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With U.S. consumers still feeling the sting of the global financial crisis, consumer advocacy groups are claiming that they snagged a win with the financial reform measure approved last week by a joint House-Senate congressional committee.
The bill goes next to President Barack Obama, who is expected to sign the measure into law.
"It's historic legislation," Michael Calhoun, president of the Center for Responsible Lending, told ABC News. "It's a big win for consumers."
The financial reform bill is a sweeping measure, and was designed to address many of the problems that led to the financial crisis. So it's much more than just a consumer-protection proposal. But the regulations that do address consumers will strengthen - or will even create - an array of consumer protections, and will lead to oversight of such businesses as payday lenders, credit-card companies, check cashers and pawnbrokers.
The consumer-related measures include:
- A consumer financial protection bureau housed at the U.S. Federal Reserve, to prevent misleading and deceptive practices.
- Tighter mortgage regulation with no more pre-payment penalties and easier loan negotiations, to prevent pre-crisis manipulation tactics.
- More transparency with credit scores, allowing consumers free access to their scores if they are denied a loan or offered a high interest rate.
- A ban on banks and brokers earning bonuses on the types of loans they sell, which encouraged inappropriate sales of higher-risk loans.
- Minimum amounts on debit and credit card transactions, reducing the related fees that storeowners pay - which in turn could reduce prices for shoppers.
Advocates are optimistic about the steps taken for consumers, especially the creation of a financial watchdog.
"The bank regulators did little or nothing to protect consumers from these toxic financial products which inflicted such grievous economic harm," said Bill Brennan, a Legal Aid lawyer. "We've desperately needed an agency like this for 20 years."
Also gaining huge consumer support is the ban on broker and banker loan-related bonuses.
"That's huge," said Calhoun. "This is one of the biggest reforms. It's a return to the kind of mortgage lending we had 20 years ago, before all this garbage started."
But, as with any drastic overhaul, compromises were made and consumers will not gauge the full effectiveness until the changes are implemented. The new agency does have power limits, and its ability to prevent risk can only be measured after it's created. And some analysts are concerned the new rules are too limiting, and will hinder growth and limit consumers' access to credit.
"By dramatically cutting back loans to consumers and small business, financial institutions have hampered the ability of the economy to fully bounce back from the most severe recession since the Great Depression," Bernard Baumohl of the Economic Outlook Group told The Wall Street Journal.
That brings us to next week's Money Morning Question of the Week: Do you think the financial reform bill adequately addresses the needs of consumers? Will it achieve its stated goal of increasing consumer protection, or will the financial-services industry find loopholes? As a consumer, do you feel more confident in the reformed financial sector or are you skeptical of the bill's success?
Send your thoughts, questions and concerns to mailbag@moneymappress.com.
[Editor's Note: Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line.
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- ABC News:
Top 6 Changes That Financial Reform Brings To Consumers
- The Atlantic:
Consumers Win With New Financial Reform Bill
- The Wall Street Journal:
Economists React to Financial Overhaul
- Money Morning News Archive:
Question of the Week Feature
If you were a judge and your best friend were caught embezzling, what sentence would you give him, so you could still look his kids in the eye? That's what we have. The classist mentality on the Hill and surrounds is so entrenched, The People are just looked upon as cash machines. When they ask for anything like a simple raise in minimum wage, they are considered lazy. Tent cities are being torn down by local police right now as I sit with my morning coffee. Those people were patriotic yesterday and trusted their country. What they've been given for that trust over the last three years is way worse than a kick in the teeth. We've impovierished their grandchildren and yoked them to a plow while being goaded by fat cats who have a special "in" with the country these honest people were actually making out of their ingenuity and sweat. How much sweat and ingenuity does it take to hand an envelope full of money to someone on the Hill? There is a mob in control and I hope there comes a day when the honest trusting citizens see it for what it is. Maybe this charade of a reform will help.
For Congressional "financial consumer protection" legislation to actually protect consumers, it would need to regulate the gross disparity between interest paid to consumers who loan money to banks (called "savings accounts"), typically less than 1% per year, and the interest rate paid by consumers to credit card providers which can exceed 28% a year — it is sometimes cheaper to borrow money from Mafia loan sharks than from your "friendly banker"!!!
Usury is allowed because credit card providers pay millions of dollars each year to elected officials to make sure that they can continue overcharging on these "loans" (to cite a few examples — from 2007-2008 [the last election cycle for which the Federal Election Commission has full financial records], Senator Chris Dodd, the Chairman of the Senate Finance Committee with oversight authority over the financial sector, was paid $5 million by that sector; his friend Sen. Charles Shumer was paid about $4.75 million and poor Rep. Barney Frank in the House was paid ONLY $1.75 million. They don't work for us, they work for the people who are stuffing their pockets with cash and it shows in this legislation which is long on rhetoric but short on reality!!!)
Washington is up to its usual smoke and mirrors. Now that enough of the senators have balked on the present form of the bill they have decided to use the Tax Payer money (TARP) to fund their game. I wish there was a way that we could speed up the arrival of Nov 10. It seems that is the only way we can start over (I hope we have enough sense to question each candidate enough to understand their intent). I know the usual candidate paints a picture to be elected; maybe this time we can convince them to just vote to turn off some of the free hand outs and if that is a one term deal so be it.
Laws never stopped crooks before. What makes Congress think more laws will stop illegal activity?
The problem is we haven't gotten rid of the problem. Barney Frank, Dodd and Schumer to name a few are the crooks that helped to create what has happened and they still haven't touched Fannie and Freddie which was the source of the mess. They lack integrity and humility. My understanding is that the good old boys have simply given the go ahead for more government control of our economy to the progressive left who insist that 20% of the population knows what is best for the rest. Nov. 2010 is on everyones list to take back our Country.
How does this reform protect consumers…more so how does it protect the american people? Where is the control on credit card interest rates – the average rate is 26+ %. When are we going to stop gauging the American people? It has gotten to the point that money I use to save now has to be used to live. I need reform that is going to benefit all of us as consumers…I am tired of the banks making money and then looking to the american people to bail them out of trouble and then turn around and making us pay for their decisions and failures.