Asbury Park Press

Financial Reforms In Eye Of Beholder

Consumer advocates happy with bill, but bankers wary

Asbury Park Press — Thursday, July 22, 2010


Some call it Main Street's victory over Wall Street.

President Barack Obama signed the Wall Street Reform and Consumer Protection Act on Wednesday, sweeping legislation that will affect how financial institutions, from banks and Wall Street firms to mortgage brokers, interact with consumers.

"This was probably the most significant legislation that has ever been passed since the Great Depression to rein in Wall Street," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action.

Regulators still must work out the details and rules to enact the law's provisions, but you'll see its impact when you sit down to go over your application for a mortgage or loan, or when you swipe your debit card to pay for a submarine sandwich.

To Salowe-Kaye, a key provision is the creation of a Bureau of Consumer Financial Protection. "We now have an independent advocate on our side," she said.

It will oversee financial products from mortgages to credit cards, setting rules for credit-card companies, mortgage lenders and banks. For instance, federal mortgage forms will be translated into plain language so borrowers can easily understand terms and conditions.

"There is going to have to be huge transparency," Salowe-Kaye said. "Credit cards and mortgages have to be offered in terms of language that everyone can understand."

The agency will write rules and ban products it deems unsafe, such as mortgages that require payment of interest only. It can ban confusing language in documents. And the agency can punish companies that don't comply.

The consumer protection agency will enforce a new credit-card law that bans rate hikes on existing balances and other practices.

The financial reform act also has oversight over how much banks can charge retailers when a customer uses a debit card.

Some New Jersey bankers expressed some concerns that the law will not be as helpful to consumers as advertised.

"Anytime you get the government involved and almost dictating to the consumer what's best for him, it could be a problem for the consumer," said Kevin Cummings, president and chief executive officer of Investors Savings Bank, which has 17 branches in Monmouth and Ocean counties.

There will be more regulation, Cummings said. "There's going to be more cost and I think eventually the consumer is going to have to pay more or get less interest or pay more interest on the mortgage loan," he said.

Cummings said Investors Savings did not make subprime mortgage loans, which have been blamed in part for the financial crisis. Those loans were bundled into together and sold to investors. When borrowers defaulted, investors saw huge losses.

"The majority of the 8,000 banks are paying for the sins of the money center banks, and Wall Street, the Bear Stearns, the Lehman Brothers," Cummings said.

There are other provisions concerning mortgages. One says that mortgage lenders can't steer consumers into more risky loans so they can make more profit.

Another is that any individual hawking mortgages will have to be licensed, said Drew Anlas, senior loan officer at Mortgage Master Inc. in Wall.

The law will force bankers and mortgage underwriters to verify incomes to make sure borrowers can repay the loan, Anlas said. "We are going to see underwriters being very specific about conditions on the loan," he said.

It could have an unintentional side effect of preventing qualified borrowers from getting financing, one banker says.

For instance, banks may have a harder time verifying the income of self-employed applicants, said Denis Salamone, chief operating officer at Hudson City Savings Bank,which has 23 branches in Monmouth and Ocean counties. Typically, the bank uses an applicant's other assets and an interview to help judge a self-employed candidate.

"I am concerned that because the penalties of making a loan that doesn't comply are so great now under this law that banks will say if you're self-employed, we're not going to touch you," Salamone said.

James Carroll, professor of business administration at Georgian Court University in Lakewood, said the legislation is a "win for consumers," such as limiting customer confusion in dealing with banks.

But banks have to keep profits up, he said.

"You know what happens, all this legislation is costly," Carroll said. "The banks have got to get that money back by finding fees."

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