5 Parts of the Financial Reform Legislation
A few things have changed thanks to new financial reform legislation passed by Congress. Here are the top 5 changes.
Credit Cards and Debit Cards
Apparently Congress believes debit/credit card issuers are getting filthy rich on processing fees. To combat this “problem” Congress has rolled out a few “fixes.” First, businesses that accept credit and debit cards can now require a minimum purchase, no greater than $10, to use credit or debit cards. The Federal Reserve, with its newfound powers, can raise or lower this minimum purchase as desired. Maximum purchases can be set by the federal government and universities which can limit what people charge to these cards.
Merchants can now also offer discounts to those who use case instead of cards. However, this will have to be a flat rate discount, so expect that the discount is somewhere between the costs for Visa and Mastercard and American Express, which typically runs a little more expensive.
Banks of $10 billion in assets or greater are subject to capped fees set by the Federal Reserve. Small banks, who typically charge higher prices, have the most to gain. However, as analysts expect, big banks will be hitting card processors pretty hard to lower rates across the board.
New Consumer Financial Protection Bureau
If you thought that 2000 page legislation wouldn’t at least create a new federal bureau, you’re out of your mind. The Consumer Financial Protection Bureau will be ran by a single person picked by the president and confirmed by the Senate. Whether or not this will be as politicized as supreme court picks, who knows, but that’s not the point here.
The Consumer Financial Protection Bureau will be charged with the task of writing and enforcing rules for banks, lenders, student loan companies, and credit card and debit card issuers. While small banks (those with less than $10 billion in assets) are required to comply with the rules, their guidance will come from the regulatory authority already standing. Only larger banks will be regulated directly by the Consumer Financial Protection Bureau.
Your Credit Score
When denied a loan, line of credit, lease or any other financial product that requires a credit score, you’ll have the right to get the copy that the business pulled. So, if you were applying for a mortgage, and you got either a higher than normal rate, or just flat out denied, the lender (upon your request) will have to provide you with the credit report they used.
I actually like this part. Credit reporting firms have been known to have numerous errors in every report. So, getting a chance to look at your report will also give you a chance to see errors that were hurting your score. Since most people don’t even bother to look at their credit reports, they often pay higher risk premiums than they should due to errors. Clean that credit report up already!
Mortgage Changes
No more NINJA loans! Wow, what a reform! Lenders will now be required to check your income and asset statements. That’s an improvement all in its own.
Some technicalities of the business have been ended. No more pre-payment fees on adjustable rate mortages, and no more bonuses for lenders based on the type of loan sold. So, while your agent may have previously made $2000 on a interest-only loan, or $1000 on a typical FHA, the lender will have to pay the agent a flat rate. Good stuff for people too stupid to read the contract they’re about to pledge their life to.
Your CFP Now Has to Care About You
This part of the new legislation is the most laughable. Basically, the SEC has been beefed up and will make sure that financial planners put their clients best interest first. Well, if they actually put their client’s interests first, they’d send them home with a list of index fund exchange-traded funds instead of their in-house investment concoctions with huge annual fees.
