4 landmark moves of consumer protection
The world is a slightly safer place for consumers since the American economy unraveled. In the wake of the financial crisis, regulators and lawmakers got tough on some of the worst actors at the root of the recession and wrote a pile of checks to stimulate the economy.
After all the fiscal spending and regulatory maneuvering, Americans won a handful of potentially lasting consumer protections. Here's a look at what's changed since Wall Street came apart at the seams.
Though the Dodd-Frank Wall Street Reform and Consumer Protection Act focused more on ways to prevent the worst of the Wall Street excesses, consumers did score some wins in the wake of the financial crisis. The results have been mixed.
The crowning achievement of Dodd-Frank as far as consumers go was the creation of the Consumer Financial Protection Bureau.
"It is the biggest consumer victory since deposit insurance in the wake of the last time the banks wrecked the economy with their reckless practices," says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group.
Many rules from the Dodd-Frank Act have yet to be implemented or written. The act called for about 250 new regulations, and many deadlines have been missed. Regulators have struggled with funding constraints, legal challenges, and opposition from Congress and the financial industry.
"There are about 120 rules to come. We're less than halfway through it. If the second half is as voluminous, we'll be working on it in 2017 with a new president," says John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University's Lubin School of Business in New York.
In an attempt to avoid that ignominious end to the legislation, President Barack Obama met with regulators in August to press them to speed up the process.
The Durbin Amendment, part of the Dodd-Frank Act, set caps on the interchange fees that big banks can charge to merchants when a customer swipes a debit card. Banks with more than $10 billion in assets saw their fee revenue from debit card purchases cut in half.
"Durbin lowered debit card swipe fees that force cash customers without credit or debit cards to pay more at the store or more at the pump," Mierzwinski says. "Stores embed the swipe fees -- used to pay for the rewards of affluent customers -- into the cost of all products because Visa and MasterCard rules make it difficult to offer cash discounts or impose card surcharges, which are illegal in some states."
Though the cap on fees has helped some merchants, small merchants now pay higher interchange fees, according to an April report from the Federal Reserve Bank of Richmond. That's because retailers who deal mainly in small-denomination transactions were able to pay lower fees for small purchases prior to the rule. However, card networks now have eliminated the discounts for small purchases, forcing merchants to pay the maximum for all transactions, except those on cards from smaller banks. The cap is 21 cents plus 0.05 percent of the transaction value, according to the Richmond Fed.
Another unintended consequence of the rule has been the threat of higher bank fees for consumers. In the face of diminishing revenue from the drop in fee income, many banks have curtailed perks such as free checking. In 2012, ratings agency Standard and Poor's estimated the fee revenue lost annually by banks as a result of Durbin to be $6.5 billion to $7 billion.
"There are some consequences that have hurt consumers. Within Dodd-Frank, the Durbin Amendment started the impetus for banks to have to increase fees on banking accounts," says Richard Hunt , president and CEO of the Consumer Bankers Association.
About 600 banks are large enough to qualify for the restriction on swipe fees. More than 10,000 banks are exempt, according to a 2012 report from the Kansas City Federal Reserve Bank.
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act threw a lot of money at the big economic problems bedeviling the country during the financial crisis. In order to jump-start the economy and help consumers and businesses, the federal government handed out $288 billion in tax cuts and benefits, $224 billion to entitlement programs, and $275 billion in contract grant and loan awards.
Overall, the stimulus seems to have been a success. At least in the short term, the act has had and will continue to have positive macroeconomic effects, according to the Congressional Budget Office. Though the CBO can only estimate the impact, it reported that in 2012, the act raised real gross domestic product in 2012 by between 0.1 percent and 0.8 percent and increased the number of people employed in 2012 by 200,000 to 1.1 million.