The Financial Reform Bill

This is another enormous accomplishment for the Obama administration rivaling getting any sort of Health Care Reform passed. Unfortunately he’s not getting any short term political benefit. Both Health Care and Financial Reform are going to take a while before we see the effects.

I find it interesting that the yokels weren’t yelling about this one, probably because they didn’t understand what was going on. Too many danged numbers I guess. Here are the biggies with commentary.

Mortgages
The days of the so-called “Liar Loan” are over. The bill prohibits lenders from many of the practices that led to the foreclosure avalanche during the current recession. It will make getting mortgages harder but I’m not sure if that’s a bad thing or a good thing. Expect higher down payment requirements. The bill also eliminates prepayment penalties. Figures, after I’ve already paid off my mortgage.

Credit Scores
I’m not sure why, but the requirement allowing consumers to get one free credit score statement didn’t make it. You can get one free credit report identifying any issues, but it doesn’t include the score. The bill only allows free access to your credit score if you encounter a problem with a loan, interest rate or premiums. Well, that’s better than nothing I guess.

Credit Card Fees
Merchant’s pay Visa and Mastercard a fee for each credit card and debit card transaction. Fees in the U.S. are currently 1.6% for debit cards and 2.0% for credit cards. This legislation allows the Federal Reserve to cap the fees. The fees in Europe are much lower so this is expected to reduce fees and save merchants money. Hopefully these savings will be passed on to consumers but we shall see. The bill also allows merchants to offer discounts if you use cards with a lower fee which wasn’t previously allowed.

Lending Watchdog
The bill creates a Consumer Financial Protection Bureau within the Federal Reserve (another goddamned federal bureaucracy) with the ability to regulate just about every type of lending institution except car dealerships. The Republicans got these exempted because supposedly they’re already regulated enough. Aren’t you people tired of getting your pocket picked by the GOP? This was the one major victory for the lobbyists in this bill.

Bank Bailouts
The bill doesn’t allow the government to step in and break up banks but it does provide a host of new powers that should prevent things like the recent financial chaos.

The Federal Deposit and Insurance Corporation (FDIC) can now liquidate failing institutions and recoup its money by selling off the bank’s assets.

Payments to creditors of a failed institution will now be the same as in a bankruptcy. This is supposed to localize problems and prevent a repeat of things like the $160 billion bailout of AiG.

Wait until you hear this one. If a bank fails, the FDIC can take back compensation paid to its current and former senior executives in the two years prior to the failure. The government can also ban those executives found responsible for a bank’s failure from future work in the financial industry.

Consumer Education
The bill establishes an Office of Financial Literacy (another goddamned federal bureaucracy) within the Securities and Exchange Commission (SEC) tasked with educating the public about savings, loans, liens and fees.

This bill gives the government significant new powers. It gives the government much more additional power than the Health Care Reform bill did. Basically we’re talking about a financial big Kahuna that can not only establish the rules, it can also step in and dissolve failing institutions and punish those who screw things up.

I don’t think that last bit is constitutional. Isn’t everyone, including bank CEOs, innocent until proven guilty in a court of law? Here it sounds like we have a regulatory agency playing judge and jury. I’m not sure I like that.

Hell, why didn’t they just nationalize the whole industry? It probably would have been easier and a lot less expensive.

Don’t get me wrong, I think this reform was necessary but I’m a little surprised at the scope. All I can say is wow!