Financial reform and your wallet

In my last article, I touched on some of the changes in the "Dodd-Wall Street Reform and Consumer Protection Act" that will affect you. The 2300 page bill will have some impact on just about every aspect of your finances, so let's take a look at the some of the potential good in the bill.

First, there will be a new watchdog agency called the Consumer Financial Protection Bureau. This agency will regulate financial products and services like mortgages, credit cards, student loans and debt collections. Before, existing regulation was scattered among at least a half dozen different agencies whose primary focus was the soundness of financial institutions and not the consumer. The hope is that one agency will be a step in the right direction for individual investors. The negative is that this is another government agency and will most likely be similar to other bureaucratic agencies already in existence. Anyone who has tried to call the Social Security Administration will understand that often it can be frustrating to deal with such agencies and that nothing ever seems to happen quickly.

Next, the consumer will get more protection from predatory lenders. Although lenders have already adopted a tougher underwriting standard after the subprime disaster, the aim is to permanently restore a vested interest along the lending chain. Before, the originator sold the loan immediately, so they had little reason to be concerned with the quality of the borrower. There will be no more incentive to steer a borrower into a more expensive mortgage or a loan with prepayment penalties. If you choose a variable rate loan, the lender must tell you the maximum you could end up paying. Also new home appraisal rules will ensure that you get an independent appraisal. There will also be a study of reverse mortgages to determine whether additional protections are needed for seniors.

One thing that had always bothered me is how difficult or expensive it is for a consumer to access their credit score. The bill will entitle you to access to your credit score for free, but only if it negatively affects you in a financial transaction or a hiring decision. I feel that since the score is "yours", why is so hard for you to know what it is, since it has an affect on almost everything you do anymore? You are still entitled to a copy of your credit report once per year for no charge.

There will be changes in minimum purchase requirements on a credit card now. You will need to keep some cash on hand since there will be a minimum of $10 that must be purchased before a credit card can be used. Colleges and federal agencies will be allowed to impose ceilings on credit card purchases. This could limit big purchases being put on a credit card, so those who use credit cards to earn points or miles are going to be very unhappy. There will also be caps on the amount merchants pay banks every time a debit card is swiped. This could pave the way for retailers to offer debit card incentives or it could lead to scaling back of debit card rewards.

Other incentives will be in the student loan sector. Private student loans from banks as well as loans from for-profit career colleges will come under the oversight of the new consumer protection agency. There will be an ombudsman to give students a place to turn for help. Hopefully this will assist students in getting a better deal and perhaps needing less in loans.

Federal deposit insurance limits that recently were raised from $100,000 to $250,000 during the financial crisis will remain at the $250,000 level for banks, thrifts and credit unions. This insurance is per account vesting, so you will not have to spread your money out to as many institutions as you previously had to in order to keep your accounts insured. That will save you some gas money.

Unfortunately, investors won't gain much from the reform bill. You will still have to worry about flash crashes and high frequency trading. As I mentioned in my last article, the same agencies who were in charge of regulatory enforcement will still be responsible. They will just have much more to deal with and my concern is that this will make enforcement even slower that it currently is. A few highlights will be arranging for an orderly shutdown of institutions that are "too big to fail." This may help stop the fear of contagion that sparked the meltdown in 2008. There will also be expanded disclosure requirements on hedge funds. We will now know how they have invested their assets, something that always was a mystery and concern in the past. A proposed creation of exchanges for derivatives will increase transparency for these markets.

Shareholders will get some relief from the sting of executive pay by allowing publicly traded companies to "claw back" bonuses paid to executives who behave badly. The shareholder will also get a nonbinding vote on executive pay and golden parachutes.

Last but hardly least is the unfinished business of holding everyone in financial services to a fiduciary standard. Currently, brokers owe their allegiance to their employer and not their client. To me this is common sense and the right thing to do and it amazes me that legislation is required to accomplish what basic ethics cannot.

This bill, as time reveals it's many facets will change much of the way we do financial business. Whether it is for the better is still left to be seen.

• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol_perry@worldnet.att.net.