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 firstname.lastname@example.org.
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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