From a human rights perspective, the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) tends to receive attention for its role in regulating investments abroad. For instance, Section 1502 requires U.S. companies investing in natural resources in the Democratic Republic of Congo to disclose information about their supply chains and remedy any possible connection to armed groups.
However, a move towards increased transparency and accountability in the private sector should not only apply to extraterritorial obligations, but also be used to fulfill economic and social rights (ESR) domestically. This could very well be done via the Dodd-Frank Act, which sets forth mechanisms that serve not only to fulfill and protect certain rights, but that also provide the legislative framework for third party accountability. These rights include the right to housing, credit, and an adequate standard of living, among others. It also supports the fulfillment of the right to participation and non-discrimination in its inclusion of quota systems for women and minorities within the Securities and Exchange Commission.
Maximum available resources and progressive realization, critical elements of government conduct, were severely affected by the financial crisis of 2008, and pre-recession levels of realization of ESR have yet to be reached. In the aftermath of legislative changes that reduced regulatory protections for risky financial products and produced increasingly biased regulation of the financial sector, the Obama Administration passed a number of policies to boost the economy, protect consumers, regulate financial institutions and avoid having to bail them out. These included the Troubled Asset Relief Program (TARP 2008) and the American Recovery and Reinvestment Act (ARRA 2009), which targeted both the financial institutions responsible for the crisis as well as stimulus for the labor market.
Despite this stimulus and influx of jobs, the subprime mortgage crisis continues to impede the fulfillment of rights. The rate of failure to make payments and foreclosures has affected credit scores for subprime mortgage borrowers, with a disproportionate impact on savings and debt levels for women and people of color. The overall financial crisis, as well as the taxpayer-funded bailout, also had serious consequences on government revenue that would otherwise support the progressive realization of economic and social rights. Beyond consumer debt, the crisis led to retrogression on the right to housing, adequate standard of living (International Covenant on Economic, Social and Cultural Rights, Article 9), and right to work (International Covenant on Economic, Social and Cultural Rights, Article 6), and recovery has not sparked serious efforts to combat growing inequality.
For instance, 25 per cent of African American and Latino borrowers who took out loans from 2004 to 2008 lost their homes to foreclosure or were seriously delinquent by February 2011, compared with just under12 per cent of white borrowers. In terms of gender and lending practices, 24 per cent of male borrowers received subprime mortgages prior to the crisis, compared with about 32 per cent of females. African American women were 5.7 per cent more likely to receive a subprime mortgage than African American men, and two and a half times more likely to receive one than white men. Beyond the housing crisis, austerity measures have cut critical social protection programs, including Medicare, childcare assistance, and food stamps. Taking race and gender into account, these measures have disproportionately impacted women, the unemployed, and low-wage workers. When considered in conjunction with government spending through TARP, this reflects a violation of maximum available resources. To date, USD 245 billion has gone directly to banks and other financial institutions (which does not include bailout for other insurance companies). In contrast, programs like the Federal Housing Administration have received only USD 60 million, and are limited to owners who have made timely mortgage payments (excluding predominantly people of color and women from assistance). In addition, credit score checks have become a popular tool used by employers to screen job applicants, detrimental and discriminatory effects on the right to work, especially for minority groups who have significantly lower credit scores.
Why Dodd-Frank Matters for Discrimination and Inequality
In a country facing a poverty rate of 14.5 per cent, a rate 2.3 per cent higher than pre-recession (2014 compared to 2007), and unemployment rates of 5.5 per cent (which do not account for increasing low-wage and part-time work), Dodd-Frank’s regulatory framework has the potential to increase government oversight of biased lending and executive compensation, protect consumers through the Consumer Financial Protection Bureau, and support government obligations to non-discrimination and equality. Its full implementation and enforcement, as currently mandated, prevents future tax-funded bailouts and caps risky financial speculation that has exacerbated widespread inequalities.
Such a framework also aligns with international human rights standards that obligate governments to take the necessary steps to protect rights holders from third parties, including transnational corporations and business enterprises. It is a prime example of legislative change that can enable the state’s obligation of conduct, serving the dual purpose of protecting rights holders while also taking proactive measures to fulfill economic and social rights.
Where we’re headed: 2016 Presidential Election
As many critics note, however, this legislation has not been fully implemented nor has it been able to account for the economic and social rights violations perpetuated by financial institutions and fall-out from the crisis. In the climate of presidential campaigning, Republicans often criticize the legislation’s length (1,700 pages), citing that it provides opportunities for loopholes in regulation and creates an unnecessary administrative burden. Last year, its comprehensiveness was also threatened by proposals in the Senate. On the other side, the Democratic candidates, both of whom initially voted for the bill in Congress, have divergent views on whether and how to define “too big to fail” for financial institutions.
Dodd-Frank is far from a perfect piece of legislation, but if it is repealed it will have far reaching effects on human rights that will continue to be neglected. Current trends indicate that we are reproducing the status quo of free reign for banks, and creating an enabling environment for shadow banking and loopholes for the private sector.
Moving forward, a challenge for fulfilling economic and social rights will be to use Dodd-Frank in a way that more proactively disrupts trends in the financial sector and increases support for small businesses, homeowners, and those saddled with debt. Financial regulation cannot be seen as separate from human rights standards and principles, as it has the potential to shift the status quo of resource accumulation and address growing inequalities in the U.S. and abroad.
Rachel Wyant is the Economic and Social Rights Program Coordinator at the Center for Women’s Global Leadership.