The Financial Reform Bill contains rules designed to protect consumers and prevent another financial meltdown. The bill includes:
- Formation of Consumer Financial Protection Bureau: A new independent agency (housed in the Federal Reserve) will be formed. Not only will the Bureau write out rules to govern the practices of mortgage providers, banks and other financial institutions, they The will also review the current policies in place for mortgage lenders and financial institutions with over $10,000,000 in assets.
- Reduce Minimum Credit Card Purchase Requirements: For decades, big banks set the minimum credit card purchase values. A standard $10 minimum charge would be set in place and only the Federal Reserve can modify the limit.
- Shared Information: Lenders rely on credit information to determine the risk factors and interest rates they charge consumers. Financial Reform will make it mandatory for loan providers to tell you the reasons surrounding loan application rejections as well as provide you with your free credit score.
- New Mortgage Rules: Mortgage lenders will be legally required to verify a borrower's income, credit history and employment status before approving a home loan.
- Loan Ownership: To prevent banks from passing on toxic mortgages, they have to keep at least five percent of the loans they make on their own books. Right now, they can sell all their contracted loans and mortgages to investors.
- Responsibility: Financial advisers will be legally required to not only act on the behalf of their clients, but also disclose any connection regarding how they can profit from the transaction.
Why is Financial Reform Necessary?
President Obama has stated financial reform was needed to help strengthen the economy. Reuters.com reported the president as saying "We know that wise regulation actually can enhance the market and make our economy better. We can't return to the dereliction of duty that helped deliver this recession."
The new laws will curtail the predatory behaviors of big lenders and will force them to take financial responsibility for the deals they make. Many of the new rules are designed to limit the predatory lending associated with the sub-prime mortgage industry and will make the mortgage application process even more challenging.
Financial Reform Passed
The Dodd-Frank Wall Street Reform and Consumer Protection Act passed in July of 2010. President Obama signed the act into law soon after. The final vote included 55 votes from Senate Democrats, 3 votes from Senate Republican votes and two votes from Independents.
