The Top 10 Things You May Not Know About the Wall Street Reform and Consumer Protection Act.
Here are 10 aspects of the Wall Street Reform and Consumer Protection Act you may not know about -- the online attention-deficit version.
- Stronger protections for consumers against unfair credit card practices like rate hikes for existing credit card balances.
- Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.
- Free annual credit scores so people can stay on top of their finances. [Clarification: free credit scores are available if you receive worse terms on a loan because of something on your credit report, or if you are rejected.]
- No more taxpayer-funded bailouts. If a company can’t make it, it will have to liquidate.
- Greater input by company shareholders over how much a CEO gets paid. And companies’ compensation boards are now required to be truly independent.
- Brokers who offer investment advice will have to act in the best interests of their customers, not their own financial interests.
- Financial firms won't be allowed to grow so large that if one fails, it will affect the entire financial system.
- There will be one agency whose sole job is to make sure that consumers get the protections they deserve and to set clear rules to hold banks, mortgage companies, payday lenders, and credit card lenders accountable.
- Businesses can't be charged extra fees for debit card “swipe fees” that exceed the cost of processing transactions.
- You can learn plenty more below or at WhiteHouse.gov or at financialstability.gov
- Updated: To tack on #11, here's a new animated video released to further explain Wall Street Reform.
Wall Street Reform
It has now been two years since the collapse of Bear Stearns and more than a year since the financial crisis peaked. Trillions of dollars in household wealth were erased and over 8 million jobs were lost, in large part, because of failures in our financial system. That failed regulatory system will now come to an end. The Obama Administration has made Wall Street reform a top priority since day one, and it will now become a reality. Wall Street Reform will hold Wall Street accountable, protect and empower American consumers with the strongest consumer protections ever, increase transparency in financial dealings -- including in the derivatives market -- and end taxpayer bailouts once and for all.
1. Holding Wall Street Accountable
The financial crisis was the result of a fundamental failure from Wall Street to Washington. Wall Street took irresponsible risks that they didn’t fully understand and Washington did not have the authority to properly monitor or constrain risk-taking at the largest firms. When the crisis hit, they did not have the tools to break apart or wind down a failing financial firm without putting the American taxpayer and the entire financial system at risk.
Taxpayers Will Not Have To Bear The Costs Of Wall Street’s Irresponsibility. If a firm fails in the future it will be Wall Street – not the taxpayers – that pay the price.
“Proprietary Trading” Will Be Separated From The Business of Banking. The “Volcker Rule” will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. Responsible trading is a good thing for the markets and the economy, but firms should not be allowed to run hedge funds and private equity funds while running a bank.
Ending Bailouts. No firm should be “Too Big To Fail”. Reform will constrain the growth of the largest financial firms; restrict the riskiest financial activities; and create a mechanism for the government to shut down failing financial companies without precipitating a financial panic that leaves taxpayers and small businesses on the hook.
2. Protecting American Families From Unfair, Abusive Financial Practices
Too many responsible American families have paid the price for an outdated regulatory system that left our financial system vulnerable to collapse and left families without adequate protections. We must protect and empower families with the strongest consumer protections ever.
An Independent Bureau of Consumer Financial Protection Will Set And Enforce Clear, Consistent Rules For The Financial Marketplace. A single consumer bureau will set clear rules of the road and ensure that financial firms are held to high standards. For example:
- For families who want to buy a home: The piles of forms needed for a regular mortgage can be overwhelming, and many brokers have taken advantage of that confusion to give borrowers loans they didn’t need or couldn’t afford. The new consumer financial protection bureau will take steps to consolidate and simplify with plain language two overlapping and sometimes inconsistent federal mortgage forms. The bureau will, for the first time, provide ongoing federal oversight of both nonbank companies and banks in the mortgage market and protect borrowers from unfair, deceptive or other illegal mortgage lending practices.
- For families with credit cards: The new consumer financial protection bureau will enforce the new credit card law signed by President Obama that bans rate hikes on existing balances and other unfair practices. For families who have used credit cards to get by when times are tight, the law will give them clarity on the interest rates they are charged.
- For families caught by unexpected overdraft fees: Many households have been automatically enrolled in expensive overdraft programs. These programs can hit consumers with costly overdraft fees for even the smallest purchases. For example, the FDIC found that the average overdraft charge for a single purchased item—like a $2 cup of coffee—is $30 at banks with assets more than $1 billion. The new consumer financial protection bureau will enforce new rules that give consumers a real choice as to whether to join expensive overdraft programs so that they are not unknowingly charged unnecessary fees. [FDIC, “FDIC Study of Bank Overdraft Programs” (November 2008) at Table IV‐3]
Until Now, There Have Been Seven Different Regulators With Authority Over The Consumer Financial Services Marketplace. Accountability has been lacking because responsibility is diffuse and fragmented. In addition, many mortgage lenders and mortgage brokers were almost completely unregulated. All that will change..
3. Closing The Gaps In Our Financial System
We depserately needed to modernize our financial system and take the necessary steps to close the gaps in our system and eliminate regulatory arbitrage.
Reform Will Address the Gaps that led to Regulatory Failure – At Its Peak, The “Shadow Banking System” Financed About $8 Trillion In Assets. In the lead-up to the financial crisis, our regulatory system as a whole failed. One of the greatest weaknesses of our financial system was the risk that built up in the “shadow banking” system where there was explosive growth in a range of financial firms that acted much like banks – but operated without oversight.
Market Discipline Was Not Enough. Relying on market discipline to compensate for weak regulation and then leaving it to the government to clean up the mess was not a good strategy for economic growth nor financial security.
Our Financial System Will Have Clear Accountability. There is no substitute for vigorous, consistent enforcement of the laws governing the financial system. But each regulator should have a clear mission and the authority to execute that mission.
- Gaps and loopholes that allowed large firms like AIG to avoid strong, comprehensive federal oversight will be eliminated.
- To achieve accountability, one entity will have the responsibility and the authority to supervise the most complicated firms.
4. Reform is Critical to Market Certainty and Stable Growth
Reform is central to providing a foundation for stable growth. Our financial system is most competitive when our system is stable, resilient and transparent.
Reforms Will Make The Financial Industry And The Markets They Operate In Stronger, Safer, And More Competitive.
- Clearer accountability in supervision and regulation so that financial firms can operate under a coherent set of rules and expectations without the current regulatory arbitrage opportunities that allow some firms to “game the system.”
- Stronger capital buffers to increase the ability of financial companies to weather the ups and downs of financial markets.
- Lesser concentration of risk among the largest financial firms so that any one firm can fail without creating a domino effect throughout the entire financial system that jeopardizes jobs, family savings and the entire economy .
- Greater transparency in the derivatives market that will make the system safer by providing regulators with the data they need to manage systemic risk and help ensure the integrity of financial markets so we can prevent future AIG-like disasters.
Comprehensive Reform Will Help Generate Innovation And Economic Growth. A key test of a strong financial system is whether or not it effectively channels savings to finance future innovation. The old system produced waves of credit bubbles and real estate booms followed by severe financial shocks and damage. Under reform, the financial system serve not only short-term profits, but long-term growth, entrepreneurship, and savings.
Leading the Way on International Financial Reform. We have worked in parallel with our international partners to make sure that as we move to reform and strengthen our financial system at home, the G20 is moving to implement reforms to achieve a level playing field.