How the House and Senate Versions of the New Finance Bill Affects Consumers
If you are struggling, amidst all of the newspaper articles, blog posts and nightly television news sound bites surrounding the topic of financial reform, to understand what the House and Senate are doing – and how it is likely to affect you, here is a quick summary of what the new law may do:
Both the House and Senate versions of reform call for the creation of a new consumer protection agency. The agency would oversee many consumer loans and work to make the products more financially transparent. The new agency would write and enforce rules protecting consumers of financial products like checking accounts, mortgages and payday loans. The Senate bill gives the federal regulator broader authority and places regulators under the authority of the Federal Reserve, while the bill being considered by the House creates a free-standing regulator.
The Senate version of the finance bill could affect how you use your credit card. The bill specifically allows stores to set minimum purchase amounts for customers using credit cards, so long as they do not require different minimums for different card issuers. Businesses would be allowed to pass on the differing fees that they are charged by card issuers to customers, or to give discounts for certain types of cards, such as debit cards. The bill even suggests that discounts for using cash are acceptable.
The Senate bill requires anyone who uses your credit score as a reason for denying credit to furnish the credit score used to that person free of charge. The House version does not include this provision.
Both bills makes three changes to the way mortgages are issued. Mortgage lenders would face restrictions on when they can charge borrowers a penalty for paying off certain types of loans early, including mortgages that have balloon payments or for negative amortization loans. For more traditional types of mortgages, prepayment penalties would be allowed only in the first three years. The bills also regulate the amount of money loan brokers can earn for originating mortgage loans. These reforms aim to protect consumers from some of the abuses of past years, when banks paid mortgage brokers extra for putting customers in loans with higher fees and terms. The bills also require lenders to consider applicants’ income, assets and credit history before making a loan, instead of assuming that lenders would do this anyway.
For the first time, federal oversight of derivative trading would be the law. Derivatives are complex products that bet on the future movement of underlying securities. The Senate version of the bill bars banks from derivatives trading completely.
The financial reform bills authorize regulators to impose restrictions on large, troubled financial companies – so called “too big to fail” companies. Under the reforms currently being considered, there would be a process for liquidating failing companies, similar to the way the F.D.I.C. Currently oversees the liquidation of failed banks.
The Senate’s bill also includes the Volcker Rule, which President Obama proposed in January, after the House bill had already passed (the House bill does not contain any version of the Volcker Rule). This change restricts banks from making investments that do not benefit customers, such as certain investments in hedge funds and private equity funds.