On Thursday, July 15, Congress passed the strongest financial reform bill since the Great Depression, tightening restrictions on banks and Wall Street, cracking down on lending practices, and expanding consumer protections in order to prevent a repeat of the 2008 meltdown, the consequences from which we are still reeling. President Obama will sign the bill into law next week.
“We want to make sure this disaster never happens again,” the Senate majority leader, Harry Reid of Nevada, said after the 60-39 Senate vote (the House approved the bill in June by a vote of 237-192). “The solution has to start here. No more bailouts. No bank is too big to fail.”
The vote is a significant victory for ordinary consumers and for small businesses who have suffered the bruising effects of the irresponsible financial meltdown. Years of systematic financial deregulation have been reversed, and new measures of transparency and accountability will come into the nation’s financial markets. The bill holds many key provisions that go a long way to holding Wall Street accountable and protecting consumers. It is also a base on which we can build build greater reform in the future.
Some key provisions under the new law include:
- A new financial consumer protection agency is created to write and enforce rules governing the conduct of investment firms, large banks and large credit unions.
- Added consumer protections are to govern abusive financial products and services, including mortgages, payday loans, and credit cards.
- The Federal Reserve will get authority to limit “swipe” fees that merchants pay for each debit-card transaction. Retailers can refuse credit cards for purchases under $10 and offer discounts based on the form of payment.
- Merchants will be able to route debit-card transactions on more than one network, which will bring competition to a non-competitive market.
- The bill will provide grants to help families connect to bank accounts and provide funding to Community Development Financial Institutions to create alternatives to payday loans and to provide financial advice and guidance that can help families open bank accounts and build credit.
- New regulatory authority is extended to shadowy investment firms. Under the Act, there will be higher capital, leverage, and liquidity standards on the biggest, riskiest financial firms, as well as bank-like oversight for large companies like AIG and the mortgage financers that were at the center of the crisis.
- Proprietary trading, where financial institutions make risky investments with other people’s money, is limited by the Act. The “Volcker Rule” is placed in law and ensures that banks do not make risky “proprietary” bets for their own accounts with taxpayer-backed deposit funds and limits investment in private funds.
- The act bans “Goldman-style” conflicts-of-interest where firms package risky securities for customers and then bet that they will fail.
- The bill will require around 90% of standard derivatives to pass through clearing houses, not just be done in secret. Large banks, insurance companies, hedge funds, and other financial institutions will be required to submit these transactions to clearinghouses and post deposits to back their bets.
- The FDIC is given expanded authority to systematically dismantle failing banks and investment firms so there is an alternative to just letting them fail or bailing them out.
- The Act will provide a $1 billion fund for bridge loans to help families keep their homes while they search for a job, as well as an additional $1 billion fund establishing a Neighborhood Stabilization Program to redevelop foreclosed and abandoned properties as affordable housing.
- The bill includes comprehensive mortgage reform and anti-predatory lending measures essential to combating abusive lending practices.
Credit Rating Agencies (agencies that rate investments):
- The Securities and Exchange Commission is given new authority to regulate credit rating agencies.
- New conflict of interest provisions will apply to credit rating agencies.
- Credit rating agencies are no longer exempt from expert liability under securities laws.
For all that was fought for and won, there are ways in which the bill falls short.
Notable shortcomings include:
- Lack of limitations on the size of financial institutions
- No clear separation of Wall Street speculators from small Main Street banks
- Auto dealers and small financial institutions are exempted from much of this regulatory oversight
- Efforts to tax financial institutions to fund the new regulatory system failed
There is more to be done—on foreclosure, on limiting the size of the too-big-to fail banks, on creating a financial speculation tax, on democratizing the Federal Reserve—but this is a significant start. While it leaves much to be desired, it can be lauded as a clear turning point, one that highlights the American people’s distrust of Wall Street and their demand that government work for them to protect the financial interests of everyday people.
Main Street won a series of important and hard fought battles in this bill, and the people on Main Street face a more stable economic future as a result. NWFCO, The Main Street Alliance, and our affiliates celebrate this as a big win.