Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Basics of Financial Reform – How will the bill affect you?

On July 14, 2010 the bill popularly known as Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, passed congress and was sent to President Obama to be put into law. What’s in this bill? Reuters.com says that “the bill would impose tighter regulations on financial firms and reduce their profits. It would boost consumer protections, force banks to reduce risky trading and investing activities and set up a new government process for liquidating troubled financial firms.” I wanted to find out more about this bill since has changed and added many new regulations into the industry that I one day hope to become part of. This is what I’ve found across several different sites. References are listed at the end.

Mortgages: Liar loans are over. Lenders will be required to collect documents of borrower's income before providing a mortgage loan. They will also be required to determine that the borrower can repay the loan. High fees and bad loans terms have been hacked away at and prepayment penalties for most mortgage loans will no longer be allowed, the downside for consumers is that these regulations will make mortgage loans less profitable for banks, meaning for borrowers - it will be harder to get a loan and interest rates may rise or new fees may pop up/ incentives in other areas will be terminated to make up for the loss of income. It’s also foreseen that down payments for mortgages will increase.

Debit Card Interchange Fees: This part of the bill is aimed at helping businesses who have to pay a small fee to card carriers such as Visa and MasterCard every time a debit card is swiped. The fee for debit cards currently averages 1.6% -- credit cards' swipe fees average more than 2%. The bill is looking at capping the debit card fees to a "reasonable and proportional to the actual cost incurred." According to Yahoo Finance “It will take months for the Federal Reserve to decide what's reasonable, but in Europe, Visa and MasterCard interchange fees are as low as 0.2% -- in Australia they're capped at 0.5%. Odds are that caps here will be higher than those charged on other continents, but lower than they are today. In lobbying for this change, retailers virtually assured Congress that they would pass along their savings to consumers. Many consumer advocates, however -- including this one -- are skeptical.”

Consumer Watchdog Group: One of the most controversial parts of the bill deals with the establishment of a Consumer Financial Protection Bureau within the Federal Reserve. Yahoo finance said that “This new agency will have sweeping powers to regulate virtually every kind of lending activity and lender, from the largest banks to the smallest pawn shops.”

Bank Bailouts: The Federal Deposit Insurance Corp. (FDIC) will borrow from the Treasury to pay for the cost of liquidation, and then get its money back by selling off the institution's assets. If asset sales aren't enough to repay the Treasury, the FDIC could charge a fee to other banks. If a bank fails, the FDIC will have the ability to take back compensation paid to its current or former senior executives for the two years preceding its failure. In addition, the government can ban senior executives found responsible for a bank's failure from future work in the financial services industry.

Say on Pay: Shareholders must be provided with the right to cast a non-binding vote approving the domestic companies’ executive compensation. The decision is non-binding. Shareholders also get to determine how often and when additional or recurring say on pay votes will be held.

Free credit scores: Consumers can already get a free look at their credit reports once every year from the big three credit bureaus -- Experian, TransUnion and Equifax. Only consumers who are denied a loan or suffer some other sort of "adverse action" to get a free look at their credit score. Adverse actions include an increase in the cost of insurance, being charged more for or being denied a car lease, or if the interest rate offered on a credit card or loan is higher than one being offered to those with excellent credit.

References:
Yahoo Finance
Boardmember.com
Banking.Senate.Gov
MSN Money
Moneytalksnews.com