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The U.S. House of Representatives has voted to roll back key aspects of the landmark Dodd-Frank Act, which was passed to address banking industry excesses after the financial collapse of 2008. The Senate passed the measure in March, and it will now go to President Donald Trump for his signature.
You may have heard about the bill’s impacts for the banking industry, but some of the bill’s changes could also affect your pocketbook.
No-cost credit freezes
Under the measure, consumers would be able to place and remove freezes on their credit files for free. Such actions could cost up to $30 if requests are made of all three major credit-reporting agencies, according to John Ulzheimer, a credit expert who has worked for FICO and Equifax.
Credit freezes restrict access to your credit report and can prevent thieves from using your stolen information to open new accounts. A 2017 data breach at credit-reporting agency Equifax affected nearly 148 million U.S. consumers and sent many rushing to freeze their credit.
Some consumer advocates say the change may not be as consumer-friendly as it seems.
“The free credit freeze is nominally pro-consumer, but it preempts stronger state laws,” says Ed Mierzwinski, senior director for consumer programs at the U.S. Public Interest Research Group, a public interest advocacy organization. According to a release from U.S. PIRG, in several states — including California and New York — credit freezes are applied to credit checks for employment and insurance, “where identity theft can be a problem.”
Under this measure, freezes would only apply to checks made by creditors during applications for new credit. And, U.S. PIRG says, states could no longer pass stronger laws in the future.
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For those in many states, though, this bill is an improvement on current laws, according to Ulzheimer. You are "a safer consumer" when your credit reports "have been taken out of circulation," he says, "and if there's no cost to do that, then that's great."
Your state will have more information on specific credit freeze policies — your attorney general’s website is a good place to start.
The legislation also extends fraud alerts from 90 days to a year for consumers who have had their identity stolen. Fraud alerts require businesses to take extra steps before giving out credit in your name.
Loosened mortgage regulations
The legislation would protect banks and credit unions with less than $10 billion in assets — up from the current $2 billion — from some legal liability when writing mortgages, including those for borrowers who carry a high amount of debt or who otherwise wouldn't meet more stringent borrowing requirements. Typically, financial institutions prefer borrowers whose debt payments make up no more than 43% of their monthly incomes.
For Ryan Donovan, chief advocacy officer for the Credit Union National Association, this means flexibility for borrowers who might be having a hard time qualifying for a mortgage. Credit unions and banks “might be able to work with a borrower to get them in a home,” he says.
Debt-to-income requirements are “a big deal” for consumers, according to Alys Cohen, staff attorney at the National Consumer Law Center, a group representing low-income consumers. To avoid ending up with a mortgage they can’t afford, borrowers should do their research before going into the mortgage process. And once you’re in progress, “ask a lot of questions about the terms of any loan payments to ensure that (you) understand all the moving parts,” Cohen says.
Fewer regulations for midsize banks
The bill, formally known as the Economic Growth, Regulatory Relief and Consumer Protection Act, also rolls back some high-profile rules implemented after the last financial crisis and aimed at the banking industry. The legislation:
Would increase the threshold at which banks have to comply with certain regulations, including yearly “stress tests” by the Federal Reserve, from $50 billion in assets to $250 billion. Midsize banks would no longer be in the category of “too big to fail” and would now face lower levels of scrutiny over their stability and preparedness for another downturn.
Would allow banks with less than $10 billion in assets to engage in proprietary trading, or trading with the bank’s own money instead of consumer deposits. These types of transactions were associated with bank failures in the last recession and were prohibited by the so-called Volcker Rule.
Consumer groups see these changes as removing needed scrutiny from banks.
“Banks (with between $50 billion and $250 billion in assets) played a role in the financial crisis 10 years ago,” says Carter Dougherty, communications director of Americans for Financial Reform, a nonprofit coalition of more than 200 organizations advocating for financial regulation.
It’s too soon to tell how the new regulations would affect financial institutions — and trickle down to consumers — but consumer advocates aren’t optimistic. “At a time when banks are making record profits … that’s not the time when you should be handing out favors,” Dougherty says.
But banking groups and some lawmakers say the new bill will benefit community banks and credit unions by removing from them regulatory requirements more properly aimed at bigger financial institutions. Relaxing these restrictions, they say, will help consumers.
“There are a host of other things that this legislation will do that will help folks on Main Street,” says CUNA’s Donovan.