President Obama recently signed The Wall Street Reform and Consumer Protection Act. The financial reform act will be phased in [1] over the next five years, with many provisions becoming law within the next 18 months.
Along with permanently increasing FDIC insurance limits [2], the financial reform bill regulates investment and trading practices, hoping to prevent the practices that led to bailouts and banks that are “too big to fail.â€
The financial reform act also takes steps to regulate the way these institutions interact with consumers. Below, find some of the provisions with the biggest impacts on individuals [3].
Financial Reform Consumer Impacts
- New Consumer Protection Agency: The Federal Reserve will create a new independent Bureau of Consumer Financial Protection, which will consolidate oversight previously conducted by various agencies across the government.
What it means for you: One body will oversee products such as mortgages, credit cards, and payday loans, making them easier for consumers to understand.
- Free Credit Scores: If you are turned down for any kind of credit or loan, or offered an interest rate that is higher than the best-available, you are entitled to view your credit score. This is an addition to a current law that allows you to see your credit report [4] in these situations. If you just want to do regular checkups on your credit score, you will still have to pay for a service like My Fico [5] or turn to a free alternative such as Credit Karma [6].
What it means for you: If you are denied credit, you can access your credit score for free. This will in turn help you recognize and correct mistakes on your credit report and understand how you can qualify for the best interest rates in the future.
- Cash Discounts: Businesses are now legally allowed to offer discounts to customers who pay with cash rather than credit or debit cards. This has already become widespread [7] at gas stations but you may start to see it other places as well. Businesses will also be able to offer discounts for using certain brands (e.g., Visa instead of Mastercard).
What it means for you: If you’ve gone all-plastic in recent years, you might want to start carrying cash again to help you get the best prices on everyday items. But if the discount is 1-2%, you may break even by using a cash rewards credit card [8].
- Minimum Charges: In a similar provision, businesses will be allowed [9] to require a minimum credit card charge of up to $10.00. This was previously forbidden.
What it means for you: You will have to start carrying cash if you usually put your $2.00 coffee on a credit or debit card. Theoretically prices could fall as businesses avoid fees, but the reality of that happening remains to be seen.
- Mortgage Regulations: The new law makes a variety of changes to mortgages [10], but one of the biggest requires lenders to accept additional payments on adjustable rate mortgages [11] without charging prepayment penalties. In addition, banks cannot pay bonuses based on the type of mortgage a broker sells you. Finally, mortgage lenders must fully document your income and your ability to pay back the loan.
What it means for you: A mortgage you can understand and afford and the right to pay it off or refinance [12] it with no penalty. On the other hand, it may be harder to qualify for a mortgage since they will be less profitable for banks.
Other Finance Reform Changes
In addition to the personal impacts listed above, you might also be interested in the following:
- Financial Literacy: A new Office of Financial Literacy will come up with a plan to teach Americans the basics of personal finance topics such as savings, loans, retirement and investments.
- Lower Interchange Fees: The Fed can now cap the rate that companies such as Visa and Mastercard are allowed to charge businesses for processing credit and debit card payments. This will mean lower costs for businesses, which theoretically could (but probably won’t) mean lower prices for you. It will help small businesses who have higher costs than their major corporation counterparts.