What Affect will the Wall Street Reform Legislation have on Taxpayers?

After a long battle in the Senate, President Barack Obama finally signed the Wall Street Reform bill into law on July 21, 2010. The historic legislation includes plenty of new laws that apply to large financial firms, but will also have a significant impact on U.S. taxpayers. The contents of the bill changed frequently as the legislation made its way through Congress, so I wanted to make sure and explain the impact of the new law to all of my readers.

Taxpayer Funded Bailouts

One of the biggest goals of the new law is to prevent any future taxpayer-funded bailouts. The President has promised that no big banks will ever be bailed out at the American taxpayers’ expense. In fact, federal regulators now have the ability to disassemble a financial institution that could pose a threat to the economy. This does not mean that they will go around closing random banks- experts predict the authority will only be used for situations that need a quick solution.

Credit Card Fees

Starting in 2011, a hand full of new rules will take affect that are going have a significant impact on credit card companies. The new restrictions aim to get rid of undisclosed fees and soaring interest rates. However, there is a provision in the legislation that will allow businesses to setup minimum purchase requirements of $10 for credit card transactions.

Consumer Disclosure

To provide additional protection to American consumers, the law will introduce a set of consumer disclosure laws. They will prevent banks and other financial institutions from misleading customers to enhance their own profits. This also means that as a consumer you now have the right to more information about your finances, such as easy access to a free credit report.

Bureau of Consumer Financial Protection

One of the most debated parts of the financial reform bill was a new division it created: the Bureau of Consumer Financial Protection. President Obama has not yet selected a person to lead the new bureau, which will have an impact on how the agency acts. The committee will have an annual budget of $500 million, and the ability to act without Congress approval. Front runners for the leader include Elizabeth Warden, chair of the Congressional Oversight Panel; Eugene Kimmelman, a Deputy Assistant Attorney General in the Justice Department; and Michael S. Barr, an assistant Treasury secretary.

Small Business Relief

A lot of small business owners have become frustrated as they watched large financial institutions get huge bailouts, while they had to struggle without any government assistance. To help these small business owners, new rules have been included in the legislation which aim to increase funding for small business loans.

Mortgage Changes

Several changes have also been made to the way mortgage lenders can run their business. In the past, lenders could take commissions or bonuses for putting a client in a riskier but more expensive loan. However, this act is now illegal, and there will also be a new cap on mortgage origination fees, as well as requirements for all lenders to check borrowers assets and income.

Obama Signs Wall Street Reform Into Law

As was expected, President Obama signed the new financial reform bill into law earlier today. The bill, which was over a year in the making, will be used to regulate financial institutions and protect the U.S. consumers and taxpayers.

"These reforms represent the strongest consumer financial protections in history," President Obama said. "And these protections will be enforced by a new consumer watchdog with just one job: looking out for people - not big banks, not lenders, not investment houses - in the financial system."

In a major signing ceremony at the Ronald Reagan Building in Washington, President Obama was flanked by a number of lawmakers who worked on the legislation, including Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., the two committee chairmen who sponsored the bill.

The new law attempts to shine a light on complex financial products called derivatives and immediately gives regulators stronger powers to break up financial companies that have grown too big.

Among its many provisions, the law also creates a new consumer protection agency which would set rules to curb unfair practices in consumer loans and credit cards.

Continue reading at CNN.com…

Wall Street Bill Clears Crucial Senate Hurdle

Despite many doubts, the historical financial reform bill passed a major hurdle in the Senate today. 60 Senators voted in favor of the legislation, which gave it enough support to overcome a filibuster. According to Retuers.com, President Obama intends to sign the bill into law next week.

Senate leaders set a series of final votes for 2 p.m., with passage looking assured. President Barack Obama, who proposed reforms more than a year ago, has said he wants to sign the measure into law next week.

Republicans who largely oppose the measure could delay a vote until Friday evening, though they are unlikely to do so.

The House of Representatives has already approved the bill, which tightens regulation across the financial industry in an effort to avoid a repeat of the 2007-2009 financial crisis.

'Too Big to Fail' Banks May Try to Get Smaller

From CNNMoney.com:

Wall Street appears to have beaten Washington to the punch.

While lawmakers enter the home stretch on regulatory reform with Thursday's Senate vote, the financial industry has already started to shake up how it does business ahead of the proposed new rules.

Just last week, Wells Fargo (WFC, Fortune 500) said it planned to shutter its more than 600 Wells Fargo Financial stores across the country and announced it was no longer going to make mortgage loans to people without stellar credit.

And on Tuesday, Citigroup (C, Fortune 500) said it had struck an agreement to transfer the management of part of its private equity business to outside parties StepStone Group and Lexington Partners.

Neither Wells nor Citigroup acknowledged that the moves were prompted by the proposed legislation which is expected to be signed into law by President Obama as early as next week.

Wall Street Bill Moves Toward Final Test in Congress

Senator Harry Reid is expected to bring up the historical financial reform bill in Congress today, but the votes necessary for it to pass by the end of the week are not there to support it. While there are still Senators who have not decided how they will vote, experts are worried Reid may fall short of the 60 votes needed to clear an expected filibuster by Republicans.

Reid picked up the support of three Republican moderates on Monday, but Democratic Senator Ben Nelson said he still had questions about the bill. In addition, the seat of the late Senator Robert Byrd is likely to remain vacant until next week, depriving Democrats of another vote.

Analysts expect the bill to ultimately pass the Senate, giving Obama and his fellow Democrats an important legislative victory ahead of the November congressional elections.

Continue reading at Reuters.com…

Bank Tax Tossed from Financial Reg Reform

From Forbes.com:

Sen. Scott Brown, R-Mass., threatened to vote against financial regulatory reform if it included what he called a "$19 billion bank tax." That tax is now off the table, but what's in its place may not be much better for banks.

The conference committee that drafted the final version of the overhaul bill—the committee thought it had finished its work last week--reconvened Tuesday evening to find other ways to pay for the legislation. However, the group of lawmakers from the House of Representatives and Senate ended up scrapping the bank tax. Instead, the bill would prematurely end the Troubled Asset Relief Program (the $700 billion bailout program from 2008), using some TARP money to help pay for the financial regulatory overhaul. In addition, the reform bill will raise the premium that banks pay to the FDIC's Deposit Insurance Fund. Financial firms with less than $10 billion in assets wouldn't be subject to the increase.

Is this a better deal? Depends on how you look at it. Bank tax or no bank tax, banks will still end up paying. In a statement Tuesday evening, Edward Yingling, President and Chief Executive Officer of the American Bankers Association, described the premium increase as "yet another regulatory cost imposed on the many traditional banks that had nothing to do with causing the financial crisis." He says he's concerned about using FDIC premiums as a means to generate revenue for the federal government, particularly without any debate. He says the new proposal is still "a tax on bank capital."

The "bank tax" would have imposed fees--no more than $19 billion by 2015--on large financial institutions and hedge funds to help pay for Wall Street reform. The Congressional Budget Office estimated that while the fees would have amounted to about $18 billion, the measure actually would have brought in about $13.5 billion in revenue because banks would absorb some of the costs as business expenses.

Lawmakers Seal Deal On Historic Wall St Reform

Lawmakers delivered a win for the Obama administration when the reached an agreement on the historic Wall Street reform bill after a 21 hour-long session debate. The bill is meant to institute tighter restrictions, more oversight, and hedge profits of the financial industry.

As this article from Reuters.com explains, the legislation represents the most sweeping financial rules revamp since the 1930s. The bill is expected to get final congressional approval next week although the new rules will not be implanted for months.

The legislation would set up a new financial consumer watchdog, create a protocol for dismantling troubled financial firms and mandate higher bank capital standards, all in an effort to avoid a repeat of the 2007-2009 credit crisis that hammered the economy and triggered taxpayer bailouts of floundering firms.

To secure agreement, lawmakers reached deals in the final hours on the most controversial sections, which restrict derivatives dealing by banks and curb their proprietary trading to shield taxpayer-backed deposits from more risky activities.

Banks will be allowed to keep most swaps dealing activity in-house, although the riskiest trading would be pushed out into an affiliate. They will also be permitted small investments in hedge funds and private equity funds.

The concessions could lessen the impact on bank profits.

The KBW bank stock index, which registered its worst performance since October last month, was 1.6 percent higher in late-morning trade, with both Goldman Sachs Group Inc and Morgan Stanley, two of the banks that will be most affected, showing gains.

The Senate’s Wall Street Reform Bill

A few weeks ago the U.S. Senate passed a Wall Street reform bill with a 59 to 39 majority. The legislation is intended to help prevent future bank failures such as those that led to the financial collapse of 2008. The House of Representatives passed a different bill aiming to take on Wall Street back in December, and the two will need to be reconciled before a final package can be sent to the President’s desk. Although all the provisions in the Senate’s legislation may not make it into the final bill, I wanted to take a look at all of the possible tax implications on American consumers.

Curb Abusive Lending Practices

One of the main purposes of the legislation is to “curb abusive lending practices,” but not to punish big banks. There are a number of tactics they will use to help reduce unscrupulous lending, many of which will be explained in this blog entry.

"Our goal is not to punish the banks,” explained President Obama, “but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years.”

Bureau of Consumer Protection

To help protect consumers from abusive lending the federal government would setup a new bureau to help Americans. It would have authority to write and enforce rules for nearly any business that offers loans including mortgage companies, payday loan providers, and even car finance companies. The bureau would also create an abuse hotline, and will work to act quickly when new financial companies begin taking advantage of consumers.

Foreclosure Relief for the Unemployed

Another main component of the bill aimed at helping taxpayers is a $3 billion fund to provide relief to struggling homeowners. Although, the details are not entirely clear, the program would lend up to $50,000 to unemployed homeowners whom could likely resume making payments within two years.

Shareholder Rights Over Bonuses

In an obvious response to the public’s anger about the multimillion-dollar bonuses that were given out to executives of bailed-out banks, the Wall Street reform bill gives shareholders the right to cast nonbinding votes on executive pay packages. Additionally, the federal government would be given the power to set standards on excessive compensation deemed unsafe.

Rights for Government Seizures

The legislation would allow the federal government to seize large financial institutions whose difficulties pose a risk to the American financial system. The government would then have the authority to fire executives and wipe out shareholders.

Financial Stability Oversight Council

Once the bill is passed into law, a new Financial Stability Oversight Council will be created by the Treasury. The council will work with companies considered significant to the American financial industry to ensure they meet strict capital, leverage, and liquidity requirements. These companies will also be forced to create systematic plans should they fail.

Future of the Legislation

The Senate and House of Representatives have until July 4, 2010 to present a final package to President Obama. The legislation could change significantly over the next month, however since both chambers of Congress have passed similar bills we can expect that a significant reform package will be signed into law this summer.

Washington Pushes for Free Credit Scores

As part of the huge Wall Street reform bill, yesterday the Senate passed an amendment that would give Americans having trouble securing credit or a job free credit scores. These scores are used as a rating system for all kinds of important financial decisions such as qualifying for a home mortgage or a small business loan. As this CNN Money article explains, the measure would expand an existing law that gave consumers the right to one free credit report every year from each of the top three consumer reporting agencies -- Equifax, Experian, and TransUnion.

The credit score, however, has not been made available for free. It is a numerical representation of the information in a consumer's credit report, which covers a consumer's entire credit history -- all debts, payment habits, and jobs held. The credit score is widely used as a shortcut by lenders, so monitoring it is crucial.

But options for getting a credit score have been limited to many "for-fee" sites. Some have lured consumers in by offering a "free" score in return for signing up to a credit monitoring service that could cost $14.95 a month or more, if consumers don't opt out before the end of the trial period.

The amendment "dramatically increases the number of people getting this critical piece of information," said Jennifer Talhelm, a spokeswoman for Sen. Mark Udall, D-Colo., who is sponsoring the effort.