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Economy Project: Consumer Protections In New Financial Reform Bill

By Sam Baker, KERA Morning Edition Host

Dallas, TX –

The financial reform bill the President signed into law last week is aimed mainly at Wall Street, banks and other lending institutions. Much of what's intended for you depends upon the consumer protection bureau called for in the bill, who heads it and the direction it takes. Sam Baker talked with Todd Mark of Consumer Credit Counseling of Greater Dallas about some provisions in place now - for instance, a requirement for mortgage lenders to make sure borrowers can repay.

Todd Mark: A lot of the language mirrors what happened with the Credit Card Act. You need to take income and ability to repay before you're either raising credit lines or extending new amounts of credit. So they've taken that language and moved over into the mortgage world. Some people borrowed way too much. Others got into things that had high commission rates for the broker but weren't really right for the consumer. So you need to make sure it's appropriate for the consumer and that there's an ability to pay - not just in year one, but down the road as well.

Sam Baker: Which speaks to another point: Impose new disclosure requirements in connection with adjustable rate mortgage loans.

Mark: It's going to have to be extremely clear upfront that what you're getting into may be comfortable right now, but that's not your long-term payment.

Sam: So a prospective homeowner should always look for a fixed rate?

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Mark: There are a few situations where an adjustable rate would be right for someone.

Sam: For instance...

Mark: If someone's planning on being somewhere for three or five years; maybe they transfer jobs regularly and this is not their final destination. They're not looking at this as "I'm not looking at being here 20 or 30 years down the road, but I'm gonna be here two years, then I''m gonna relocate again." At that point, you just care about your lowest interest rate in that short of time. but for someone who says this is where I'm putting down my roots,it's gonna be hard to find a reason not to take that low fixed rate.

Sam: This bill also seeks to make sure that interchange fees in connection with debit card transactions are reasonable and proportional to the amount being spent. Do most people under what interchange fees are?

Mark: I don't know if a lot of consumers get that when you go to your favorite store or your favorite restaurant and use your credit card, there's an interchange fee. It's something that goes to the processor, saying this is a one or two percent, whatever the load may be on the charge - just the cost of processing. Consumers don't see that as a tax or something that's broken down on their receipt. It may reflect in the prices for the consumer goods they're paying for. There's a lot of concern, though that our big box retailers or the big companies are getting a break that "mom and pop" and small business owners don't have, an unfair advantage. There's concern of are these fees being passed on to consumers. Is it some sort of fee for using plastic as opposed to using some other sort of payment. It's become a major source of revenue. So the Federal Reserve is being tasked with doing some kind of study to figure out what is reasonable and proportionate as far as these interchange fees.

Sam: When you use a debit card, a little light will come and ask you if you want to do this as credit transaction or as a debit card transaction. Does that impact those fees? I guess my question is whether you're being charged or whether the retailer is being charged?

Mark: If it's a debit card, it's coming out of your bank or your credit union, so it's coming of your checking. If it's a credit, it's coming out of your credit issuer.

Sam: The bill does affect credit reports?

Mark: Consumer advocates were hoping we'd get free credit scores out of this. We didn't, not for the general population. It appears that if you are harmed, if you are given higher interest rates because your credit, or you're turned down, much as you would under credit reporting law, you'll be eligible to get a free credit score. But the mechanics of that haven't been flushed out yet on how that's going to work.

Sam: In the meantime, what is the best thing consumers can do to protect themselves?

Mark: Read the fine print of any terms of agreement you're looking to sign. Be familiar with the fees that you're being charged. Read your statements on a monthly basis. Make sure you know what the fees are if there's changes because there's a lot of unintended consequences that could be coming from this. We may see, uh, free checking go away from banks or credit unions or other services you're used to from your financial institutions that's monetized and there's a fee. So pay attention to any sort of communication, whether it's a letter, part of a bill stuffer, or even an e-mail. Just read it and know what's happening around you.

Todd Mark is Vice President of Education for Consumer Credit Counseling of Greater Dallas.

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