Financial Reform | Credit and borrowing for the average person
The financial reform bill passed by the Senate on May 20 intends to keep greedy Wall Street billionaires from taking advantage of the rest of us. But financial reform isn’t just about the big banks. It is about convenient access to credit, fair credit reporting information, an affordable mortgage, and how using credit and debit cards will affect the average person’s finances.
Will financial reform help the average consumer?
Several issues affecting everyday life are part of the financial reform bill. But what isn’t in the financial reform bill is important, too. Credit, when needed the most, was preserved after debate was rejected on an amendment regulating the pay day loans industry. And other aspects of the financial reform package may make a difference in the financial health of most Americans, including mortgage lending and debit and credit card fees.
Cheap pay day loans protected
Money lenders providing convenient access to online cash advances escaped restrictions on their business. Some politicians wanted to go after people who work for their money. The financial reform bill could have limited consumer access to same day cash advances and prohibited cash companies from offering additional products and services. Another provision forced federal regulation on the best practices of payday lenders, such as offering installment loans. Fortunately the Senate rejected the payday loan amendment.
Financial reform: debit and credit card use
Financial reform seeks to limit the fees banks charge retailers for debit card transactions. This could mean either lower prices, higher bank fees or both for consumers. The Christian Science Monitor reports that Visa and MasterCard charge retailers 1 to 2 percent of the cost of whatever people buy with their debit cards. That’s a lot more than what it costs for a computer at a bank to process the payment. The financial reform bill wants to make sure debit card fees are “reasonable and proportional to the processing costs incurred.” Or, in other words, lower. Retailers say they will pass the savings to consumers. But banks, deprived of such easy money, will probably turn the screws in other ways, such as increasing checking account fees. So it remains to be seen if the debit and credit card fee provision of the financial reform package delivers any benefits to most people.
Financial reform: mortgage loans
The financial reform bill could limit banks from lining their pockets when a borrower wants to pay off a mortgage early. For most mortgages, prepayment penalties would be allowed only in the first three years of the loan. For mortgages with balloon payments, prepayment penalties go away altogether. Plus, Reuters reports that the financial reform bill ends kickbacks to bankers and “liar loans,” two shady lending practices that led to so many bad mortgages in the housing bubble. Kickbacks known as “yield spread premiums” encouraged brokers to steer consumers into risky, high-interest loans even if they qualified for cheaper loans. Liar loans let consumers qualify for loans they could not possibly repay if they opted to simply state their income or other assets, rather than waiting for verification.
Financial reform: credit scores
Financial reform package provisions originally called for giving consumers free credit scores every year to go along with the three free credit reports, but this consumer benefit didn’t survive. However, the New York Times reports that an amendment requires those who use a credit score to deny credit to someone to give the score to that person free. When someone doesn’t have the best interest rate on a mortgage, credit card or auto loan, or gets stuck with a high insurance premium, they get to see the score that was used to make that judgment.
Payday loans: a credit score required
EZ credit check payday loans online often don’t require any sort of credit score. This is good because simply having one’s credit checked can have a bad effect on the credit score. A simple credit check payday loan allows a person to get the quick cash they need without waiting for approval or damaging their credit score. Plus, the money can be in their bank account within 2 hours upon approval. Better yet, for people who may have bad credit or no credit, paying back the online cash advance on time can help raise that credit score.