What You Need to Know About Financial Services Reform

The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most extensive overhaul of laws governing our nation's lending institutions since the 1930s. Much has changed and will continue to change under this Act. Under the new legislation, if you are denied credit or if you are approved for a rate other than the rate your lender gives its best customers for that credit product – you are now entitled to receive a credit score along with other valuable consumer financial information. This means that for the first time, consumers who receive such a credit disappointment will be entitled to information from the lender, including their credit score, for free.

What Recent Financial Services Reform Means for You

Access to Free Credit Scores

• Consumers have the right to a copy of their credit score if they were turned down for a loan, or if they were offered a rate other than the rate that the lender gives its best customers.
• Since the FICO score is the score most lenders use, we recommend that you actively manage your credit using the tools on www.myFICO.com.

Mortgage

• You'll be less likely to be pushed into a risky loan with a high rate. Under the new provision, lenders are not allowed to pay mortgage brokers a commission based on an interest rate for a home loan. So there's not an incentive for a mortgage broker to put you into a high interest rate loan.
• Prepayment penalties are limited or prohibited, depending on the type of loan.
• Before your loan is approved, lenders are now required to determine if you realistically can pay your mortgage payments, factoring in insurance and tax – especially for a tricky adjustable rate mortgage.

Reduction of Interchange Fees and Use of Payment Cards

• "Interchange Fees" are fees that banks charge retailers when a customer pays with a debit or credit card. The new legislation will likely result in stricter limits on such fees associated with the use of debit cards. The legislation will not impact interchange fees associated with credit cards.
• The impact on consumers of the new interchange rate rules remains to be seen. Some say that retailers now will charge less for their goods and services.Others believe that banks may be forced to eliminate rewards programs that they offer on debit cards.
• Retailers may offer you a discount if you use cash, check, or a debit card rather than a credit card.
• Retailers will be allowed to require a minimum purchase for the use of a credit card, so start carrying cash for that cup of coffee.

Loans

• A newly-created federal agency called the Bureau of Consumer Financial Protection will have the authority to regulate mortgages, credit cards, payday lenders, check-cashing companies and lenders that provide private student loans.

More Information and Resources

Congress Passes Financial Regulation Bill – By David M. Herszenhorn – The New York Times

Financial Overhaul and You – By Sandra Block – USA Today

What the Dodd-Frank Act Means For You – By Leslie McFadden – Bankrate.com

News Release: "Dodd-Frank Wall Street Reform and Consumer Protection Act"
By the U.S. House Committee on Financial Services

The Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173)

OTHER HIGHLIGHTS

Consumer Protections with Authority and Independence: Creates a new independent regulator, housed at the Federal Reserve, with the authority to require that American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products.

Curtails Too Big to Fail Bailouts: Limits the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by: creating a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements; updating the Fed's authority to allow system-wide support but no longer prop up individual firms; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.

Advance Warning System: Creates a council to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.

Transparency & Accountability for Exotic Instruments: Provides for comprehensive regulation to the U.S. market for over-the-counter derivatives. In addition, it provides additional standards governing asset-backed securities, hedge funds, mortgage brokers and payday lenders.

Executive Compensation and Corporate Governance: Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and retirement packages.

Protects Investors: Provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

Enforces Regulations on the Books: Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system.