What Trump’s Banking Deregulation Means to You
This week, federal Federal Reserve regulators proposed repealing the Volcker rule , yet another step in the Trump administration’s ongoing banking deregulation.
What exactly do consumers need to know about all this? Well this is difficult. Some things the average American will feel right away, while others will have less obvious consequences.
The Volcker Rule is part of the Dodd-Frank Act, and its purpose is to prevent Wall Street from placing risky bets on customers’ money for the bank’s own profit. Wall Street hates the rule, while consumer advocates say it is necessary to curb Street’s recklessness.
“Banks now have to prove that each trade serves a clear purpose that goes beyond the speculative rate by showing regulators exactly how each trade either meets customer requirements or acts as a hedge against specific risks,” the New York Times reported. “In line with the changes outlined on Wednesday, banks will no longer need to provide evidence for each specific transaction.”
Other federal regulators are expected to join the Federal Reserve in a proposal to “simplify” the rule to spur growth. Meanwhile, banks are making record profits , which have received another huge boost from the recent tax cuts.
“Easing the rule will have a big impact on banks, but consumers are unlikely to notice a change anytime soon,” said Kimberly Palmer, banking expert at NerdWallet.
“Even if the rules are finalized after the public comment period, the impact on consumers will be largely subtle,” says Palmer. “This is because the Volcker rule restricts the ability of banks to trade in order to reduce risk; most consumers are blissfully unaware of how their bank trades, unless problems arise such as a financial crisis or bank failure. “
Other banking deregulations
But the Volcker Rule is just the latest banking ruling the current administration is targeting. Last month, President Donald Trump lifted a rule that protects African American and Latin American consumers from discrimination by auto lenders. And last week he signed legislation exempting small and medium-sized banks from Dodd Frank.
The Economic Growth, Regulation and Consumer Protection Act, signed on May 24, has serious implications for mortgage lending regulations.
First, it removes protections for home loans, putting low-income people, particularly in rural areas, at risk of being targeted for more expensive loans, according to the Consumer Federation of America , when more affordable options become available. “This change will increase the home’s value by thousands of dollars over the life of the loan,” says CFA.
And it weakens the rule that borrowers should be able to pay off their mortgage loans. “Some lenders are likely to take advantage of this exemption to repay exotic loans that pose a high risk of foreclosure,” says CFA. If that sounds alarming, it’s worth it – just look back to 2008 to see why.
Another reason the bill is needed is that the rules introduced after the financial crisis are too onerous for local banks (not to mention that their profits rose 17 percent in the fourth quarter of 2017). Thus, the law raises the threshold for assets at which banks are considered “too big to fail” from $ 50 billion to $ 250 billion, exempting 25 of the country’s 38 largest banks from heightened Federal Reserve supervision, CNN Money reported. Not everyone defines a public bank.
Financial protection of all stripes is crumbling
It’s not just banking deregulation that prevails in Trump’s Washington. Financial protection of all kinds for consumers is deprived. Acting Director Mick Mulvaney almost completely castrated the Bureau of Consumer Financial Protection, ending investigations into predatory payday loans and closing down his student loan supervisor . Education Secretary Betsy DeVos has cut the size of the commercial college investigation unit and is fighting states over their efforts to regulate student loan companies.
If you’re wondering how all of this will affect you, consider this from personal finance writer Heline Olen (co-author of the popular index card book), who writes in the Washington Post :
Fees like this end up exacerbating inequality, according to Devin Fergus, author of The Land of Fees : Hidden Costs and the Decline of the American Middle Class . He calculated that the costs of subprime mortgages, paychecks and student loans alone, and auto insurance premiums – money disproportionately paid by low-income communities, Africans, Americans, and Hispanics – cost Americans nearly $ 1.5 trillion. in year.
So what is the government doing to help consumers? There are some advantages to recent bank accounts: the loan freeze will soon be free , and private student loans will be a little less dire for borrowers . But these are small victories in the broader context of what is happening with consumer protection in Washington.