What the financial reform means to you

As legislators trumpet a final agreement on the most sweeping financial reform since the Great Depression, consumers might be wondering, "What's in it for me?"

The bill headed for final votes in Congress next week covers everything from debit-card swipes at Starbucks to the most complex securities, in an election-year salve for public anger over the Wall Street risk-taking that cost millions their jobs, homes and nest eggs.

The 2,000-page Dodd-Frank Act would:

• Create a Consumer Financial Protection Bureau.

• Impanel a council of regulators to monitor the financial system for major risks.

• Impose tough regulations on complex financial derivatives that amplified the economic free-fall.

• Grant the government power to seize and dismantle teetering firms whose failure would pose a danger to the economy.

A brief summary of how the bill is expected to serve consumers:

Consumer Financial Protection Bureau

This new agency is intended to protect the interests of the average Joe. Housed in the Federal Reserve, it is designed to protect consumers from predatory lending, hidden credit-card fees and the like.

Currently, consumer protection is spread among various bank regulators. The bill brings under one roof oversight of mortgages, credit cards, student loans and payday loans.

"The bill gives consumers a fighting chance," said Pamela Banks, senior policy counsel for Consumers Union, publisher of Consumer Reports.

OVERSIGHT

A 10-member council led by the Treasury secretary would monitor threats to the financial system. It would decide which companies were so big or interconnected that their failures could upend the economy.

If such a company teetered, the government could liquidate it. The costs of taking such a company down would be borne by its industry peers.

MORTGAGES

The bill:

• Prohibits prepayment penalties for those with adjustable rate and other complex mortgages, which advocates say have unfairly trapped homeowners in unfavorable loans.

• Bans "liar" loans, which let homebuyers take out mortgages without documentation of income. These loans helped fuel the housing bubble by putting people in homes they could not afford.

• Prohibits bonuses for mortgage brokers and bankers based on the type of loans they make, considered an incentive to push homebuyers into high-priced loans.

• Requires lenders to disclose to borrowers the maximum amount they could pay on adjustable-rate mortgages.

Republicans complained the bill fails to impose tighter restrictions on Fannie Mae and Freddie Mac, the mortgage giants who have benefited from huge federal bailouts and whose questionable lending helped trigger the housing and economic meltdowns.

DERIVATIVES

Derivatives are financial instruments whose values change based on the price of some underlying investment. They were used for speculation, fueling the financial crisis. Under current law, they have been traded out of the sight of regulators. The new law would force many of those trades onto more transparent exchanges.

Banks will continue trading derivatives related to interest rates, foreign exchanges, gold and silver. Those deals earn big profits for Wall Street titans.

But riskier derivatives could not be traded by banks. Those deals would run through affiliated companies with segregated finances. The goal is to protect taxpayers because bank deposits are guaranteed by the government.

RISK RETENTION

After lenders made bad loans, the loans were sold into a secondary market where they were pooled with others and sold to investors as complex mortgage bonds. The risk associated with a bad loan was passed along to unsuspecting investors. The bill requires lenders to retain 5 percent of the risk, effectively giving them skin in the game.

CREDIT-RATING AGENCIES

Agencies that give recklessly bad advice could be legally liable for investor losses. They would have to register with the Securities and Exchange Commission.

Regulators would study the conflict of interest at the heart of the rating system: Credit raters are paid by the banks that issue the securities they rate. Before the crisis, they bowed to pressure from the banks, lawmakers say. That's why the agencies gave strong ratings to mortgage investments that were basically worthless.

FIDUCIARY DUTY

That's the fancy term for a financial professional giving you advice and selling you products that are in your best interest, not his.

Financial advisers are already held to a high fiduciary standard to do what's best for the client, but now stockbrokers could be as well. The bill calls for a six-month study of the issue, but advocates expected the Securities and Exchange Commission to impose the requirement for brokers.

EXECUTIVE PAY

Shareholders would vote on executive pay packages. The votes wouldn't be binding. Companies could ignore them.

But the Fed would oversee executive compensation to ensure it does not encourage excessive risk-taking. If a payout appeared to promote risky business, the Fed could intervene to block it.

DEBIT-CARD FEES

The Fed will set new limits on the fees banks charge merchants who accept debit cards. Retailers, who stand to save billions in payments, could pass the savings on to customers — or pocket it themselves.

Banks, meanwhile, could compensate for the lost revenue by accelerating the demise of free checking, said a bank-industry spokesman. Or they might dream up new fees.

CREDIT-CARD MINIMUMS AND MAXIMUMS

The legislation allows retailers to require a minimum $10 purchase on a credit card; until now, card companies forbade retailers from minimums. The upshot for consumers? Carry more cash for small purchases.

And governments and colleges can set maximums for credit-card payments. Interchange fees to card companies add up with large payments for taxes and tuition. That's bad news for parents who like to put tuition charges on a card to rack up cash rewards, frequent-flier miles or rewards points.

CREDIT SCORES

Those who are denied a loan or otherwise hurt by their credit score will be entitled to a free copy of that score on the spot.

CAR LOANS

Auto dealers successfully escaped most regulation from the Consumer Financial Protection Bureau.

"Here we have an industry that came to taxpayers desperate for help, and the American taxpayers saved this industry's hide," said Douglas Heller, head of Consumer Watchdog. "Yet, they thank us by using their lobbying might to exclude them from oversight."

But the bill would allow the Federal Trade Commission to expedite and enforce new rules to protect consumers from abusive auto-financing deals.

Compiled from the Chicago Tribune, The Associated Press, McClatchy Newspapers and The Washington Post.