since Dodd-Frank became law.

Another panelist, John Berlau, senior fellow at the Competitive Enterprise Institute, a libertarian-leaning think tank, said the Durbin Amendment might inhibit the growth of mobile-payment services such as Apple Pay because such services might be unable to meet its routing requirements.