Making Sense of FinReg
Thursday, August 19th, 2010 by Cass Chappell, CFP®
Late this July, President Obama signed the Financial Regulation (FinReg) bill into law, the largest reform of Wall Street since the New Deal. The nearly 900 page piece of legislation is popularly thought to be lawmakers’ knee-jerk reaction to the current financial and economic muck that we find ourselves wading through, blamed by many on the big banks and financial institutions. Whether or not you agree with the catalyst for FinReg’s creation and passage, one thing is for sure – no one knows what it all really means.
While we won’t know for sure exactly how FinReg will effect individual and small business owners for some time, we’ve attempted to summarize some of the provisions in the bill that are the most likely to effect us – the little guy. Of course, we have several months, if not years, for regulators and agencies to sort all of this out, so the future landscape of the banking world is anyone’s guess. But the below can serve as a quick guide for those of us who are still scratching our heads in confusion….as well as my “gut reaction” to each bullet point.
- Establishes an independent Consumer Financial Protection Bureau inside of the Federal Reserve whose purpose is to curb unfair practices in consumer loans and credit cards and weed out predatory practices. GOOD
- Allows all consumers to get their actual credit score along with the one free credit report per year that they are currently able to receive. GOOD
- Place a cap on, and make more reasonable, the debit card swipe fees that retailers currently pay to banks for the cost of transferring money. Probably GOOD
- Unemployed homeowners with good credit could be eligible for low-interest loans to help them avoid foreclosure. GOOD
- The SEC can raise the standards for broker-dealers who give investment advice, holding them to a fiduciary duty similar to that of investment advisors. REALLY, REALLY GOOD
- Holds credit-rating firms to a higher standard, allowing investors to sue credit-rating firms for “knowing or reckless” failure and establishes a new oversight office within the SEC to monitor these firms and the ratings that they give. GOOD
- Requires that hedge funds and private equity funds register with the SEC as investment advisers and to provide trade information, allowing regulators to monitor for systematic risk. (Currently neither are SEC regulated) Probably GOOD
- New rules would be put in place for how all publicly-traded companies pay their top executives, giving shareholders voting rights on CEO pay and severance. Maybe GOOD
Again, this is just a sampling of the many rules held inside of this massive Wall Street overhaul. How this all plays out remains to be seen, but investors are encouraged to continue to have open dialogue with their financial advisors as reform progresses and a questions or concerns arise. I am sure I will be blogging about some of these as the picture gets a little clearer…especially the “fiduciary duty” rule (*fingers crossed*).
