Legislation that relaxes banking regulations – and changes the rules governing credit reporting and certain consumer loans – was enacted by the president Donald trump Thursday.
The bill, which was approved by the Senate in March, passed the House on Tuesday with a vote of 258 to 159.
The measure cancels some of the regulations imposed by the Dodd-Frank Law of 2010. This legislation follows the financial crisis that rocked the US economy a decade ago, when risky and unaffordable mortgages contributed to millions of homeowners losing their homes.
Pedestrians walk past a branch of JPMorgan Chase & Co. bank in New York City.
Eric Thayer | Bloomberg | Getty Images
Supporters of the bill hail its passage as a boon to community and regional banks.
The changes “will help US banks, especially community banks, get back to basics of lending to borrowers and creditworthy businesses,” Rob Nichols, president and CEO of the American Bankers Association, said in a statement.
Consumer advocates, however, say the legislation will lead to banking practices that contributed to the financial crisis.
“It’s hard to see Congress ignoring the painful lessons of the Great Recession that began with a historic financial collapse less than 10 years ago,” said Mike Litt, consumer campaign manager for the advocacy group of the United States PIRG, in a statement.
Among the major changes enacted under the bill, there is one that raises the threshold at which a bank is considered “systemically important” – and therefore subject to more stringent regulations – to $ 250 billion. assets against $ 50 billion.
It also exempts banks with less than $ 10 billion in assets from complying with the so-called Volcker rule, which prohibits financial institutions from making risky investments with their assets.
In addition, the bill relaxes the reporting requirements for many mortgage lenders. Consumer advocates say the move will eliminate the government’s ability to identify discriminatory or predatory loan models.
“There is a good chance that we will see an increase in mortgage fraud, racial discrimination and risky banking practices,” Litt said.
Here’s how some other parts of the law will affect consumers.
Obtaining a mortgage loan from a community bank or credit union may become easier under one of the provisions.
Simply put, the changes will allow smaller institutions – those with up to $ 10 billion in assets – to offer mortgages that are exempt from some of the more stringent federal underwriting requirements, provided they ‘they meet certain other conditions.
The Dodd-Frank Act created a qualified mortgage. Basically, if lenders meet various strict guidelines, such as ensuring that a borrower’s loan repayment does not exceed 43% of their income, they are afforded legal protection if a consumer subsequently claims that they are paying off a borrower’s loan. ‘he was sold an inappropriate mortgage.
The bill signed by Trump will allow these small banks and credit unions to continue to enjoy legal protections without meeting all of the requirements that typically come with taking out qualified mortgages.
However, they will still be required to assess the borrower’s financial resources and debt as part of the underwriting process.
The loan cannot be interest-only or whose balance could increase over time (so-called negative amortization). These types of loans proliferated until the mortgage crisis and contributed to the inability of homeowners to make their payments.
The lender would also be required to keep the mortgage in its own portfolio instead of selling it to investors. This would mean that the risk remains with the bank.
The legislation includes two provisions affecting the repayment of private student loans.
The first will prohibit a lender from declaring a default or accelerating the repayment terms when a co-signer of the loan declares bankruptcy or dies.
In addition, if a student borrower were to die, the lender will have to release the co-signer from any remaining debt.
By law, consumers will be able to freeze their credit report without paying a fee.
Freezing your report generally blocks outside access to your file. This means that a scammer cannot use your personal information to obtain a loan or establish credit because the potential lender cannot verify your report to approve the request.
Congressional pressure for change came in the aftermath of the 2017 cyberattack on Equifax, in which the personal information of approximately 148 million consumers was compromised. Data revealed in the breach includes names, dates of birth, social security numbers, addresses and driver’s license numbers.
The US PIRG has argued that while free credit freezes are good, this legislation will prevent states from enforcing rules that would go further to protect consumers in their dealings with credit reporting companies.
“Why are the credit bureaus getting a break on this bill just nine months after the news of the massive data breach from Equifax? Litt said.
Only a few states have required the credit freeze to be free. The U.S. PIRG estimated last year that consumers would collectively face a tab of $ 4.1 billion for freezing their credit reports at the three largest companies: Equifax, Experiential and TransUnion.
In states where the charges are legal, consumers pay between $ 2 and $ 10 per gel.
The law also prohibits credit companies from charging you a temporary waiver of your freeze when you want a lender to check your credit report so you can get a loan.
In addition, short-term fraud alerts will be extended to one year from the current 90 days. These alerts are distinct from blocks: As part of a fraud alert, a lender seeking to approve a request must first contact you to verify that the request is not from an impostor.
With such an alert, you only need to contact a single credit reporting company, which in turn is legally obligated to share your review with others. It’s also already free.