The following is by John Wasik, a columnist for Reuters.com and author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America.” The opinions expressed are his own.
On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individuals, the protections are much less pronounced and highly diluted.
Granted, the massive, 2,300-page-plus Dodd-Frank bill may slow down some bank failures. It may even impede avaricious trading desks from tanking the global financial system. For average investors, though, it’s a pyrrhic victory at best. Here are four major problems:
• Brokers May Not Be Reined In. The bill ordered the Securities and Exchange Commission to study requiring brokers to act in your best interest under “fiduciary” rules. The catch is, the SEC can complete its study in six months, but may not be required to impose the tougher, pro-investor standards. Industry lobbying will be fierce to get the agency to sit on, water down or squelch any decision, which is what the agency often does after any big study.
• Watch for More Credit Regulation. Mortgage brokers, student lenders and other consumer-credit firms will be subject to more oversight. There’s a new cop on the beat for consumers, although it will take months for the new Consumer Financial Protection Bureau — housed within the bank-friendly Federal Reserve — to get up and running. Look for financial services firms to pass on new fees to cover their regulatory burdens.
• It may be harder to get a mortgage. As if it wasn’t tough getting one today, Congress tightened the requirements for the “liar” loans of the bubble years, although no bank has been issuing those for some time. “No-doc” loans will not likely be making a comeback, replaced by stiffer requirements for income verification, appraisals and brokers.
• Insurers, auto dealers get a pass. Insurance agents were not even covered. Auto dealers got a “carve-out” or exemption from regulation. That means you’ll still have to be vigilant when signing up for vehicle financing — watch out for the fine print on “extras” and extended warranties.
Still, more regulation isn’t necessarily a bad thing. Credit abuses were rampant and the industry sorely needed more oversight.