9/19/2013 6:45 PM ET|
5 ways consumers benefited from the crash
Regulatory changes enacted after the financial crisis have left the average American with a few extra protections from predatory lenders.
If there was one good thing that emerged from the devastating stock market crash in 2008, it was the increased consumer protection that came in its aftermath.
The massive taxpayer-funded bailout that was needed to avert the collapse of the global financial system changed the political climate in Washington. Under pressure from angry consumers, Congress ultimately passed two major pieces of legislation: the Credit CARD Act of 2009 and the law establishing the Consumer Financial Protection Bureau, or CFPB.
"The crash resulted in perhaps the most important consumer protection since deposit insurance: the establishment of the CFPB," said Ed Mierzwinski, federal consumer program director for the consumer advocacy group U.S. PIRG. "We don't win game-changer consumer protections unless we have leverage like the collapse provided."
Needless to say, millions of consumers sustained a heavy blow in the 2008 meltdown, which wiped out millions of jobs and sent home prices plunging. The economy is still struggling with anemic growth and a weak job market, while the housing market is only now recovering.
- Timeline: The financial crisis, year by year
Yet for consumers the playing field is a bit more level than it was five years ago. While some of the resulting changes remain to be seen, here are five key ways consumers have benefited:
No. 1: Credit card companies can no longer change interest rates and terms whenever they want with no warning.
For years the credit card industry pushed hard to make more and more profit off its customers. After the crash, the collective anger pushed lawmakers to create some checks and balances to take away some of the advantage big banks had over consumers.
"The CARD Act's greatest achievement has been to knock down the House of Gotcha," said Daniel Ray, editor-in-chief of CreditCards.com. "Banks have had to set prices more honestly since the CARD Act. They haven't been able to rely on luring customers in at an artificially low rate, then hit them with a gotcha and jack up rates afterward. The industry has become more transparent, and consumers know going in what the deal will be."
No. 2: Card companies now are required to disclose how long it would take to pay off credit card debt by making only the minimum payment.
Nothing was taken away from banks with this change. But now that banks are required to spell out how long it would take to pay off a credit card balance, consumers get a more honest picture of what they're facing.
"One of the provisions of the CARD Act says there has to be a table which calculates the amount of interest you will pay and how many months -- really years -- it will take you to pay off your balance if you just pay the minimum payment," said Bill Hardekopf, CEO of LowCards.com. "To see this in black and white on each statement and to have it personalized is giving an incentive for people to pay more than the minimum payment and get out of debt faster."
No. 3: Consumers have a place to turn with their complaints about financial institutions.
When consumers had problems with credit card companies in the past, it was difficult to find a place to complain. No single government agency was tasked with examining the problems consumers were having with card issuers or helping to fix them. With the creation of the CFPB, consumers have not only a place to turn with their credit card issues but also an agency that looks into financial products of all sorts, including student loans.
"The CFPB is still a work in progress, but its greatest impact has been in transparency," Ray said. "The agency has put a spotlight on some of the worst practices in the lending industry, and it is well on its way to becoming a one-stop shop for consumers. Before, consumers had to play a game of 'find the regulator.'"
No. 4: Young adults no longer get bombarded with credit offers.
For years whenever you would walk across a college campus you would see freebies like pizza and Frisbees dangled as a lure to get students to sign up for credit cards. But the CARD Act reined in that sort of marketing.
"Issuers are no longer able to set up a table at a college campus and give away free stuff," Hardekopf said. "That led to all sorts of young adults getting a card and ringing up a significant amount of debt which hurt their credit scores for years to come."
No. 5: Card issuers and the entire credit industry is subject to regulatory oversight.
Not only do consumers have a place to turn if they complain, financial companies also have to worry when they do something wrong.
Last year, the CFPB ordered American Express, Capital One and Discover to pay a combined $425 million to consumers after an investigation found the companies were profiting by marketing unneeded products such as credit insurance. The CFPB investigates credit report errors and makes public thousands of consumer complaints about mortgages, student loans and credit cards.
"Without a doubt, if we can hold on to the CFPB, we will continue to have a marketplace and financial system that better aligns the interests of the industry with the interests of their customers," Mierzwinski said.
Financial institutions, he said, don't share that view. "They absolutely hate the idea of a regulator with just one job: protecting consumers."
More on the crash, five years later:
VIDEO ON MSN MONEY
Interest on savings are at or near record lows while fees are at or near all time highs. Yet banks send out Credit Cards at Loan Shark Rates. Ditto for everything else they do. Consumer benefited, only in your dreams.
Right.......just in case we consumers should ever climb out of the Great Recession hole and
try to buy a decent home, we will be protected.
Mike West-- an obvious delusional HATER.
CRA: Community Reinvestment Act: It required banks to report where they lend the money that is in their vaults through HMDA. It was enacted because banks were taking urban deposits and using them to build further and further out sprawl projects. The people who bought the sprawl homes were credit abusers who had little to no savings, so when those loans defaulted, it hurt stable suburban and urban RE-investments. Simply, banks had to invest where they got the money before speculating in high risk boondock projects. That's IT, sir... that's ALL that CRA was designed to do.
You have post after post after post of rambling dim-witted spew about an industry you obviously know NOTHING about. Your posts are HATE, not fact.
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