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In response to the financial meltdown that began in the United States more than two years ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Financial Reform Bill, was recently signed into law by President Obama. After more than 8 million jobs were lost and hundreds of banks were closed, financial reforms have finally been put in place. But what’s in the bill and how will it affect you?
Here’s a rundown of changes that will have the greatest effect on consumers.
Consumer Protection Bureau: An independent Bureau of Consumer Financial Protection has been created. Its role is to protect consumer rights and ensure that appropriate financial regulations are in place. The Consumer Protection Bureau will oversee everything from credit cards to mortgages, student loans, and bank accounts. The bureau will analyze and enforce the rules for banks and credit unions with assets of more than $10 billion. Furthermore, the bureau has the authority to create new consumer protection rules that govern any financial institution that provides financial services or products to consumers. “The Consumer Protection Bureau, this federal watchdog, is going to be focused completely on protecting families from abusive financial practices. The bureau has the authority to write rules for consumer financial products and services and to examine and supervise the most critical bank and nonbank financial services providers, creating a level playing field across the marketplace for the first time,” said Michael Barr, assistant secretary of the Treasury for financial institutions, at a White House briefing in July.
Consumer Education: The federal government will create an Office of Financial Literacy. Its role will be to educate consumers and increase the public’s general understanding of financial products and the basics of personal finance. This change aims to encourage wiser financial decision making.
Consumer Complaint Hotline: A national consumer complaint hotline will be put in place so that consumers can report problems. The aim is to help consumers quickly resolve issues involving inadequate or fraudulent financial products and services.
Oversight of the Lending Industry: The Consumer Financial Protection Bureau will oversee the lending industry by protecting borrowers from deceptive mortgage lending practices and ensuring that mortgage application forms are written in language that is easy to understand. This is meant to help prevent homebuyers from taking on burdensome loans they can’t maintain. The bureau will monitor rules and regulations for all mortgage-related businesses such as lenders, servicers, and mortgage brokers. In addition, the new bureau will keep tabs on payday lenders, student loan issuers, debt collectors, and credit reporting agencies.
Furthermore, auto financing will come under additional scrutiny. The Consumer Financial Protection Bureau has authority over banks and companies that finance lending by auto dealers in addition to dealers whose specialty is subprime auto loans. The Federal Trade Commission will receive new authority to write rules that rein in deceptive practices by auto dealers.
Mortgage Assistance: The new legislation sets aside $1 billion for bridge loans to jobless qualified homeowners. The funds offer help with mortgage payments until homeowners find employment.
Deposit Insurance: There will be a permanent increase in deposit insurance for banks, credit unions, and thrifts to $250,000. Originally, the insurance amount was scheduled to go back to $100,000 (except for certain retirement accounts, which were set to stay at $250,000) on Jan.1, 2014. Now, consumers will be able to recover more money if their bank fails.
Credit Reporting Agencies: The new consumer protection bureau will have the authority to regularly examine the major credit bureaus to ensure their compliance with federal law. In addition, the bureau is required to conduct a study on the differences in credit scores between those sold to lenders and consumers and those provided to creditors by the three major credit reporting bureaus to find out if variances between credit reports have a negative impact on consumers. This might reduce the chance of a creditworthy consumer being turned down for financial services.
Credit Scores: Consumers will be able to receive their credit scores free of charge if they are refused credit or charged a higher price for credit than most consumers because of their score.
Credit Cards: The bureau will enforce existing laws governing consumer credit, including the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which will be enforced by the Consumer Financial Protection Bureau and Fair Credit Reporting Act. Terms of credit card agreements, such as interest rates, will be clearly disclosed.
Debit Card Swipe Fees: The new bill limits debit card swipe fees. Now, credit card issuers can no longer charge businesses so-called debit card swipe fees that surpass the cost of completing the transaction. These charges were often passed on to consumers by store owners.
Insurance: The new bill will create, for the first time, an office focused on insurance called Federal Insurance Office. The purpose will be to monitor the insurance industry.
Overdraft Fees: Now, you’ll be asked whether or not you want to opt in or out of banking overdraft fees. So if you don’t opt in for overdraft coverage and a purchase pushes you over your limit, your purchase will be declined. If you do opt in for overdraft protection, you’ll be charged a fee if you go over your limit.