After weeks of partisan bickering, the Senate finally voted this afternoon 60 to 39 to pass Wall Street reform. Officially deemed the Restoring American Financial Stability Act of 2010, it is now headed to Obama’s desk, which he said will be signed next week. Despite the bloated size of 2,319 pages, some feel the bill leaves us with more questions than answers.
Almost everyone agrees that reform is needed, but many question whether this watered-down version addresses the problems… or just creates new ones. For example, the bill remains silent on Fannie Mae and Freddie Mac. Derivatives and hedge funds get to continue their wild West ways. Twelve new regulatory agencies will be created, but almost nothing will be done to fix the 115 current federal and state financial regulatory agencies (only one of them will be consolidated). In a nutshell, the bill leaves us with a regulatory bureaucracy that’s even more bloated than before – countless agencies with overlapping responsibility, all trying to tip toe around each other to enforce extremely vague laws. Meanwhile, the financial “nuclear weapons” like derivatives will remain unregulated.
So what does the Wall Street reform mean for credit cards? Well, it’s unclear since the new rules and regulations that stem from this bill are TBD, but here are a few things we do know…
- Consumer Financial Protection Bureau – This new agency will be part of the Federal Reserve. Its responsibilities set forth in the bill are vague, but it appears this new body will govern consumer financial products; mortgages, brokers, credit cards, and everything in between.
- Credit scores – Currently, consumers can obtain their credit report for free once per year from each of the three major credit bureaus – Experian, Equifax, and TransUnion – through annualcreditreport.com. Eventually these companies will also have to provide free credit scores, too.
- Swipe Fees – Merchants pay a small fee for credit card and debit card transactions. It is expected that that these fees may be capped by the CFPB. While some people are quick to criticize these fees, it’s important to realize that they are what make reward and cash back credit cards possible. They also cover the cost of fraud and cardholder benefits. Lastly, study after study has shown that card payments help merchants because the customers buy more than they would if paying cash.
If the reform is implemented properly, it will benefit credit card holders. However, the vague wording of the bill leaves much open for interpretation. Just as under-regulation is bad, so is over-regulation. The last thing we want to see is responsible cardholders subsidizing the risky cardholders, paying for their mistakes. Only time will tell if this reform takes us in the right direction.
Posted July 2010