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Financial reform and consumers: What to expect

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In July, President Obama signed into law a new financial regulatory reform bill that will have an impact everywhere from Wall Street to Main Street. While many of the law's provisions will not take effect immediately, consumers should be prepared to see changes in the credit arena and elsewhere now and in the future. The Minnesota Society of CPAs (MNCPA) offers some perspective on what you can expect.

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Landmark legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act has been called the most significant financial reform effort since the Great Depression. It was passed in response to the financial meltdown that occurred in 2008, which caused havoc in the stock and credit markets and sent shudders through the real estate market. The law is generally intended to tighten regulations to prevent another economic crisis in the future. While many of its provisions are aimed at big banks and other financial institutions, the law features numerous consumer safeguards.

New consumer watchdog

One significant initiative for consumers is the Bureau of Consumer Financial Protection, a new agency under the auspices of the Federal Reserve that will regulate most consumer lending and investment products to ensure greater transparency and fairness. The bureau, which is not expected to begin setting policy until early next year, will have the power to establish regulations for mortgages, credit cards and student and payday loans. It should also be able to issue rules in many areas without waiting for congressional approval, which could speed necessary reforms.

Revised mortgage rules

Many changes affecting mortgage lending have already become effective. For example, before approving a loan, mortgage lenders must verify that the customer can actually afford the payments based on his or her income, credit history and other factors. While it was often possible in the past to get a mortgage without an income check, this practice led to turmoil in the credit and real estate markets when many borrowers defaulted on their loans. The upshot is that you should still be able to qualify for a loan that is reasonable based on your income and circumstances, but those who are self-employed or have an irregular income stream may face stepped-up documentation requirements. Other mortgage rules attempt to prevent deceptive, abusive or unfair tactics, and make it easier for consumers to understand the details of the deal. In addition, the Emergency Homeowners Relief Fund, which should begin operating this month, will offer help to qualifying consumers who are having trouble paying their mortgages.

Bank deposit insurance

The new law also raised to $250,000 the amount that is insured when you deposit money in a bank, thrift or credit union covered by the Federal Deposit Insurance Corporation. This amount was temporarily hiked from $100,000 during the financial crisis in 2008, and under financial reform that increase has now become permanent. Couples are insured for a joint account as well as two individual accounts, meaning that up to $750,000 of their deposits are insured. CPAs advise that you confirm that your financial institution is FDIC insured so you know that your money is protected.

Consult your local CPA

The CPA profession's 360 Degrees of Financial Literacy website offers many tools to help consumers make sense of complicated financial decisions. And keep in mind that CPAs have a tradition of serving the public interest and advising clients on smart financial choices for themselves, their families and their businesses. Whether you have questions about the impact of financial reform or on any economic decision, turn to your local CPA for the advice you need.

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