How finance reform affects us directly
The historic finance reform bill hammered out by a House and Senate panel is 2,000 pages long, but WalletPop had its yellow highlighter out to spare you one brutal summer read. (Actually, we had a lot of help from Reuters and The New York Times.)
Here are some of the tidbits on how the bill will play out for consumers if it passes, as expected, next week:
No help for the fallen: Our federal dollars would supposedly no longer be used to bail out massive misbehaving outfits like AIG and Lehman Brothers, which went bankrupt. The next time a conglomerate of suits goes belly up, the government vows to sell their pieces off like scraps to the bidding dogs. That hopefully means our tax dollars will be better used.
Credit transparency: If you're denied a loan, a mortgage or a credit card because of something fishy on your credit report, the denying party will have to show you what's fishy -- for free. We like anything free, even if it's a FICO revelation.
No cowboy banks: Many banks would no longer be able to engage in trades that are not on behalf of customer investors. Basically Capital Hill is saying that revenue-generating (or depleting) that doesn't involve customer assets isn't banking; it's gambling. That's how many money houses got into trouble in the first place.
Less risky business: The bill also limits financial institutions' participation in hedge funds and other wager-based maneuvers. That way, the banks stay solvent, and they don't come whining to us for help. Some call it the "Volcker Rule."
New-old sheriff in town: A Federal Reserve bureau would be created to keep an eye on the eye-popping interest and other iffy terms of too-generously allocated mortages and credit cards.The intent is to make sure that those who apply for a mortagage or credit card deserve them, and that they can pay them off without going broke. Car dealers
are exempt. We can trust those guys, right?
Saving for a rainy day: Banks would be required to have more surplus on hand to ride out the next economic dip. We dislike the idea of financial institutions living hand to mouth as much as the government does, so perhaps this is a good thing.
Who's watching the annuities? Annuities, which offer guaranteed profit in the long term, would still not be monitored carefully, according to the Times. The SEC won't be in charge, leaving insurance regulators to supposedly (doubtfully, opponents say) keep an eye out for senior citizens who are sold these products with brokers getting outrageous commissions and the brokerages collecting huge early-withdrawal penalties, said opponents in the Gray Lady story.
Debit card relief: When you pay with a debit card, you're basically paying cash, right? Congress seems to have figured out that we shouldn't be paying a relatively high fee for what is actually an instantaneous money transaction. So from here on, the charges would be reduced. Stores will be happy; banks, not so much. Note that stores would continue to be able to charge minimums of $10 for credit- and debit-card usage.
Outsourcing derivatives: The giant Wall Street firms that engage in derivatives would have to outsource, or "spin off" those operations to another company under their umbrella. The direct impact on the consumer is sketchy at this point, but the hope is that it the move will create more transparency and prevent the credit-default swaps that flushed us down the financial toilet a few years ago.
Giving their word: Lastly, banks and brokerages would have to sign a vow that they will act in a way that puts our interests first. Isn't that what they were supposed to being anyway?