Cincinnati USA Regional ChamberGrowing the vibrancy and
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In This Issue:


    October 12, 2010

    Major reforms will affect companies and financial institutions

    By Susan B. Zaunbrecher and Nathan E. Hagler, Dinsmore & Shohl, LLP

    The recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) represents the most ambitious reform of the laws governing the financial industry and corporate America since the Great Depression. While most of the Act’s provisions are aimed at large financial institutions and public companies, smaller companies are affected by many of the regulatory changes as well.

    Currently we know enough to make broad assumptions about the impact of the Act and to point out some of its key provisions, but are still several years away from seeing all of its regulations and the direct and indirect effects on businesses. The following highlights the Act’s most important provisions and the effect these provisions may have on domestic businesses:

    Securities Offerings, Corporate Governance Practices and Executive Compensation Provisions of the Act:

    • The Act impacts private companies by amending the definition of “accredited investor” for purposes of stock offerings pursuant to the private offering exemption from registration. The Act provides that for the next five years, the net-worth threshold for determining an “accredited investor” is $1 million, excluding the value of the investor’s primary residence. Thereafter, the Securities and Exchange Commission (the “SEC”) is required to adjust the threshold amount to reflect inflation.
    • The Act authorizes the SEC to adopt proxy access rules permitting shareholders to use a company’s annual proxy materials to nominate individuals to serve on the company’s board of directors.
    • In an effort to discourage risky practices on the part of executives, the Act requires public companies to adopt policies allowing the company to recover erroneously awarded compensation (also known as “clawback” policies). 
    • The Act will also usher in a new, more “shareholder-centric,” environment for public companies. The combination of the proxy access rules and “say on pay” requirements puts pressure on company boards to make shareholder relations a priority. 

    Consumer Financial Protection Provisions of the Act:

    • One of the centerpieces of the Act involves the creation of a new consumer protection agency called the Consumer Financial Protection Bureau. The CFPB is an independent entity housed within the Federal Reserve and is charged with the task of ensuring consumers are protected from “unfair, deceptive, or abusive” acts or practices. To accomplish its mission, the CFPB is granted the authority to promulgate consumer protection rules for banks and nonbank financial firms offering consumers financial services and products.
    • For the first time, mortgage originators are required to make a good faith determination the consumer has a reasonable ability to repay a loan, based upon the consumer’s credit history, current obligations and employment status.

    To view the complete Dodd-Frank Wall Street Reform and Consumer Protection Act, visit the Chamber's Advocacy Action Center.

    Zaunbrecher, SusanHagler, Nathan

    Susan B. Zaunbrecher chairs the Corporate Department and Financial Institutions Practice Group at Dinsmore & Shohl. Nathan E. Hagler is an associate in the Corporate Department. The firm has extensive experience representing financial institutions with issues arising under state and federal financial institution laws and regulations.

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