How does the Wall Street reform bill benefit consumers?
July 19, 2010
Last week, the U.S. Senate passed the Wall Street Reform and Consumer Protection Act by a vote of 60 to 39.
After Nancy Pelosi, speaker of the House of Representatives, signed the bill to concur with changes in the conference committee, the bill is headed to the President Obama for signature. Obama is expected to sign the bill.The bill steps up regulation of Wall Street. It creates a Consumer Financial Protection Bureau to aid consumers. It also includes measures to prevent further financial collapses.
The benefits of the bill, according to Consumer Watchdog.org, include:
Consumer protection
A first-of-its-kind regulator, whose sole job is consumer financial protection, will crack down on abusive lending and financial practices including mortgages, credit cards, payday loans, and bank accounts. Mortgage reforms include requirements that borrowers provide evidence of their ability to repay mortgages and prohibitions on compensating lenders for steering consumers into higher-cost loans. Strengthen reform by: Funding consumer participation in the new consumer bureau’s proceedings.
Accountable, transparent derivatives trading
Nearly all derivatives will have to be exchange traded and cleared, so trades have enough money backing them and regulators can spot problems before they threaten the entire economy. Commercial banks will be prohibited from trading in some of the riskiest swaps. Strengthen reform by: Closing the loophole to ban all swaps trading by taxpayer-backed commercial banks.
‘Volcker Rule’
Limits banks’ ability to speculate with taxpayer-insured deposits and prohibits financial companies from betting against their clients. Strengthen reform by: Closing the loophole to ban all speculation with taxpayer-backed funds.
Begins to tackle ‘too-big-to-fail’
Creates a new system to break up, rather than bail out, failing financial firms and make banks pay the bill. Strengthen reform by: Setting strict size and leverage limits and rebuilding the walls between investment and commercial banks.
Despite these positive changes, Public Citizen, a consumer advocacy organization, thinks the bill is just the first step in what is needed to rein in Wall Street.
Unfortunately, many important reforms are missing from the bill, according to Public Citizen. Some key elements were eliminated or weakened in the conference committee. These include limits on commercial banks owning hedge funds and the bulk of the requirement that commercial banks spin off their derivatives trading desks.In addition, the law needs to be carried out effectively by federal regulators or Wall Street will take charge of the financial system again.
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