Monday, January 04, 2010

OVERHAUL OF WALL STREET’S INVESTMENT REGULATIONS TO IMPACT EVERYONE

Now that the Bubble Decade has ended, it is time for Wall Street to pay for its reckless greed and the cowboy mentality for creating securitized debt in the investment market that passed on risk to the American consumer.

The financial debacle caused a meltdown of the nation’s economy in 2008, sparking a $760-billion government bailout, economists say. As a result, the deep recession and unemployment that followed left one of every four American homeowners under water—owing more on their homes than the homes are worth.

Quarterbacked by U.S. Rep. Barney Frank (D-MA), the House Financial Services Committee chairman, the most sweeping overhaul of the nation’s financial regulations since the Great Depression is inching its way through Congress. If it passes Congress and is signed into law by President Obama it would have a major impact on every American borrower and homeowner.

One of the most striking parts of the legislation is the creation of a Consumer Financial Protection Agency which would have the power to write rules for a variety of financial activities. The agency would oversee loans and credit practices to monitor large banks for compliance and to ban products and business practices that are unfair, deceptive or abusive.

Essentially, the new agency would strip the Federal Reserve Board’s powers to regulate the banking industry. Consumer groups strongly support the new agency citing the failure of regulators to control the growth of subprime mortgages which led to the crisis.

The legislation would prohibit future government bailouts. Instead, it would create a permanent $150-billion fund raised from assessments on large financial firms.

Banks and large financial firms are opposed to the creation of the new agency, arguing that it would increase the cost of credit and add a layer of bureaucracy.

Ironically, Wall Street today appears to be healthy again and ready to start passing out billions of dollars of bonuses to high-ranking executives. However, thousands of unemployed homeowners are falling further behind on their mortgages, despite a $75-billion federal program designed to force banks to modify mortgages.

Meanwhile, prospective home buyers who are struggling to keep their credit score high enough to qualify for a mortgage should see some relief from credit-card abuse early in 2010.

Congress passed the Credit Card Accountability, Responsibility and Disclosure (C-CARD) Act, landmark legislation to control abuses of credit-card holders by major banks such as Bank of America, Citibank and others. Beginning in February of 2010, the following changes will go into effect:

• Interest rates on a card-holder’s existing balances can no longer be raised if the consumer is a few days late with a payment. However, late-payment fees will still exist.

• Annual percentage rates (APRs) on existing credit-card balances can only be raised if the consumer does not make a minimum monthly payment within 60 days of the payment due-date.

• Card holders cannot be charged a fee for going over their credit limit.

With the C-CARD Act on the horizon, consumer advocates say credit-card companies have been busy putting the squeeze on card holders by jacking interest rates as high as 29.99 percent while simultaneously reducing existing credit limits when cash-strapped and unemployed consumers need them the most.

Citing economic trends or the borrower’s credit report, a form letter from Bank of America to one Chicago homeowner simply said: “We were unable to approve your credit request because you currently have sufficient available credit with us.”

Consumer advocates also warn borrowers to be wary of enticing convenience-check offers received in the mail from credit-card companies. “They are the crack cocaine of the credit industry,” quipped Adam Levin, chairman and co-founder of Credit.com based in San Francisco.

Credit-card companies still are dreaming up new ways to pelt consumers with fresh new innovative charges. Some, including Bank of American and Citibank, are experimenting with annual fees, while others are playing with the idea of charging fees for inactive accounts.