After months of bitter debate and a Congressional all-nighter to
hammer out a final agreement, President Obama signed legislation
that overhauls financial regulation. Here's how the measure will
affect your family finances in ways big and small.
A new consumer watchdog will be looking out for
The Consumer Financial Protection Bureau (CFPB) will regulate
financial products and services, including mortgages, credit cards,
student loans and debt collection. It may sound like just another
government bureaucracy. But an agency focused on consumers is a big
deal because existing financial regulators, scattered among a
half-dozen agencies, have traditionally been focused more on the
institutions they regulate than on the well-being of their
Although housed within the Federal Reserve, the new bureau will
be largely independent, with a dedicated budget and a director
appointed by the President and confirmed by the Senate. But the
Financial Stability Oversight Council -- the collection of
regulators charged with heading off risks to the financial system
as a whole -- gets to override CFPB rule-making. And lending by car
dealers won a controversial exemption from oversight.
The new law also aims to make us savvier -- or at least to let
us sound off when we've been scammed. It creates a new Office of
Financial Literacy within the CFPB, with a toll-free hotline for
You'll get more mortgage protections.
In the old days, it was in the lender's interest to make sure you
could afford a mortgage. This legislation aims to permanently
restore a vested interest, along the entire chain of mortgage
brokers, loan originators and borrowers, in making sure the
mortgage you get is the right one. (Conspicuously absent from the
legislation is any resolution of the troubles at Fannie Mae and
Freddie Mac, the secondary mortgage market behemoths that buy loans
and repackage them to investors.)
The bill requires that lenders verify the income and assets of
borrowers. It prohibits financial incentives for steering borrowers
into more-expensive loans, and it bans prepayment penalties on all
but the most basic, plain-vanilla mortgages. Even then, the
penalties are limited in scope, and if you're offered a loan with a
prepayment penalty, you must also be offered an alternative without
one (such penalties often trapped borrowers in unaffordable loans).
If you choose a variable-rate loan, your lender must tell you the
maximum you could end up paying. Riskier loans aren't banned
outright -- but lenders selling them off to investors must have
"skin in the game," in the form of a 5% ownership stake.
Within 90 days, the Dodd-Frank bill requires interim
home-appraisal rules that will ensure appraiser independence while
ironing out some of the snafus that have foiled sales under the
current guidelines; an in-depth study of appraisal issues is due
within a year. Also due within a year: a study of reverse-mortgage
loans to determine whether stronger consumer protections, such as
suitability standards, are necessary.
You will be able to access your credit score for
Most folks know they can monitor their credit
by ordering one each year from the three big credit bureaus at
AnnualCreditReport.com. And you're entitled to a copy if you've
been declined credit or been turned down for a job or for housing.
The Dodd-Frank bill gives consumers access to their credit
if it negatively affects them in a financial transaction or hiring
Maintaining your financial reputation is akin to running a race:
The credit report gives you data points along the route but the
score tells you how close you are to the finish line. The two
together deliver a fuller financial picture. So, for example, if
the terms of your credit-card agreements change for the worse
because of your credit, you'll get to see your score. But you don't
get a free peek unless you have a negative experience.
You may have to carry cash for small purchases like
Having a $10 bill in your purse or your pocket will make more sense
because merchants will be allowed to insist on a minimum purchase,
up to $10 for now, for any payment by credit card.
Meanwhile, colleges (and federal agencies) will be allowed to
set maximums for credit-card charges they accept. That could
potentially limit big-ticket charges, such as tuition payments --
and the frequent-flier miles and other rewards such charges
The Federal Reserve will also issue rules capping how much
merchants must pay banks every time a debit card is swiped (only
banks with more than $10 billion in assets would be subject to the
rule and certain pre-paid cards are exempted). That could pave the
way for retailers to offer discounts when you pay with a debit card
-- but don't hold your breath. Right now, merchants can offer
discounts for paying cash, but few do. What we may see instead is a
scaling back on debit-card rewards as banks become less inclined to
lure consumers to cards that are less lucrative.
Private student loans will be reined in.
Student loans that aren't subsidized or backed by Uncle Sam have
been referred to as the Wild West of student lending. Private loans
often carry variable rates with no cap and lack the consumer
safeguards that federal student loans provide, such as deferment
options, forgiveness programs and affordable repayment plans. You
can't cancel them in the event of death or disability, and you
can't discharge them in bankruptcy.
Financial reform will bring private student loans from banks, as
well as student loans from for-profit career colleges, under the
oversight of the CFPB. The final bill doesn't include a proposal
that would have required lenders to certify with a college that a
prospective student borrower was eligible for a loan -- the intent
being to give colleges the opportunity to counsel borrowers about
A Private Education Loan Ombudsman within the CFPB will give
students a central place to turn for help with private student
Federal deposit insurance limits will get a boost.
This bill makes permanent one legacy of the credit crisis that we'd
like to keep: the increase in deposit insurance for banks, thrifts
and credit unions to $250,000 per account, retroactive to January
1, 2008. Before the credit crisis, the limit was $100,000 per