What is the Dodd-Frank Act?

The Dodd-Frank Act is a significant piece of legislation enacted in response to the 2007-2008 financial crisis, aimed at promoting financial stability and consumer protections within the lending industry. This law encompasses a wide array of reforms designed to mitigate the risks that contributed to the financial meltdown, such as predatory lending and the lack of oversight over financial institutions.

One of the prominent features of the Dodd-Frank Act is the establishment of the Consumer Financial Protection Bureau (CFPB), which was created to oversee and regulate financial products and services, ensuring that consumers are treated fairly. The legislation also included measures to strengthen the regulation of banks and other financial entities, requiring them to maintain higher levels of capital and undergo stress tests to assess their resilience during economic downturns.

In contrast to the other options, the Dodd-Frank Act is not focused on environmental issues or real estate advertising regulations. While mortgage underwriting practices are certainly affected by broader reforms in the lending industry, the act's primary goal is to enhance consumer protection and financial stability rather than serve as a direct guideline specifically for underwriting standards.