Under Senate bill, free credit freezes, fewer consumer protections

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Measure would also reduce protections against unfair, risky lending

Fred O. Williams

Senior Reporter
Expert on consumer credit laws and regulations

Senate bill makes credit freezes free to fight identity theft

Consumers will get free, fast credit freezes to halt identity
theft under a Senate bill – which will also reduce safeguards against unfair and
risky loans.

The Economic Growth, Regulatory Relief, and Consumer
Protection Act, S. 2155, as amended by SA 2151, was cleared for takeoff Monday in a procedural vote to limit debate. Sixteen Democrats joined Republicans to push the measure forward by 66 to 30, over objections that it sets the stage for another financial crisis.

The House has already passed a more
aggressive bank deregulation bill
, making approval there likely.

Highlights of bank deregulation-consumer protection bill

  • Makes credit freezes and un-freezes free; one hour to process if requested electronically.
  • Protects veterans from certain reporting of once-delinquent medical debt on credit reports.
  • Erases delinquent student loans from credit reports after completion of rehabilitation program.
  • Eases capital requirements and regulatory standards for midsize banks, increasing bailout risk.
  • Reduces reporting of home loan data needed to fight discrimination in lending.
  • Reduces quality standards for home loans made by small banks.

Free credit freezes but fewer consumer protections

A credit
freeze
blocks access to your credit report for new loans. That shuts out fraudsters who try to open accounts under your name. Interest in freezes
mushroomed after the data
breach at Equifax
, which exposed Social Security numbers and other
sensitive data of nearly 148 million Americans.

“We have a patchy regulatory framework now that is really
confusing to people,” said Eva Velasquez, president of the Identity Theft
Resource Center, in an interview. She said the organization doesn’t oppose or
endorse specific legislative proposals. However, “we’re certainly in support of
free credit freezes.”

But consumer advocates, civil rights leaders and most
Democrats aren’t lining up to applaud the bill. To the contrary, opponents call
the measure’s protections crumbs for consumers that distract from a dangerous rollback
of the Dodd-Frank Act’s bank safety measures.

“Are our memories so short that we learned nothing from the
2008 Wall Street crash?” Sen. Bernie Sanders, I-Vt.,said during debate.

“Are our memories so short that we learned nothing from the 2008 Wall Street crash?”

Wins for consumers in S. 2155

  • Free credit freezes:
    Credit bureaus must implement a freeze on your credit for free, within one hour
    of receiving the request by phone or computer, or three days by mail. Unfreezing your report when you apply for credit will be just as fast.
  • The
    Federal Trade Commission will set up a web page
    as a central dispatch with
    links to the major credit bureaus pages where you can freeze your report; put a
    fraud alert on your credit file, or opt of letting your information be shared
    for marketing purposes. Freezes don’t shut out companies you have an
    existing relationship with, or debt collectors working for them.

    Note: Two of the three big
    credit bureaus already
    offer free locking and unlocking of your credit report via their web or
    mobile apps, much like a credit freeze. And free credit freezes are the centerpiece
    of other pending measures in Congress which do not also roll back protections
    from bank failures.

  • Veterans’ credit
    protection:
    Excludes from veterans’ credit reports some medical debt that
    was paid or settled after going delinquent. Establishes a dispute process with
    the credit bureaus and requires the Department of Veterans Affairs to set up a
    database to verify medical debt.
  • Student loan defaults
    erased:
    Private student loans are removed from credit reports after a
    default if the borrower completes a loan rehabilitation program, bringing
    payments current. Note: The U.S. Government Accountability Office will conduct a study on the costs and impact of the provision.

Losses
for consumers in S. 2155

  • Banks with $50 billion to $250 billion in assets get a break from enhanced
    regulation
    standards, including higher capital requirements and “living wills” designed
    to protect taxpayers from their failure, a key protection in the Dodd-Frank Act.
  • Banks with less than $10 billion in assets are exempt from Dodd-Frank’s
    Volcker Rule
    , allowing them to make risky trades backed by depositors’ money.
  • Banks that make fewer than 500 home loans a year will report less data on borrowers’ race. The data is used to fight discrimination in lending. Note: The Independent Community Bankers of America says basic data on borrowers’ race would still be reported.

Toss-ups
for consumers in S.2155

  • Easier, but riskier,
    mortgages.
    Lenders with under $10 billion in assets get a pass from home mortgage
    rules that restricted risky provisions, such as interest-only loans, that
    increase borrowers’ risk of foreclosure. Loans would also get an exemption from
    appraisal requirements in some cases.
  • Access to
    manufactured-home loans.
    The bill eases restrictions on mobile
    home loans designed to protect buyers, such as restrictions on sellers steering
    buyers to affiliated lenders.

“Tailoring costly provisions will allow many U.S. banks to free up capital for consumers and small-business loans.”

What experts say about S. 2155

Thumbs down:

  • Sheila Bair, former chair FDIC
    during the financial crisis and current chair of the Systemic Risk Council. Cutting capital requirements raises the risk of more taxpayer bailouts. “Given market volatility, now is the time we should be bolstering bank capital,
    not chipping away at it,” Bair said on
    Twitter.
  • Paul Volcker,
    former Federal Reserve chair and author of the Dodd-Frank Volcker Rule. Raising
    the regulatory threshold for heightened requirements to $250 billion “goes too
    far,” he said in a letter
    to Senate Banking Committee ranking member Sen. Sherrod Brown, D-Oh.
  • Vanita Gupta, president
    of the Leadership Conference on Civil and Human Rights and former head of the
    Justice Department’s civil rights division. The bill would undermine the Fair
    Housing Act, which prohibits discrimination in the housing market, Gupta said.

Thumbs up:

  • Randal Quarles, Federal Reserve vice
    chairman for supervision. In a speech Quarles said the Volcker rule is
    too complex, not working well, and that he supports an exemption for community
    banks.
  • Richard Hunt,
    president and CEO of the Consumer Bankers Association. “Tailoring costly
    provisions will allow many U.S. banks to free up capital for consumers and small
    business loans instead of diverting funds to pay for compliance costs that do
    not contribute to economic growth,” Hunt said
    in a letter supporting the bill. Note: Hunt criticized the measure
    for not reformulating the Consumer Financial Protection Bureau with a
    bipartisan commission structure instead of a single director.

Down the middle:

  • The Congressional Budget Office says
    that rolling back tougher capital standards for big banks would “increase the
    likelihood that a large financial firm with assets of $100 billion and $250
    billion will fail.” But given the low likelihood of a financial crisis, it
    estimates the bill’s net cost to the FDIC at a relatively modest $28 million during
    2018-2027.

Is S.2155 really a bipartisan compromise?

Twelve Democrats signed on as co-sponsors of the bill. However, during
committee debate, none of the 30-plus proposed
amendments were approved by the Republican majority, Sen. Elizabeth Warren, D-Mass., said, undercutting claims
that the measure is a bipartisan
compromise. On Monday, more than one-third of all Democrats in the Senate voted in favor of moving forward with the proposal.

“Only a bunch of bank lobbyists, and their friends in
Washington, would call this a consumer protection bill,” Warren said during Senate
floor debate.

“We’re not trying to blow up Dodd-Frank,” responded Sen.
David Perdue, R-Ga. “Many of us have taken a big step back from what we think we need to do, to get support for this bill.”

The companion piece of Dodd-Frank deregulation in the House goes
further in rolling back restrictions on banks
. It also weakens the powers
of the Consumer Financial Protection Bureau.

See related: Under Trump appointee, CFPB is reversing consumer protection, 12 consumer protections in the Credit CARD Act




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