Friday, June 25, 2010

A New Day for Consumers?

That's what the NY Times headline says in this article. And I'm sure we'll hear that from a lot of politicians, how they have saved the consumer from so much grief from the big-bad banks. You see, congress has passed a new law (well, details are still being ironed out between the House and Senate) legislating how banks can act on your behalf. But I find interesting the details of the new law.

The NY Times lays out several areas of "change" in the new bill. It shows how a new Consumer Bureau has been created with the Federal Reserve that "would write and enforce rules for most banks, mortgage lenders, credit-card and private student loan companies." Well, I'm glad a new agency was created so that more government money can be spent (hopefully the sarcasm in that comment comes through - the Federal Reserve has been doing this for years).

But the new law goes further, in allowing the consumer to get his/her credit score for FREE! Yes, the guys singing the free credit report song have been upheld by the government. Well sorta. You see, you always could get your credit report for free (3 per year). And the only way you can get your score with this new law is if you apply for credit and were harmed by your score. The NY Times points out that "nothing is stopping you from asking for the score, even if you like the rate or result of your application." Actually, that's always been true. The last time I applied for a loan (car loan circa 2004) I asked to see my credit report and score. I sat down with the loan agent and went through it line by line. (I told them I wouldn't buy the car unless they did).

Mortgages will be changed (or not) by the new law. Mortgage companies will now have to verify your actual income. The article accurately points out that "most lenders have learned that lesson by now or have ceased to exist. Prepayment penalties will now be illegal on certain types of loans. Seems to me that with a little education, consumers would have eliminated these previously. Simple rule - don't accept loans with prepayment penalties. Isn't HUD supposed to do some education like this?

There are a few more items in the bill being worked on, but when you get down to the details, they really don't do much either. This is a lot like the much-bally-hooed CARD act of 2009 (see my comments here) that "changed" the way credit cards were managed. When you look at the details of that law, you'll find it was much softer that the changes the Federal Reserve had ALREADY ENACTED. It just gave more time to the credit card companies.

You'll hear a lot about this new bill in the coming weeks and months. I suspect you'll hear a lot about it during the upcoming election cycle. But remember, we would all be better if congress stayed out of it, and made the appropriate EXISTING agencies do their job.

Your comments are welcome.

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