WASHINGTON — The toughest financial regulations since the Great Depression are headed for final votes in Congress next week, covering everything from debit-card swipes at Starbucks to the most complex securities, in an election-year salve for public anger over the Wall Street risk-taking that cost millions their jobs, homes and nest eggs.
House and Senate bargainers approved the deal as the sun rose Friday. Democrats hope lawmakers can pass the legislation and ship it to President Barack Obama for his signature by July 4.
The legislation creates a new federal agency to police consumer lending, set up a warning system for financial risks, force failing firms to liquidate and map new rules for financial instruments that have been largely uncontrolled.
Leaving the White House for the G20 summit in Toronto, Obama said the package will “help prevent another financial crisis like the one that we’re still recovering from.”
While some financial analysts said it would set tough new restraints on banks, others said they would simply find new ways to make money by getting around the rules and establishing new fees.
Bank stocks soared as investors appeared relieved that the rules were not as strict as they had feared.
As it reins in banks and sets new rules for high finance, the legislation also reaches down to some of the most commonplace consumer transactions.
The Federal Reserve will have to set new limits on the fees banks charge merchants who accept debit cards.
Retailers, who would stand to save billions in payments, would be able to offer customers reduced prices for debit-card use. Banks said the limits could simply shift costs to other banking products.
Lenders would no longer be able to make a loan without verifying that the borrower can repay it. They would have to disclose the maximum amount that borrowers could pay on adjustable-rate mortgages and they would be barred from receiving incentives to push homebuyers into high-priced loans.
The agreement was forged at daybreak in a 20-hour session marshaled by House Finance Committee Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-Conn. Lawmakers honored their work by naming the bill after them.
The legislation was not without its critics. Republicans complained that it ignored their efforts to impose tighter restrictions on Fannie Mae and Freddie Mac, the mortgage giants that have benefited from huge federal bailouts and whose questionable lending helped trigger the housing and economic meltdowns.
Bowing to the lobbying might of the nation’s 18,000 auto dealers, negotiators agreed to exempt car sellers from the oversight of the new Consumer Finance Protection Bureau created by the legislation.
How the changes will affect consumers
NEW YORK — The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day. Here’s a guide to the new rules:
CONSUMER PROTECTION
A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders. It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.
The bureau will have the power to ban financial products that it considers unsafe.
MORTGAGES
Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower’s income, credit history and employment status.
Also, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. They’ll likely take fewer risks when they have skin in the game and aren’t slicing, dicing and selling loans.
CREDIT AND DEBIT CARDS
Say you pick up some soda, candy and gum. The total is $11, but a sign on the register says you can pay by credit card only if the purchase is $20 or more. Under the new legislation, the minimum can be no more than $10.
The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers.
CREDIT SCORES
Any lender that turns down a borrower — whether it’s for a mortgage, a department-store credit card or an auto loan — because of his or her credit score has to tell the borrower, at no charge, what that score is.
Rachel Beck, The Associated Press
