What Does Finance Reform Mean for You

Posted by Erica Brooks

As Congress prepares to finalize the largest series of financial regulations since those introduced after the Great Depression (1929), you would be remiss if you did not wonder how the finance reform will affect you. The new legislation, commonly referred to as the Dodd-Frank Act, is more than 2,000 pages long and covers everything from debt card purchases to complex financial securities.

The following list is a brief summary of some of the primary ways the Act will affect consumers:

Consumer Financial Protection Bureau: First, a new agency would be developed that would be centered on making sure that consumers are protected from unsavory business practices, such as predatory lending, hidden credit card fees, sudden interest rate increases, etc. It would be housed in the US Federal Reserve and would include home loans, student loans, credit cards, payday loans, and the like.

Oversight Committee: In addition, an oversight committee would be established. The purpose of this committee would be to monitor the US financial system and to advise Congress when a company that was too integrated into the US economy was at risk and to propose a course of action. If the government so deemed, it would have the power to bolster the company or liquidate it.

Mortgages: Under the new legislation, consumers with adjustable rate mortgages would be excused from any prepayment penalties. Further, homebuyers would not be able to take out mortgages without first providing documentation of income. In addition, mortgage brokers would no longer be able to receive incentives for pushing a certain loan, or certain type of loan, over another.

Credit Agencies: The new legislation would also require that any agency that advises consumers would have to register with the Securities and Exchange Commission. If the agency was found guilty of providing false or negligent advice, it would be legally liable for any losses incurred thereby.

Fiduciary Duty: To this end, financial advisors and agencies would also be held to a greater standard of fiduciary duty; this means that they would be prohibited from advising you of what is in their own best interest, but rather would have to provide you with sufficient information to enable you to make the best decision possible.

Debit Cards: Banks would also be prohibited from charging merchants more than a certain amount as a fee for accepting debt cards. It is estimated this change would save merchants billions in payments.

Credit Cards: The new legislation would have requirements for credit cards as well; specifically, credit card purchases would be subject to a $10 minimum purchase. In addition, some organizations, including governments and colleges, would be able to set maximum amounts for credit card payments.