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Congress Passes Dodd-Frank Rollback. Here’s What It Means for Borrowers
Last week, Congress passed a bill that will roll back some of the banking reforms created to protect Americans after the 2008 financial crisis.
President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act into law Thursday, after months of industry groups and consumer advocates arguing for its passage and failure, respectively.
Supporters say the law will make it easier for banks to lend without the expensive and prohibitive government oversight that choked the lending process. Opponents say this law is misguided and a step in the direction of the careless, and often damaging, lending practices that caused the worst economic crisis since the Great Depression.
But what’s actually in it, and what does it mean for average consumers?
What This Means for Aspiring Homeowners
By far, the most heavily debated aspect of this law is what it will mean for prospective home buyers.
According to the Mortgage Bankers Association, the new law removes hurdles and could lead to more lending from small- to medium-size banks. That means if you are considering buying a home, you could have more opportunities to get approved for a loan.
The bill does this by removing some reporting regulations for banks.
Before the new law was passed, banks were required to prove that borrowers had the means to repay a loan before it could be approved. Now, more banks can approve mortgages without having to assure the government that the loans are safe, according to Ira Rheingold, the executive director of the National Association of Consumer Advocates (NACA).
NACA is a national nonprofit that fights for a fair and open financial market.
“The bottom line is that there is a risk that consumers will be offered loans that are not quite as safe as they were before,” Rheingold told The Penny Hoarder. “They’re making an opportunity for bad guys to come in and make loans that are unaffordable… That creates a real risk for homeowners.”
A separate statement from NACA also said the new law could make way for possible housing discrimination and remove rules that stop lenders from leading borrowers toward expensive, dangerous loans.
So while more people could have more access to home loans, the types of mortgage loans available could benefit the banks more than the consumers.
Rheingold suggests that if you’re looking to buy a home or refinance a current mortgage, start by doing your own math to make sure you can afford not only a down payment but the full home loan in the long term, and make sure that your credit score is high enough to qualify for the best interest rates.
Additionally, Rheingold suggests going to a local bank or credit union you already have a relationship with first and then shopping around for the best terms and interest rates before taking on a loan.
What This Means For Private Student Loan Borrowers
Those who still have unpaid student loans provided by private banks should also be aware of the new law.
Before now, the law said that if you don’t make a student loan payment for a certain length of time, a statute of limitations could prevent a private lender from suing you to collect the debt.
The length of time you must go without payment varies from state to state, but Rheingold said it's usually less than seven years.
The new law includes a provision that says the countdown for that statute of limitation restarts with each payment.
That means if private lenders can get you to make even a single payment after the statute of limitations has expired, the clock restarts and the lender will again have the right to sue you for nonpayment.
“As soon as you make that new payment it makes you liable for lawsuits, and it makes debt collection that much easier,” Rheingold said. “A lot of borrowers don’t realize making that single payment… causes all sorts of problems.”
What This Means for Everyone Else
More open lending could benefit those who are not in the housing market. That’s why the Small Business Administration (SBA) is supportive of the new law.
“Access to capital is a critical factor in whether small businesses succeed or fail,” SBA administrator Linda McMahon said in a statement. “Relieving lenders of some of these regulatory restrictions will give them more freedom to work with borrowers and get funding into the hands of those who need it.”
Of course, like with mortgage loans, less government oversight means there is more responsibility on the borrowers not to take on more loans than their business can sustain.
Finally, the last group that should be aware of this new law is anyone who has ever been the victim of a data breach — so, pretty much all of us.
The new law makes it free to freeze your credit for up to a year.
Desiree Stennett (@desi_stennett) is a senior writer at The Penny Hoarder. She writes about how government and court actions impact your wallet.