Proposed Legislation Could Give Some Relief To Consumers

Saturday, January 23, 2010, AM | 1 Comment

President Obama and his administration have frequently talked about curbing the size and the risk-taking of big financial institutions. That means it would “tie up” the hands of the big guys. I guess, for that reason, the new proposed legislation had a direct impact on the stock market Thursday as traders sold off shares of CitiGroup, Bank of America, and JPMorgan Chase.

So what’s in the proposed legislation for consumers?

Your checking account, credit cards and loan applications could all be affected and hopefully for the better, in consumers’ favor. Many finance experts agree that the new proposed legislation could give some relief to consumers. This includes better access to loans and more competitive rates, as competition between large and small banks increases to retain customers.

    The existing way of doing business

  • bank-holding companies have been engaging in proprietary trading. That means a firm actively trades financial instruments with its own money to make a profit for itself.
  • They have owned, invested in or sponsored hedge funds or private-equity funds.

    The new way of doing business

  • curb the financial institutions from doing those two major things. In that sense, it will limit their activities and that perhaps was the reason traders sold off shares of the big Wall Street guys.
  • curb industry consolidation, in part by placing a cap on institutions’ market shares.

Four areas the consumers might be affected more

  1. Banks lending to you

    If proprietary trading is limited, financial institutions will lose a bug chunk of their revenue. To compensate, large banks could lend more to consumers.

  2. Banks lenient in checking your credit

    Because of point 1, to lend you more money, the banks might show leniency in lending you the money in terms of less credit check.

  3. Credit cards may be coming to you more easily

    The market for credit cards has become a bit more competitive during the past year or so, as more small banks and credit unions have stepped in to fill in the void left by the large banks. Big banks then would charge less for monthly interest.

  4. Fee the banks would charge you

    Because of the tighter rules for the banking industry in the proposed legislation, the big banks might not charge more fees to compensate for any loss, lest they would draw more negative attention from the legislators.

In a Nutshell
The proposals require approval by Congress before going into effect – two votes that could be a long time coming. The new proposals could create more competition between big and small banks and that can be good for the consumers.

No matter what happens, take it slow. Don’t jump into anything you are not prepared for. Good debt may be OK but avoid bad debt in any case. Legislation or no legislation, take charge of your personal finances.

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