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What Financial Overhaul Means For Consumers

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What Financial Overhaul Means For Consumers

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What Financial Overhaul Means For Consumers

What Financial Overhaul Means For Consumers

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The death of veteran senator Robert Byrd has lawmakers wondering if the Senate will be able to pass legislation to overhaul the U.S. financial system this week, as previously expected. Host Michel Martin speaks with Tell Me More financial contributor Alvin Hall, and NPR Planet Money blogger Jacob Goldstein for more on the overhaul and what it means for Wall Street and consumers.

MICHEL MARTIN, host:

We're going to switch gears now and talk about matters of personal finance. Last week, House and Senate lawmakers agreed on a financial reform package that's being touted as the most significant financial reform effort since the Great Depression.

Now, passage of the bill is not certain. A vote by the full House could come soon, but the death of Democratic Senator Robert Byrd could slow things down in the Senate. But if this bill is passed, it would change a good many rules that directly affect consumers.

So we wanted to know more about how these changes would affect or could affect all of us. So we've called our TELL ME MORE regular contributor on matters of personal finance and the economy, Alvin Hall, as well as Jacob Goldstein, who's a blogger and correspondent with NPR's Planet Money team. And welcome to you both. Welcome back, I should say.

ALVIN HALL: Thank you.

JACOB GOLDSTEIN: Thanks very much.

MARTIN: Now, Alvin, I'm going to ask you, what's the most important thing about this bill if it should pass?

HALL: The most important thing to me relates to mortgages. It would stop all of the selling of mortgages that pay high fees to the people who promote them, and it would stop this prepayment penalty. I think that for the average person who wants to get on the property ladder and (unintelligible) this is important. And with the establishment of the Consumer Financial Protection Bureau, at least they have the framework of some organization that will start to look at these financial products and financial practices from the consumer's point of view.

MARTIN: Now, Jacob, an office of credit ratings has been created. Now, that's meant to supervise rating agencies. What would that do and why is that important to consumers?

GOLDSTEIN: Well, it's important because the credit agencies, they really fell short during the boom. You know, there are a few big credit rating agencies: Standard & Poor's and Moody's, and they gave very, very high ratings to these bonds that were full of mortgages, basically saying these are super safe investments.

Well, as it turned out, they weren't that safe, and lots of people lost a lot of money on it and that was a really key piece of the financial crisis. In fact, though, the bill ultimately was not as tough as it might have been on the credit rating agencies. It is true that now investors who feel they were burned by a bad rating from the rating agencies can sue the credit rating agencies. But it's really unclear how powerful this new office is going to be.

The bill called for a study of rating agencies and, you know, really in Washington, when somebody calls for a study, they're saying, let's just put this off. We don't really want to deal with it right now.

MARTIN: Yeah, kick the can down the road.

GOLDSTEIN: There really is some of that with the rating agencies and the bill.

MARTIN: Alvin, what about you? If you'd pick up where Jacob just left off, where does this bill fall short in your view from the consumer standpoint?

HALL: A lot of the provisions are being phased in over a period of time and I worry that the lobbyists will get to the lawmakers and gradually water down these bills. Also, I really worry about who's going to work at this new bureau.

Jacob and I were talking and I said, typically you find that the people they put in place are politicians or people with political agendas. So they'll hire people that they know. Will they put people in these organizations who really understand the needs of the average person?

One of the things that Jacob mentioned to me before we went on air was about people at small bodegas who already set credit card limits on the amount that they would set. The fact that they would put this into law and the lawmakers did not seem to know that there were already firms doing this seems clueless.

MARTIN: I think what you're talking about is the bill allows business owners to set minimums on credit card transactions.

HALL: Yes.

MARTIN: Up to $10.

HALL: $10, yes.

MARTIN: Are you saying that they couldn't do that and you were just saying, small business people do that already.

HALL: All the time.

MARTIN: All the time.

GOLDSTEIN: I was actually sort of confused when I read that this was in the bill 'cause so just to be clear the new rule says, hey, you know, a merchant, a storeowner, if you accept credit cards, you're allowed to say, we only accept credit cards if you're buying $10 or more. And I actually thought, like, I was reading it wrong because, like, every corner store you ever go into, they won't let you use a credit card for, you know...

HALL: Exactly.

GOLDSTEIN: ...a bottle of water or whatever. You got to spend $10. But it turns out that's been illegal, but it's sort of irrelevant, its a law that nobody followed.

MARTIN: There's another thing I was curious about is that auto lenders are apparently not covered under this Consumer Financial Protection Bureau. And, Jacob, do I have that right? And why is that?

GOLDSTEIN: Well, that was actually one of the big debates and that was going back and forth until the last minute in this bill. And one interesting detail about that was actually the military was really pushing hard for auto dealers to be included in this. And it's because auto dealers are actually a big source of credit to a lot of working people.

You know, you go buy a car and they say, we'll give this to you with no money down, we'll make you a great loan package. So essentially they are acting like a financial institution, right? Because they are basically giving you a loan to buy that car. And there was a lot of debate about, you know, are they or are they not financial institutions? And they ultimately won a carve out from the bill and are not covered by some of the provisions.

MARTIN: And are not covered. So, Alvin, I'm going to ask you for an opinion about whether this is a net positive or a net negative for consumers. Do you think at the end of the day, despite the fact that you'd take issue with some of the things that are not in the bill and things that you feel might be watered down, do you think it's a net positive from your perspective?

HALL: I do think it's a net positive. I think the people who get bad credit interest rates on their credit card or are turned down for mortgages or turned down on an apartment because of their credit score, they can at least get their credit score.

The provisions that say that these institutions now have to act at least some of the time in your behalf, in your best interest, that's good. I think anytime you have an organization focusing on the needs of the consumers rather than the needs of business at the fault of the consumer, I think it's good.

MARTIN: And then, Jacob, I'm going to ask you, what is the likely ongoing pushback to this? Because obviously the argument has been all along that whenever you add an additional layer of bureaucracy, the cost it drives up the costs for consumers, it drives up it makes things less convenient for consumers, et cetera. That is the perspective.

So, what - are there likely areas that people who oppose this bill are likely to pursue in the days ahead, even as I said, the passage of the bill is not certain.

GOLDSTEIN: Well, you know, one argument that a lot of people make is fewer people are going to be able to get loans, right? If you make it harder to give loans, if you add new rules about giving loans, if you add costs to the banks, they'll say, we won't be able to give as many people loans, and when we do give loans, the interest rates will be higher.

You know, on the other hand, to just turn it back around again, I think there's a reasonable argument that during the boom, a lot of people got loans they shouldn't have been getting in the first place. Alvin had mentioned mortgages as one of the things that will change the most for consumers as a result of this bill. And I certainly agree with that.

And, you know, one of the provisions of the bill says the banks have to try and make sure that somebody can pay a mortgage back before they give them a loan, which is ridiculous on its face, right? Like, you need a law for this? But it's really a sign, I think, of how loose credit had gotten, and you know, the fact that, yes, it will be a little bit harder to get a loan now. And that may be appropriate.

MARTIN: Okay, more later. We'll come back to you guys when the bill finally passes and we can talk more.

Jacob Goldstein is a blogger and correspondent with NPR's Planet Money team. Alvin Hall is our regular contributor on matters of personal finance and the economy. They both joined us from our bureau in New York. Gentlemen, thank you.

HALL: You're welcome.

GOLDSTEIN: Thanks very much.

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