Financial Reform and You:
Credit Card Changes

The new financial reform bill signed into law on Wednesday, July 21, 2010 cracks down on predatory lending practices and includes consumer protections when it comes to credit cards. If you use credit cards, these changes may save you money—and one of the new provisions might encourage you to stop using credit cards altogether.

Specifically, that’s the new rule prohibiting credit card companies for charging businesses extra “swipe fees” over and above the cost of processing credit and debit card transactions. Because businesses will have some cost savings as a result of that change, they’ll be allowed to offer discounts for cash transactions. It would create more work for businesses to charge different prices for different kinds of transactions, but some might just do it.
 
If you are not currently utilizing a financial advisor, we encourage you to search our comprehensive database of top financial advisors and financial planning professionals within All Financial Advisors.  They can help you to effectively invest for the future and decide how to best handle any outstanding debt on your credit cards that you might currently have.

The new law also allows privately owned stores to require a minimum sale of $10 for credit card transactions. So if you are used to paying for your $3 coffee with a credit card, you might want to consider paying with cash instead (or drinking a lot more coffee in one sitting).

Do you typically carry a balance on your credit card?  The new law will prohibit credit card companies from raising the rate on that balance. It will also require lenders to simplify contracts—meaning no more hidden fees and penalties.

It’s an unfortunate reality that there are plenty of folks who have been easy marks for predatory lenders.  The new financial reform law creates the Office of Financial Literacy, intended to educate Americans on saving and on the ins and outs of credit, loans, and other financial basics.  Within All Financial Advisors we will also provide on-going education and relevant articles pertaining to financial planning and how financial advisors work with consumer households.

Finally, the law allows state law to pre-empt Federal financial laws.  That’s good news if you live in a state whose consumer protection laws are tougher than Federal laws.

This post wraps up our series on how the new financial reform and consumer protection law will affect you.  Next week, we’ll hear from the other side and get reaction to the law from inside the banking industry.

Dodd-Frank Wall Street Reform and Consumer Protection Act:
What Does it Mean for You?

On Wednesday July 21st, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) into law.  Today we’ll take a look at a few ways in which the Act could affect you.

If you’re unfamiliar with the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), it’s sweeping legislation intended to overhaul financial regulations in the U.S.

According to OpenCongress.org, H.R. 4173 is “A bill to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” If you’re ambitious, you can read the full text of the bill here.

Ignoring for now the murky “other purposes” referred to above, let’s dive right into the consumer protection provisions of H.R. 4173.

For starters, the Act will give you additional opportunities to get free access to your credit report.  If you apply for a loan and end up with a higher interest rate because of an adverse action (previously being denied a loan, for example) in your credit report, you’ll have the right to receive a free copy of your credit report.  Today, you can only receive that free credit report once a year (as well as each time you’re actually denied credit), so H.R. 4173 will extend the circumstances under which you can access your credit report for free.

H.R. 4173 extends to mortgages as well. Under H.R. 4173, mortgage companies will be required to fully document your income.  Stated income loans, with their corresponding higher interest rates, will likely be a thing of the past. And say goodbye to prepayment penalties.  Although you likely were avoiding loans with prepayment penalties all along, they’ll no longer be allowed, which will enable more consumers to refinance without getting gouged.  Unfortunately, some experts are predicting H.R. 4173 will result in higher mortgage rates and down payments (those lenders have to make money somehow) and make it harder to qualify for a home loan.

It may not be perfect, but the intentions behind H.R. 4173 are to ensure all Americans are protected from predatory and dishonest financial practices.

That, at least, is a noble goal—no matter which side of the aisle you’re on.

Come back to AllFinancialAdvisors.com later, when we’ll look at how the Dodd-Frank Wall Street Reform and Consumer Protection Act will take on the big credit card companies.

Dodd-Frank Wall Street Reform and Consumer Protection Act:
The CFPB Explained

We’ll be doing a series of posts this week about the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173).  In today’s post, we’ll take a look at the Consumer Financial Protection Bureau.

H.R. 4173 creates the Consumer Financial Protection Bureau (CFPB), a new regulatory entity within the Federal Reserve. 

The CFPB is completely removed from any influence from the banking industry.  It is intended to oversee all financial products offered to consumers by just about any financial institution, large or small.  For example, when you have a complaint about a shady payday loan company, or if a credit card company is charging you exorbitant fees, a consumer can take it up with the CFPB, which will have the authority to investigate your complaints and make new rules to respond to new problems.

We can also expect the CFPB to crack down on big banks and their scads of fees that nickel-and-dime consumers.  But if you get a car loan through a dealership and something goes south, don’t call the CFPB: Thanks to successful lobbying by car dealers, they won’t be regulated by the CFPB.

All the other lenders that will fall under the CFPB’s oversight, however, can expect to clean up their acts—or pay up.   H.R. 4173 gives the CFPB some real enforcement muscle, including the authority to impose fines of up to $1 million per day if a lender fails to follow consumer financial protection laws.

President Obama is expected to sign H.R. 4173 into law this week.  Before the CFPB begins protecting anyone, it has to be created; the front runner to head up the new agency is currently Elizabeth Warren, chair of the Congressional Oversight Panel, who introduced the idea of the CFPB back in 2007.  Consumer protection groups support Warren, which is a good sign; it remains to be seen whether President Obama will make her head of the CFPB.

This week we will also discuss specific ways in which the Dodd-Frank Wall Street Reform and Consumer Protection Act could affect you, so make sure to bookmark AllFinancialAdvisors.com.

Here on the AllFinancialAdvisors.com blog, we’ve talked about various aspects of choosing a financial planner. But we haven’t yet talked about exactly what it is a financial advisor actually does.

First, let’s be clear:  All of the financial advisors listed with AllFinancialAdvisors.com are registered investment advisors, or RIAs.  That means they’re registered with, and regulated by, the U.S. Securities and Exchange Commission (SEC) (or with their state, if they’re managing less than $25 million).  As RIAs, these financial advisors are required to uphold fiduciary duty, meaning they’re legally required to look out for your best interests. (For more about fiduciary duty)

So just what does a financial advisor or RIA do? That depends on the RIA and his or her practice and expertise, but in general, you can expect a financial advisor to do the following:

• Look at the big picture.  A financial advisor will sit down with you and get a clear idea of exactly where you are financially today and where you want to be in the future.          
• Make a plan.  Once your financial advisor has a clear understanding of your current financial situation and your goals, he or she will create a plan to take you from where you are to where you want to go. If you’re just starting out, this may include everything from budget advice to estate planning. If you’re in the process of accumulating wealth, your plan will probably focus more on growth strategies.           
• Prioritize.  Maybe you have 20 years until retirement, and in the meantime you want to send your kids through college, pay off your house, take a vacation each year and build savings. Those are all significant goals, and a financial advisor will help you to work toward achieving all of them by recommending investments with the appropriate amount of risk and allocating your money accordingly.     
• Navigate potential roadblocks.  You might not think about taxes and estate planning, but your financial advisor does.  He or she will maximize your pre-tax investments, minimize your tax risk, and work to ensure your estate passes intact to your heirs.     
• Stay ahead of the curve.  Once your financial plan is established and agreed upon and working smoothly, you can expect your financial advisor to check in with you each year or as needed to fine–tune your financial plan.  This is your chance to check in, discuss your portfolio and talk about any new financial goals.

If you really want to know what a financial advisor does, the best course of action is to find out up front.  Interview several financial advisors and get a clear understanding of exactly what they’ll do for you (and get it in writing).  When you know what to expect from the get-go, your relationship with your financial advisor will run smoothly–and neither of you will be in for any unpleasant surprises later on.

According to a study released today by the Certified Financial Planner Board of Standards Inc., Americans are more concerned about their money now than they were when things started going south–but we’re less likely to hire a financial advisor to help us do something about it.

First, the good news. The study, which questioned 1,002 people over 18 earlier this month, showed we are optimistic about economic recovery: A full 66% of respondents believe the U.S. economy will hold steady or show improvement in the next six months. Even more–83%–think their own finances will do the same.

At the same time, 65% of survey respondents are more worried about their finances now than they were two years ago. We can do some armchair quarterbacking and conclude that’s likely because so many Americans have weathered some really tough circumstances during the economic crisis, including job losses, extended unemployment, depleted savings, foreclosures and bankruptcy. Of course they’re concerned. The study also found most people feel the government needs to do more to deal with the far-reaching effects of the economic meltdown.

Most Americans describe their current outlook on their finances as “cautious,” and they say their biggest financial planning concerns right now are retirement, saving and education, not choosing stocks or cash management. Again, that’s consistent with the hypothesis that most people’s savings have taken hits during the last two years.

But here’s the really interesting part: More Americans than not, feel financial advisors are more important than they were two years ago, and those who do have financial planners are more confident about their finances than are those who don’t.

But only 28% of survey respondents actually have a financial planner. More than two-thirds of people, while acknowledging the need for a financial planner, haven’t followed through and gotten one!

So what’s holding you back? 
If you feel a financial advisor is important but don’t yet have one, what is the biggest reason?  Is it a trust issue?  Not sure how to go about finding the right advisor?  Uncertain how a financial advisor can help you if you’re not already wealthy? Something else entirely?  Time to ACT NOW!

We’d love to hear your responses!