Flexo posted a good review of the major changes in the Wall Street Reform bill that passed through Congress yesterday, and mentioned that it will be some time before we know exactly how the regulations which are now possible will be written. But there are some reasonable guesses we can make, and I thought it would be helpful to cover some of the changes that may affect the average American (as opposed to large financial institutions and credit rating agencies), in order of likelihood.
There will be an Office of Financial Literacy created to teach Americans about savings, loans, liens and fees. There are a lot of complicated details involved in large purchases. This office, as well as other parts of the bill, intend to simplify such transactions as well as provide greater clarity to consumers. There will also be a new national consumer complaint hotline (toll-free, of course) for Americans to report problems with financial products and services.
Interchange (swipe) fees
As Flexo already reported, swipe fees will be studied and could be capped at a lower rate than they currently enjoy. American rates are at least four times higher than other countries, for the same service. This should mean that smaller Mom and Pop stores will find it easier to stay open, and merchants will be allowed to offer discounts to their customers for paying with methods that cost the stores less to process. Stores are also now allowed to designate a minimum purchase required to use plastic, which many stores were doing anyway.
Interest paid on checking accounts
I knew it was rare for checking (or demand deposit) accounts to pay interest, but I didn’t realize it was prohibited. The new law removes that prohibition.
According to MSN Money:
Many of the trades that in the past have been hidden from regulatory scrutiny will now be forced onto exchanges, where transactions will be more transparent.
For example, gas prices might’ve been as high as they were in the summer of 2008 not because of normal supply-and-demand, but because of hedge funds and speculative stock purchases. Since these deals won’t be happening in secret anymore, it should be less likely to happen.
Stock brokers acting in your best interest
In an earlier draft of the legislation, people you pay to recommend stocks and mutual funds would’ve been legally obligated to act in your best interest, recommending purchases that got you the most for your money instead of in your suitable interest, recommending purchases that benefit you a little, but also the broker quite a bit. This clear directive didn’t make it into the final law, but it does give that authority to the Securities and Exchange Commission, after a six-month study.
Buying a home
Institutions must be able to document a buyer’s ability to repay a home loan. In addition, financial incentives that encouraged loan companies to steer buyers into more costly loans will be prohibited.
TARP program shut down
The Troubled Asset Relief Program from 2008, probably the least popular government initiative in a generation, is shut down effective immediately, instead of waiting for its expiration date on October 3rd.
An end to Too Big to Fail
The new law provides the government the authority to break up institutions which are failing and sell their assets in order to recoup the cost of dissolving them. I put this at the bottom of the likelihood list, since nobody really expected “too big to fail” to happen the first time. Nobody who had a loud enough megaphone, anyway. In addition, the law clearly states that taxpayers will not be responsible to save a failing financial company or to cover the cost of its liquidation. Many of the complaints surrounding the 2008 bailout were along the lines of “these institutions will just continue to take risks because they know the public will foot the bill.” But now that would be illegal.
Factbox: Long to-do list ahead for financial regulators, Reuters, July 15 2010
What Financial Reform Means to You, Stacy Johnson, MSN Money, July 15 2010
Dodd-Frank Wall Street Reform: Conference Report Summary, United States Senate Commission on Banking, Housing & Urban Affairs