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The New Federal Financial Regulations: How Do They Affect Bank Consumers?


If you thought the Health Care Bill was expansive, maybe you’re not aware of the Dodd-Frank Wall Street and Consumer Protection Act, also known as the Financial Reform Act, which President Obama signed into law on July 21, 2010. This act, the Federal government’s response to the financial crisis that began in 2008, is intended to provide broad sweeping overhaul of the financial system, to end financial institution bailouts, and to protect consumers from a wide range of abusive financial services practices. Although it may take as long as 18 months for affected regulatory agencies to write guidelines to implement all of the new regulations, one thing is clear – the Federal government’s intent is to “rein in” the nation’s financial services industry and to protect the nation’s economy and its consumers.

To protect consumers, the Act establishes a Bureau of Consumer Financial Protection, as part of the Federal Reserve, to regulate and oversee consumer financial products, such as mortgages and credit cards. The Bureau’s role, by the end of 2011, will be to ensure that consumers are protected from unfair, deceptive, or abusive acts and to regulate consumer financial services, such as credit counseling, mortgages, credit cards, deposits, online banking, check cashing, collection and guaranty services, and financial advisory services. In addition, the Bureau will establish a national consumer call center to collect and monitor consumer complaints.

One important goal of the Bureau of Consumer Financial Protection will be to provide greater transparency within the “fine print” of consumer disclosure statements to relieve frustration over the charging of “hidden fees.” As consumers gain a greater awareness of the impact of their purchases or financial decisions, this could result in more informed decisions and potentially greater competition among financial services providers – a good thing for consumers.

The Financial Reform Act also requires the Federal Deposit Insurance Corporation (FDIC) to permanently increase deposit insurance retroactively to January 1, 2008. It extends the FDIC Transaction Account Guarantee (TAG) program, which guarantees full deposit coverage of non-interest bearing transaction accounts, regardless of the dollar amount, through 2012.

Home Mortgage Loan Qualifications To Come Under Additional Scrutiny

In order to prevent the types of risky mortgage loans that landed many home buyers “under water,” or deep in debt, the Financial Reform Act will most likely eliminate loans that caused this problem in the first place. As a result, consumers may no longer expect to find “interest-only” mortgages or “no-doc” home loans as product options when they go mortgage shopping.

Lenders also will be required to thoroughly screen and evaluate a borrower’s ability to repay their mortgage, both in the present and over the entire term of the loan. Lenders are prohibited from steering consumers toward any type of loan that they won’t be able to repay. Lenders who fail to perform sufficient “due diligence,” prior to issuing a loan, may subject themselves to severe penalties should the borrower default on their loan or enter foreclosure proceedings.

In addition, prepayment penalties for some types of mortgages have also been repealed under the Financial Reform Act.

Overdraft Federal Reserve Regulation

In an effort to curtail banks’ ability to charge excessive overdraft fees, new Federal Reserve rules require that banks receive customer “opt-in” approval for payment of overdraft debit and ATM transactions, and subsequent overdraft charges to the customer account for the bank “loan.”

Customers who do not opt in cannot be charged overdraft fees; however, they may also find themselves standing at the grocery store checkout line with a cart full of food and a declined debit card for insufficient funds.

This ruling took place for new accounts on July 1, 2010 and was extended to existing customers on August 15th.

How Do These New Regulations Affect Bank Customers?

As a result of all this recent legislation, many banks are brainstorming new fees that can help make up for lost revenue, especially from the inability to charge overdrafts for customers who don’t choose to opt-in. And…the cost of the legislation itself is a major consideration – costs that include increasing staff to oversee compliance with new guidelines that will be established over the next 15 months.

For example, Bank of America CEO Brian Moynihan recently announced, “We will increase the account balance minimums or charge monthly fees in lieu thereof, which is the choice of the customer.” Some banks are adding fees for paper statements with canceled check images. Other considerations include eliminating waived charges for using another bank’s ATM, charging for checking accounts that were previously “free,” increasing account balance minimums to maintain free checking, and charging to print an account summary at an ATM.

Smaller community bank customers may be less likely to bear the brunt of this legislative “fall out” because, generally speaking, community banks tend to run leaner than their larger counterparts. Their overhead expenses are usually far less imposing than larger financial institutions and they’re often able to “course correct” faster because larger banks are burdened with more levels of bureaucracy. In fact, the new legislation may be a boon to community banks because many larger bank customers may actually consider a move to a small community bank to take advantage of better fees and services.

According to Clinton-based Unity Bank Vice President, Compliance, Richard Grossi, “The Wall Street Reform Act is really intended to come down hard on the larger financial institutions that caused the ‘melt down’ and then received bail-out monies. Given these new regulations, bank customers should carefully examine their bank statements and weigh their options to determine any additional fees they’re incurring. Then they can make a more informed decision about where their financial needs can best be met. ”

Unity Bank has branches in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania. The bank began as First Community Bank in 1991 with two branches and thirty employees. It now has over one hundred and sixty employees.

For more information about Unity Bank, call Rosemary Fellner at 800.618.BANK(2265), or visit


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