Here’s Why Getting Rid of This 1 Controversial Law Could Plunge The Country Back Into a Recession
Lawmakers are trying to roll back laws designed to relieve the country from The Great Recesssion. Sen. Mike Crapo from the Senate Banking Committee proposed changes to a number of rules embedded in the Dodd-Frank banking law, which could reshape lender practices, CNN reports.
Rule changes would ease lending restrictions, which allows lenders to make more loans, but also use predatory practices. If the legislation passes the House, Donald Trump said he would sign it into law, Forbes reports. But what does that mean to not only you, but also the economy? Page 6 shows how this move could be scary. Here is what could change:
1. Your FICO score won’t be the only way to get a mortgage
Mortgage lenders typically use your FICO score to provide insights into a borrower’s history with credit. Updates to Dodd-Frank could mean lenders may use alternative scores, like the VantageScore and the newer FICO version, FICO 9.0, according to MarketWatch.
Alternative scores examine a shorter credit history, so lenders may not see the complete picture, especially if the borrower’s credit has blemishes that would show up on the traditional FICO report.
Next: The Equifax data breach prompted this new rule.
2. You could do this for free
Remember the Equifax data breach where millions of customers’ sensitive information was exposed? Many people scrambled to protect their information by paying to have their credit frozen, which restricted access to their credit report.
The new rule, called “Protecting Consumers’ Credit,” would allow the consumer to place a freeze on their credit for free if another data breach occurs, MarketWatch reports.
Next: Changes may be good news for this group.
3. More protections for this group
Veterans are vulnerable to predatory lending through some participants in the Department of Veterans Affairs mortgage program, according to MarketWatch. Lenders use a bait and switch approach to the hook veterans into what ends up being an expensive mortgage loaded with fees.
New legislation would require the lender to disclose the financial implications of mortgage loan refinance, plus it would harness predatory practices on veterans.
Next: But new rules are bad news for them.
4. Less protection for this group
While veterans may see increase protections, minorities may suffer under the new legislation. All banks must currently disclose demographic data for every approved mortgage loan. However, the new bill would lift that process for all banks except for the very largest financial institutions.
“If the law passes, these banks will be able to deny black customers without fear of repercussion or lawsuits,” according to Michael Harriot from The Root.
Next: Rule rollbacks would allow this practice to rear its ugly head again.
5. This common banking practice would re-emerge
With rates on the rise and housing inventory historically low, loosening regulations that prevented predatory lending may re-open a recessionary can of worms.
Critics say mortgage restrictions drove up costs, which are especially burdensome to small banks, and prevented more consumers from obtaining a mortgage, according to MarketWatch.
Next: What does this all mean for you?
6. Why this could be dangerous for the economy
Consumers should be concerned. The bill allows banks to slide back to the days where they acted like Oprah saying, “You get a mortgage! You get a mortgage!”
New York Mayor Michael Bloomberg said at a 2011 business breakfast: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp,” Forbes recounts. More people could be approved for a mortgage they cannot afford.
Next: Who wins if this passes?
7. This is who wins if the law passes
If the rollback is made law, banks will be the big winners, according to CNN. “This legislation threatens to undo important rules protecting us from risk,” Sen. Sherrod Brown, the top Democrat on the banking panel, said on the Senate floor, CNN recounts. “This legislation again puts taxpayers on the hook for bailouts.”
The “too big to fail” measure would be increased, so rather than banks with $50 billion in assets being put to a stress test, the bar would be raised to $250 billion, CNN reports.
Donald Trump views the potential bill passage as a win for banks too. “We made it a lot easier for you to lend now to great people that a short period of time ago you were not able to lend [to] because of rules, regulations, and you were lending to people that you didn’t even want to lend [to],” CNN reports.