The 2010 financial reform law that President Obama counts among his top legislative achievements has cut consumer credit 14.5 percent since its enactment, according to a study released Monday.
The American Action Forum, a conservative-leaning think tank in Washington, examined Federal Reserve data to arrive at the conclusion that the Dodd-Frank law has significantly reduced access to revolving credit, which refers mainly to credit cards.
That credit has been choked off for so many people illustrates that the impact of the law is “very real for a lot of folks, especially after the crisis,” said Meghan Milloy, director of Financial Services Policy at the think tank and one of the authors of the analysis.
Milloy suggested that one of the main ways the law may have tightened credit was through higher capital standards and new rules for banks, especially for small banks and credit unions, that might have hampered their ability to extend loans and credit cards to customers.
Concern that Dodd-Frank has limited access to credit has been one of the main points of opposition to the law and that opposition has been exploited by those who have tried to rally against the law.
For example, the American Action Network, the political nonprofit affiliate of the American Action Forum, has aired ads in Republican presidential debates portraying the Consumer Financial Protection Bureau, created by Dodd-Frank, as a Soviet-style bureaucracy rejecting credit applications.
Republican presidential candidates, including Donald Trump, Ted Cruz and Jeb Bush, have called for repealing Dodd-Frank. Meanwhile, on the Democratic side, Hillary Clinton has advocated expanding the powers the law gave to regulators, and Bernie Sanders has called for breaking up banks outright.
Dodd-Frank was meant to prevent some of the risky financial practices that led to the financial crisis and make banks safer and able to fail without necessitating taxpayer bailouts.
Milloy, however, said that her analysis suggests that the costs of the law, in terms of curbing access to credit, may be outweighing the benefits of added financial system safety. “I think it does show we’re on the wrong side of the trade-off,” she said.
The study examined what happened to credit availability after the law was implemented in 2010. It aimed to isolate the impact of the law by controlling for other factors that might have affected credit growth, such as the strength of the economy, housing prices, consumer sentiment and income growth. It also compared credit growth in the U.S. to that of Canada, which was not affected by the new law.
The resulting finding that revolving credit has shrunk by 14.5 percent, the study noted, was partly predicted by the agencies writing the rules, who warned that they would increase the cost of credit.
