06.25.10

Upheaval Sweeps Consumer Finance

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Even before Congress unveils a consumer-protection agency, new state and federal laws are ushering in the most sweeping changes in consumer finance since the 1960s. <><>

Eye on Consumers

Tightened rules at the federal and state level. Click to enlarge graphic. <><><> On July 1, Arizona will force changes on the state’s 595 payday-loan stores—outfits that make high-interest loans against future paychecks—that could effectively put them out of business. Wisconsin banned small loans backed by car titles that led many people to lose their vehicles. Arkansas, Maine and New York joined other states in putting curbs on tax preparers who offer costly loans against expected tax refunds.The federal government, meanwhile, is for the first time requiring that lenders verify a borrower’s income and assets before issuing a home loan. It has also slapped broad new rules on credit-card issuers, limiting their ability to boost interest rates and charge certain fees. “It’s a pace of regulatory output we’ve never seen before in the consumer area,” says Richard Hackett, who teaches consumer-finance law at Boston University’s Morin Center for Banking and Financial Law. The new Consumer Financial Protection Bureau, while housed inside the Federal Reserve, would be fully independent of the central bank with a leader appointed by the president and confirmed by the Senate. It would take over most consumer-protection responsibilities that now rest with regulators across numerous federal banking agencies.It will write and enforce rules on the structuring and marketing of loans as well as other financial products sold by banks, credit unions, credit-card issuers and even neighborhood check-cashing outfits.<><>

Comparing the Bills

See key parts of the Senate bill and where it differs from the House version. Table: Comparing Financial Regulatory Reform Bills

Financial Regulatory Overhaul

See a timeline of the legislation’s progress. <> <><> But states, in most cases, would retain the power to write laws that are more restrictive than any new federal ones. In the case of payday lending, for instance, states could maintain limits on the number of consecutive loans a borrower is allowed. The proposed agency has drawn sharp criticism over the past year, including a campaign by the U.S. Chamber of Commerce and other industry groups to kill it.Rep. Jeb Hensarling (R., Texas), a member of the House-Senate conference committee negotiating the final bill, called the new regulator a “consumer credit rationing agency” that would “take choices away from consumers and choke desperately needed credit out of our economy.” Senate Banking Committee Chairman Christopher Dodd (D., Conn.), a leading proponent, said the agency would “watch out for the average citizen in our country when they are abused by a financial market place that takes advantage of them on home mortgages and credit cards.” <><><> Experience WSJ professional <>

Editors’ Deep Dive: States Get Tough on Payday Lenders