New Financial Reform Impacts Us All

If you are like most of us, chances are you have a credit or debit card and maybe even have bought a house or taken out a car loan.  The rules regarding those financial tools, and many more, will be impacted by the new federal financial reform law, the “Dodd-Frank Wall Street Reform and Consumer Protection Act” which was signed by President Obama on July 21, 2010. 
Below is a useful summary as printed in the Times Union on July 25, 2010.  We will provide you more information as it becomes available. 
Financial reform changes some rules on Main Street and Wall Street
By SPENCER GAFFNEY, Hearst Newspapers
WASHINGTON — President Barack Obama on Wednesday signed into law the most wide-ranging reforms in the U.S. financial system since the 1930s.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which puts government hands on everything from credit card rules to derivatives trading, is named for Sen. Chris Dodd, D-Conn., who has announced he will retire when his current term expires, and Rep. Barney Frank, D-Mass.
The reforms will hold Wall Street accountable so we can help prevent another financial crisis like the one that were still recovering from, Obama said.
Here are some of the ways the nearly 2,000-page Dodd-Frank bill law change the way both Main Street and Wall Street do business.
Old System: Unlike credit cards, where the user borrows money from the creditor and pays it back at the end of the month, debit cards are directly tied to money in the cardholders bank account. When a customer uses a debit card, banks charge retailers a fee, called an interchange fee.
New System: Dodd-Frank will empower the Consumer Financial Protection Bureau (CFPB), a new government agency under the Federal Reserve that will police lending, to cap interchange fees charged by banks with assets worth more than $10 billion. Retailers also will be allowed to set maximum and minimum purchases for debit card users.
Why Change?: Sen. Dick Durbin, D-Ill., says that the fees banks charge for debit cards, roughly one or two percent of the purchase, are too high. These fees are a huge business for big banks, which collected almost $20 billion dollars in fees last year. Small business owners say they lose money when people purchase small items.
Old System: A key cause of the financial meltdown stemmed from subprime mortgages, which are home loans with high interest rates made to people with bad credit scores. Lenders were allowed to engage in NINA loans (No Income/ No Asset) where the borrower didnt have to prove he could pay back the loan.
New System: Mortgage lenders now must obtain proof of a borrowers ability to pay back the loan and borrowers will have to provide proof of income. Mortgage lenders must disclose how high the interest rate can go in an adjustable rate mortgage.
Why Change?: During the housing bubble, mortgage lenders made loans to increasingly less credit-worthy people. The policy was fine as long as house prices kept going up — home owners could use their now more valuable home as collateral to take out a newer, bigger line of credit and pay off their old mortgage. But when home prices started to stall, people who probably couldn’t afford a home in the first place started to default on their mortgages. The housing bubble popped and brought down the economy with it.