Hidden treasures of financial regulation
The new financial reform law, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act and recently signed into law by President Barack Obama, isn’t exactly a page-turner. But hidden within its thousands of clauses are seven measures that could benefit consumers long after debate over the bill is a distant memory.
From financial literacy initiatives to help for distressed homeowners, these hidden gems address a broad range of consumer issues. While they probably won’t have the impact of the more-trumpeted aspects of the law like the Consumer Financial Protection Bureau, they may just help a few consumers stay afloat during the next big economic downturn.
Office of Financial Education (Sec. 1013)
Many Americans take pride in the amount of economic freedom and autonomy the free-market system gives its citizens. The flip side of that is that Americans are free to screw up their finances badly, and often do just that.
The financial reform law creates a new Office of Financial Education to “improve the financial literacy of consumers” through financial counseling and education programs. The office will publish information for consumers on a broad range of topics, from handling savings accounts and other mainstream financial transactions to financial aid applications for students.
Six months’ notice to reset hybrid ARMs (Sec. 1418)
During the mortgage meltdown of the past few years, many homeowners were caught by surprise when the low initial rate of their adjustable-rate mortgages expired and their mortgage loans reset to a sharply higher mortgage rate with a correspondingly high monthly payment. Such mortgage-rate resets often happened without warning, putting substantial pressure on homeowners already squeezed by the worsening economy.
The new financial reform law aims to prevent unpleasant interest rate surprises by informing homeowners at least six months ahead of time of an introductory mortgage-rate reset. Along with the notice, lenders will have to include an explanation of how the new mortgage rate will be set, a good faith estimate of the monthly payment, a list of alternative financial options and contact information for credit counseling agencies.
Consumer hot line (Sec. 1013)
Ever been burned by a lender but didn’t know who to call? Well, the financial reform act establishes a single, toll-free telephone number to dial in case you encounter unfair or deceptive lending practices. Complaints will be routed to the appropriate federal or state agency and must be responded to in a “timely” fashion, according to the law.
For those who are more Web-oriented, the law also calls for the establishment of an Internet portal for submitting complaints.
SIPC maximum cash advance raised (Sec. 929)
The Securities Investor Protection Corp. will provide a higher level of protection to those who hold accounts in SIPC-insured financial institutions than in the past. When a brokerage or other such investment house fails, the SIPC returns stocks, bonds and other securities to their registered owners immediately.
However, sometimes a failed firm’s assets need to be audited and liquidated to reimburse account holders. While that process is taking place, the SIPC sends cash advances to those waiting for the return of their assets.
In the past, the amount of a cash advance was limited to $100,000, regardless of the amount the former accountholder had coming to him. However, with the passage of financial reform, the limit has risen permanently to $250,000.
Help for foreclosure-related legal proceedings (Sec. 1498)
Homeowners facing legal action from mortgage lenders sometimes find themselves in a tough spot. They can’t afford lawyers’ fees to defend themselves, but they can’t afford not to have representation in foreclosure proceedings when their home is on the line.
To help even the playing field between lenders and borrowers in legal proceedings, the financial reform law provides grants for legal assistance to low- and moderate-income homeowners to help with costs related to homeownership preservation and foreclosure prevention.
Tenants involved in legal disputes with landlords also will be eligible for assistance. However, the funds can’t be used to finance a broader class-action lawsuit against a financial institution or landlord.
Low-cost alternatives to payday loans (Sec. 1205)
Payday loans may often have onerous terms, but consumers short of cash who don’t have access to more advantageous credit options will always need something to fill the void. The new financial reform law provides grants for experimental, small-loan programs that could serve as an alternative to payday loans.
The loans must be coupled with financial literacy and education opportunities, such as free debt counseling, and could be expanded if they prove successful.
Foreclosure rescue scam warnings (Sec. 1452)
The wave of foreclosures following the housing crisis left many homeowners vulnerable to foreclosure “rescue” scams. Instead, scam artists stole from them through a variety of methods, from charging fees for nonexistent counseling services to tricking homeowners into signing over their homes and leaving them stuck with a mortgage mess.
The new law allocates funds to the Neighborhood Reinvestment Corp. to create an awareness campaign for homeowners who are behind on their payments. The campaign will focus on giving distressed homeowners the information they need to avoid falling prey to scam artists. As an alternative, the campaign also will provide contact information for legitimate alternatives such as nonprofit foreclosure counseling.
For more information about financial reform, check out these stories at Bankrate.com: