It’s been three years since the passage of Dodd-Frank, Washington’s response to the housing market collapse, the failure of major financial firms, and the resulting shock to the economy in 2008. Are Americans better off today because of it?

Predictably enough, no. Dozens of rulemakings have been completed, but a backlog of hundreds more is prolonging regulatory uncertainty and inhibiting economic growth. Consumers are facing dramatically higher banking fees and fewer service options because of new government constraints on credit.

And all because of policymakers’ deeply flawed diagnosis of the financial crisis.

Virtually no aspect of the financial system remains untouched by Dodd-Frank, including checking accounts, credit cards, mortgages, education loans, retirement accounts, insurance, and all manner of securities.
 
The onerous regulatory demands are pinching consumers’ pocketbooks.

According to Bankrate’s latest survey, only 39 percent of banks in 2012 offered a checking account with no minimum balance requirement and no monthly fee, compared to 45 percent in 2011 and 76 percent in 2009.
 
Meanwhile, the minimum account balance needed to avoid a monthly fee has nearly doubled in the past two years, to $6,118.

The enormity and complexity of the Dodd-Frank regime is reflected in the inability of agencies to meet statutory deadlines for implementing the law. As of July 1, nearly 63 percent of the rulemaking deadlines have been missed, according to the law firm of Davis Polk and Wardwell LLP, which tracks the regulations. Preliminary proposals have not been prepared for more than a third of the rules still outstanding.

Although three years in, the full effects of Dodd-Frank have yet to hit. Some of the most significant and costly regulations, such as the Volcker Rule, are still winding their way through the bureaucracy.

The Volcker Rule would generally ban proprietary trading — transactions in which banks use federally insured deposits and other funds to supplement their earnings. Ratings agency Standard & Poor’s estimated the rule collectively could cost U.S. banks as much as $10 billion annually.

A variety of experts warn that the Volcker Rule, once fully implemented, will limit the amount of money available for investment worldwide — exacerbating the painfully limp recovery from the 2008 crisis.

Of enormous consequence is the Consumer Financial Protection Bureau, which Dodd-Frank endows with unparalleled powers over virtually every consumer financial product and service. Although lacking a properly confirmed director (until very recently), the CFPB has been aggressively restructuring the mortgage market; devising restrictions on credit bureaus, education loans, overdraft policies, payday lenders, credit card plans, and prepaid cards; and amassing an Orwell-worthy database on all manner of consumer spending. The Government Accountability Office is preparing to investigate the data grab.

In coming months, the bureau is expected to issue final guidance for its “ability-to-repay” regulations, under which the lender — not the borrower — can be blamed for a loan default and sued by homeowners if they cannot make their payments and face foreclosure.

For all its vast regulatory scope, Dodd-Frank utterly fails to address some of the principal causes of the 2008 crisis. For example, Fannie Mae and Freddie Mac, the government-sponsored enterprises that hold nearly 90 percent of the mortgage market, remain in conservatorship.
Taxpayers also remain susceptible to future bailouts of big banks. Under Dodd-Frank the Financial Stability Oversight Council is tasked with designating specific firms as “systemically important financial institutions.” But doing so reinforces the perception that the designated firms are “too big to fail.”

Entangled in its regulatory zeal, Congress evidently ignored the fact that Dodd-Frank further empowers the very regulators that failed to prevent the financial crisis. Lawmakers instead have saddled consumers and the economy with thousands of costly regulations that provide no reason to celebrate the third anniversary of Dodd-Frank.

Let’s hope lawmakers use year four to undertake reforms that will benefit, not harm, the nation.

- Diane Katz is a research fellow in regulatory policy at the Heritage Foundation.