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Wall Street reform bill taking shape for consumers

Watchdog is in, ATM fee and credit card rate caps out, other provisions in play

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Although there are still a few steps to go before the massive Wall Street reform legislation becomes law, one thing is certain: Consumers will have a new watchdog agency looking out for their interests in credit card agreements, debt collection, debit card fees and scores of other financial deals.

Financial reform bill's consumer impact

When it comes to its consumer impact, the financial reform law passed Thursday night in the Senate makes some things certain to become law. Others parts died and yet others must be settled by negotiations among lawmakers.

IN: Consumer watchdog agency.

OUT: Caps on ATM surcharges and  credit card interest rates.

TO BE NEGOTIATED: More free credit scores, debit card interchange fees, discounts for buying with payment methods that are less costly to merchants.

The U.S. Senate Thursday evening approved a financial reform bill that includes a consumer watchdog agency similar in principle to one included in a U.S. House bill approved last year. The two bills will have to be reconciled, but because similar watchdog agencies are included in both, consumers across the country are sure to get more financial protection. Consumer advocates say creating such a consumer financial protection agency is a major victory for people who have been duped into paying more than they had to on bad payday or car loans or mortgages.

"This is a clear victory if you are credit cardholder," says Lauren Saunders, a consumer attorney for the National Consumer Law Center in Washington, D.C. "You have a new agency that will look out for you. The agency will exist in some form -- either free-standing or in the Federal Reserve. There is clearly going to be a new federal agency."

"It is the toughest, strongest consumer protection we've ever had in this country" on financial matters, Austan Goolsbee, President Obama's economic adviser and credit card expert, said Friday during a press briefing with online news sites on the financial reform law. "People are pretty excited that we can change the path that existed in this area."

While the watchdog is in, some proposals died with Thursday's vote -- and some others are still to be fought over, including a controversial measure to allow merchants to give discounts to customers who pay with methods that don't cost retailers as much as when credit or debit cards are used and a proposal to provide free credit scores to consumers who are rejected for loans. 

Bankers balk at regulation
Banking and credit card companies, however, criticized some aspects of the proposed legislation. "This bill promised much-needed reform but has gone terribly wrong," Edward L. Yingling, president of the American Bankers Association trade group, said in a statement. The "ABA and traditional bankers across the country oppose the legislation approved by the Senate because it now contains very negative provisions that will ultimately hurt American consumers, small businesses and the broader economy." The group says the bill will "set the stage for future bailouts, undermine thousands of traditional banks that had nothing to do with causing the financial crisis, hurt banks' ability to lend, and drive more financial businesses into poorly regulated firms and overseas."

This is a clear victory if you are credit cardholder.

-- Lauren Saunders    
National Consumer Law Center    

Yingling noted the bankers supported "enhancing consumer protection." Banking industry lobbysts, however, pushed hard to limit the consumer financial protection agency's powers. 

The Senate voted 59-39 late Thursday approving the Restoring American Financial Stability Act of 2010. (See how the Senate voted.) The House approved its version of the reform bill, known as the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), in December 2009. The two bills have noteworthy similarities and differences, namely in how much independent authority the consumer financial protection agency has to carry out its watchdog mission. Now, lawmakers must come up with a final version to send to President Obama to sign into law.

"If the best reforms from the Senate and House bills are melded together, the result will be a bold new law that will protect consumers and investors from abusive practices and the economy from financial shocks for generations," Travis Plunkett, legislative director of the Consumer Federation of America, said in a statement.

Consumer watchdog assured
Both versions of the proposed reform law include provisions for a director to head the consumer financial protection group. That person would be appointed by the president. "This is someone who is presidentially appointed, whose butt is on the line, and they will be able to hold financial institutions accountable," said Goolsbee.

This is someone who is presidentially appointed, whose butt is on the line and they will be able to hold financial institutions accountable.

-- Austan Goolsbee
White House economic adviser

High on the new agency's agenda: Making sure those complicated contracts that consumers sign for things such as credit card agreements, rent-to-own plans or mortgage refinancing are written in plain English and understandable.

When problems arise, instead of seven different agencies, consumers would have one place to go for help or to file complaints about financial services products and terms. "The intention is very much that the industry, the consumers and the press and the government will all know that this is the body that you can go to," said Goolsbee.

The House bill would create a stand-alone agency with power to make rules governing financial products. The Senate bill creates a consumer financial protection bureau that would be a part of the Federal Reserve Board. The bureau's rule-making authority and decisions could be overturned -- or vetoed -- by a newly created Financial Oversight Council. 

Michael Calhoun, president of the Center for Responsible Lending, said he was concerned that Congress may still weaken the proposed consumer protections. "In this final stretch, we hope lawmakers will resist Wall Street's efforts to water down the bills' strong provisions ... We urge Congress to ensure these rules are applied to all lenders -- including auto dealers -- and to resist attempts to give firms 'veto power' over proposed rules before a full public debate."

No matter what happens, a new consumer watchdog of some kind is a shoo-in. "Under either version. it will have broad authority over credit cards," says Saunders, from the consumer law center.

What this amendment does is make debit costlier and shopping more complicated for consumers.

-- Noah Hanft
MasterCard

To be debated
Provisions of the Senate bill that are not included in the House version will likely be at the center of debate when lawmakers attempt to create a compromise bill. Free credit scores for consumers who are rejected for credit cards, loans and jobs and allowing merchants to defy Visa and MasterCard bans on offering discounts customers who pay with different payment methods are among the items with less certain futures.

Another potential conflict: The House bill gives auto dealers a pass by making their auto lending activities exempt from oversight by the consumer protection agency. The Senate bill grants no such exemption. The Senate version exempts only those small businesses that do not engage in financial services.  

Free credit scores
A successful amendment sponsored by Sen. Mark Udall of Colorado would require lenders, landlords and employers who deny credit or reject applicants based on their creditworthiness to provide them with free scores. Currently, under the federal Fair Credit Reporting Act, consumers who are turned down for loans are entitled to a free credit report but not a free credit score.

"For too long, consumers have been at a disadvantage because banks and lenders use these credit scores against them while they have no idea what their actual score is," Udall said in a statement. "A person's credit score affects the terms of home loans, their ability to purchase a car, rent an apartment or get basic utilities. It's simply not fair for lenders to have access to a consumer's all-important credit score without the consumer being given free access to it."

Card interchange fees
One controversial amendment, which passed May 13 on a 64-33 vote, puts Congress and the Federal Reserve in the middle of a multibillion-dollar battle that has been raging for years between merchants, convenience store owners and other retailers and the giant credit card networks -- Visa and MasterCard. At issue are network rules that prevent merchants from tacking on surcharges to customers who pay with credit cards or setting minimum purchase amounts in order to accept credit or debit cards. Under agreements with the networks, merchants are currently allowed to offer discounts for paying with cash. Gas stations across the country have offered discounts to customers who pay with cash, but many people still prefer the convenience of paying with credit cards. The proposed bill would make offering discounts in exchange for paying with cash allowable under federal law rather than by virtue of a contract with Visa or MasterCard.

Merchants say interchange fees charged by credit card issuers and the networks for electronic transactions are unreasonably high and eat away at their profits. The networks contend that merchants benefit from the convenience of having access to payment card networks, and that cards encourage their customers to spend more freely. Merchants should pay the cost associated with that service, the networks say.

Under the proposed bill, sponsored by Sen. Richard Durbin of Illinois, merchants would be able to set minimum or maximum amounts allowable on debit or credit cards. The proposed law also requires the Federal Reserve Board to issue rules for determining whether interchange fees for debit cards are reasonable and related to the cost that card issuers and networks incur for these electronic transactions. The proposal exempts all but the largest card issuers from debit card fee restrictions; only those institutions with more than $10 billion in assets would be affected. The Durbin plan would become effective 12 months after final enactment of the Wall Street Reform bill -- assuming the provision makes it through to the version that Obama signs.

Durbin said during Senate debate on his amendment: "It directs the Federal Reserve to ensure that debit fees on debit cards are reasonable and proportional to processing costs; it stops Visa and MasterCard from imposing any competitive restrictions; it ends prohibitions on discounts for use of different network cards; ... and it ends prohibitions on minimum purchase levels for paying with a credit card."

Visa and MasterCard both issued terse statements blasting Durbin's bill:

"Adopted with no debate or review of facts, the amendment allows retailers' to shift their cost for accepting debit cards onto the backs of consumers while they continue to receive the value of electronic payments -- including faster checkouts, ticket lift and guaranteed payment," Visa said in a statement. "The Durbin amendment is not germane to the overall financial reform bill legislation. We hope Congress sees the amendment for what it is -- an attempt by retailers to increase their profits at the expense of consumers."

A statement issued by Noah Hanft, MasterCard's general counsel, said: "What this amendment does is make debit costlier and shopping more complicated for consumers, while letting merchants reap the benefits of card acceptance at a bargain-basement price ... Consumers could also be forced to spend more than they planned if they don't have cash in their pocket and the merchant enforces a minimum at the register, or they could be told the merchant doesn't accept their chosen card anymore."

The card networks said they will ask lawmakers to jettison Durbin's amendment from the final bill. 

Left on the floor
During months of debate on the Wall Street bill, senators went back and forth on what to include in the massive package -- designed to prevent a financial meltdown similar to the one that struck the country in 2008. Lawmakers attempted to add a number of measures related to payment cards, but several failed to bubble up for votes.  Among the losers: A proposal by Sen. Sheldon Whitehouse, a Rhode Island Democrat, would have undercut national credit card issuers' ability to set high interest rates. The proposal would have mandated that credit card interest rates be set based on usury laws of card users' home states -- rather than the home state of the banks issuing credit cards.   

Sen. Tom Harkin, an Iowa Democrat, tried and failed to cap ATM surcharge fees at 50 cents or to require the new consumer financial protection agency to set ATM fees.

Sen. Christopher Dodd, the Banking Committee chairman who ushered the massive Wall Street Reform bill through the Senate, expressed confidence that the final bill passed by the House and Senate will bring added consumer protections: "For the first time ever, we will have a Consumer Financial Protection Bureau to watch out for the average citizen in our country when they are abused by a financial marketplace that takes advantage of them on home mortgages and credit cards."

See related: A guide to the Credit CARD Act of 2009, U.S. House approves consumer financial protection agency, Obama: New agency would oversee credit cards, financial services

Updated: May 24, 2010


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