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On Wednesday, July 21, President Obama signed The Wall Street Reform and Consumer Protection Act, which contains the most comprehensive reforms to the American financial system since the Great Depression. This new financial reform law reins in Wall Street and protects consumers, investors and taxpayers from further financial meltdowns.
The Wall Street reforms ensure that the financial markets in this nation will be more transparent, stable and will be less likely to collapse in the future. While it isn't perfect, it makes the greatest strides in decades to create stability in our economy.
All of Oregon's Congressional delegation, except for Rep. Walden, stood up for Main Street in the face of some 2,000 Wall Street lobbyists who spent hundreds of millions of dollars over the past 18 months to weaken reforms targeting the practices that sparked the financial mess they caused for consumers and taxpayers.
Americans will now be able to count on the new Consumer Financial Protection Bureau, which will give small investors and homeowners new protections, will rein in risky bank derivatives practices, toughen regulation of financial firms and, when necessary, set up procedures to shut them down instead of bailing them out. The CFPB is actually a model of efficiency, in that consumer protection had been done as a secondary thought in seven different agencies, and now those will be brought together to be the top priority for one.
And the CFPB — passed despite the public efforts of all the banks and the U.S. Chamber of Commerce to kill it — is not the only grand achievement of the Congress. The bill's new regulation of the shadow markets for derivatives, for example, was strengthened in conference committee, which is something that rarely happens.
So what all will this legislation do?
It has landmark consumer protections. Consumers will now have an independent advocate on their side to prevent tricks and traps related to mortgages, payday loans and checking accounts. Credit cards and mortgages will offer terms in language we can all understand. It will also offer help for those abused by predatory lenders. The new law will limit banks from charging businesses hefty "swipe" fees for debit-card purchases and allow merchants to educate consumers about discounts for cash purchases.
It shines light on the "Shadow Markets." The $600 trillion derivatives market will now operate in the open, so regulators can catch problems — like the credit default swaps that brought down the economy — before they happen. Most deals will have to be backed up by a separate clearinghouse and traded on public exchanges. The participants will have to actually prove they have the money to cover their bets.
It ends the bailout era. One regulator will be in charge of watching for emerging threats to the whole financial system — and will have the tools and authority to ensure those threats are actually visible. The government will be able to break up large troubled financial firms without taxpayer bailouts.
It reins in the Wall Street casino. Banks will be barred from gambling with taxpayer-backed money. Banks will have to separate their riskiest derivatives trading operations into affiliates and their investments in risky hedge funds will be severely limited.
It reforms the mortgage market. For the first time lenders are prohibited from making loans that borrowers cannot repay, and banned from receiving kickbacks for steering people into high rate loans when they qualify for lower rates.
It has strong investor protections. Companies will have independent directors set executive compensation and shareholders will get a voice on those decisions. Enhanced shareholder rights will allow for a say on pay of executives and give long-term shareholders a meaningful voice in holding corporate directors accountable. Brokers will also be responsible to their clients for their advice of investments (because they'll have the same "fiduciary responsibility" that investment advisors have always had).
Credit rating agencies will be held accountable. Credit rating agencies will no longer have a vested financial interest in giving high ratings to risky investments. Better controls will hold rating agencies accountable for the reliability of their reporting. Investors will be able to sue credit rating agencies who slap a high rating on a risky investment.
It opens the Fed's books. The Fed's emergency lending programs from the financial crisis will be audited to see where the money went. The Fed will also have to disclose loans it makes to banks through its discount window. Additionally, banks will no longer have a say in picking their rule makers — they don't get a say in choosing the regional Fed bank presidents.
Banks must pay up. The largest financial firms have to pay $19 billion to ensure oversight to prevent another financial crisis.
Banks have to have "skin in the game": Banks that package loans must keep 5 percent of the credit risk on their balance sheets.
Even with all of these changes, there are no guarantees that Wall Street won't try to game the system in a way that hurts Main Street. But the reforms set up processes to keep a close eye on the markets so that we don't have these economic collapses in the future. The Wall Street Reform and Consumer Protection Act will help consumers and the economy recover from the financial meltdown that cost millions of jobs and trillions of dollars in home and retirement fund value.
Jon Bartholomew of Portland is a policy advocate for OSPIRG. He can be reached at firstname.lastname@example.org.
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