The rules take two forms. One protects the borrower from the lender, and the other protects the lender from itself.The Fed will likely announce a rule that will stop lenders from charging borrowers a penalty for early repayment. Only in America must a customer pay not to do business with a company. Think about how expensive it is to end a cell phone contract. Some cable companies also charge a fee to discontinue service. Why is that legal? If a customer owes money to a lender, and pays it early, the lender has no reason to complain. It has the capital to lend elsewhere. Charging prepayment penalties is a predatory practice. It used to be illegal and should have remained that way.
Lenders will have to ensure that borrowers pay their property taxes and insure their houses against loss. All lenders used to do this, knowing that the guaranteed price of a house sold at a tax auction was only the amount of the taxes owed on it, and that borrowers rarely made payments on a pile of ashes. These were not burdens to the lender; they were merely sound business practices.
The Fed also wants lenders to ensure that borrowers can pay back their loans before giving them the money. What kind of lender would fail to do so? Only a truly reckless lender would not see the need for borrowers to prove their ability to pay. With the advent of collateralized debt obligations, or CDOs, reckless has come to describe the loan-making frenzy. CDOs are bundles of mortgages sold as bonds to investors. A lender who no longer holds a mortgage also no longer holds the risk.
When a lender approved a half million-dollar loan for a janitor who made $28,000 annually, the borrower was wrong, but the lender was plain dishonest. Such a mortgage was often sold before the ink was dry on the contracts, insulating the lender from the risk completely. Some of the recipients of these loans admit that they would never lend themselves such large sums of money, but mortgage lenders often did.
Many of the "new" rules are old rules that disappeared when the banking industry was deregulated. Lenders will now be required to protect their investment, rather than passing risky loans on to investors. They will have to disclose their terms to the borrowers, who will probably be a little more careful about signing papers after reading them. Finally, lenders will be required to tell the truth when they advertise mortgages. No more promising people that they will pay only $1000 a month when the payments are scheduled to triple in a year or two. Requiring lenders to tell the truth is not a hardship; it is the difference between legitimate business and fraud.
The Declaration of Independence says that government derives its rights from the consent of the governed. This is called social contract theory, which states that people give up autonomy to governments to maintain social order. That is, people give up some power in return for protection.
Since the 1970s, the United States has pushed this arrangement to the limits. The government has provided less and less protection and begun requiring that citizens give up more and more autonomy. This step by the Federal Reserve to protect consumers from big business is a step in the right direction, but it is long overdue. The fox should not be allowed to guard the hen house any longer; this arrangement will always be a disaster.
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Comments: 49
(and Socialism needs Capitalism just as bad - to create progress)
Angel
My home is only worth $75,000 but our bank charges us $689 per month.
That's a huge chunk of money for a home that was built in 1920.
I hope this new law protects consumers. But, knowing the industry, they will probably find some loopholes.
As to "the fox guarding the henhouse," that's exactly what we have. The Federal Reserve was established and continues its operations for one reason and one reason only: to sustain a system whereby the great mass of the American people are robbed and plundered by the holders of the monopoly of money. People today are so dreadfully ignorant and misinformed that they don't even see what is hapening to them. They feel the pinch in their wallets, but they know not from where the weight that presses on them is centered.
Here's the deal: "Fractional reserve" banking is, always has been, and always will be predicated on fraud and covert theft of property. It is an intrinsically insolvent system. If the government cared about tending to it's one legitimate and proper purpose -- that of securing the property rights of it's "citizens" -- then banks would be treated the same as any other type of warehouse for safekeeping; they would be made to honor their lawful contracts, and to keep 100% of the value of their demand deposits on hand.
Fractional reserve banking is a scam, and every central bank that has ever been established was created for the express purpose of perpetuating and sustaining the scam. The Federal Reserve System is no different; it was created -- indeed the legislation that created it was conceived by -- unscrupulous bankers, for the purpose of establishing a permanent engine of plunder.
The fact that it requires a tyrannical, unconstitutional "legal tender" law, to coercively compel the people to deal in its worthless notes, and to rob us of our natural, inherent right to make contracts and deal in any sort of currency or commodity that the consenting parties might agree to; ought to suffice to expose the true nature of the institution itself.
Central banks, like all manner of state-created plunder mechanisms, are handiwork of tyrants and criminals, who wish to deal, without risk and without scruple, in the property of those who actually produce the wealth of society.
Steve, the only true way to run our monitary system is the legal way. Gold and Silver to back up our currency. Just as Ron Paul has preached for the past 30 years.
I just recently got a letter from my bank telling me that "Federal regulation prohibits more than 6 withdrawals per month" from my savings account including transfers from one account to another and overdraft protection transactions.
What?? The Feds get to tell me how many times I can access my savings?
Yup, the money-baggers have had their fingers deep in government since what... before WWII? Money is a form of power and thus corrupts many, quite absolutely.
The reality of our Post Subprime Meltdown era is the same as what existed before banks and lending institutions were regulated; namely, that bank and lending industry customers need to be VERY, VERY WARY of EVERY institution they work with.
Bank and lending institution mentality is best summed up as this: They want your money.
Someday, I hope that our government gets back around to protecting ALL citizens equally; and stops catering to the wealth holders and wielders.
I would agree with you if it were not for the fact that government regulation keeps mortgage lenders from suffering no consequences when they do not honor their agreements. It is reminded that without law and regulation, lenders' power advantages would mean that only the very wealthy would ever be able to take them to task for wrong doing.
With America the way it is today, where the majority of parents would never allow their children to live with them until those children could save up enough money to buy a home outright, mortgage lenders are what keeps our country from becoming sixty percent renters, thirty percent broke and twenty percent homeless.
Home ownership is proven to be good for society. Lack of home ownership is proven to be bad for cultures. It follows, then, that it is in the nation's best interest for government to protect the citizenry from predatory lenders.
It always sounds good but at what cost does this come about. Don't get me wrong I feel that no law could be strong enough to keep someone from cheating another in any form. My point is the more that government sticks its hands into something the more messed up it gets.
A big 10 for the article and see you in two weeks, don't have to much fun!
The constitution also did not authorize Congress to create, sanction, and sustain a banking cartel, nor to compel individuals to accept the worthless bank notes under threat of imprisonment (and of course, the always implied threat of physical violence, should one refuse to accept the so-called "justice" handed down -- should one choose to assert their right as a sovereign human being, and make contracts to deal in whatever sort of currency the relevant parties might agree to).
Yet, somehow, I never seem to see you complaining about that. Curious.
Similarly, mortgage lenders owe their customers the truth about the contracts they are about to enter, in plain language that they can understand.
For a different way to look at this, see my Associated Content article, Ten Ways to Lose Your Home to Foreclosure.
There are a number of problems at every level in this whole mess. I really dislike the fact that there is a whole lot of lack of common sense at every level.....and a whole lot of excess greed. This country has gotten into a habit of getting what they want...NOW. The corporations have pushed a "gotta have it" mentality, all the while focusing in on their short-term gains rather than their long-term survival. And this administration has bought into their pressure - deregulate, allow us to do what we do best, but be there when we screw up to bail us out.
We need to stop this NOW mentality and start focusing in on the long-term. And we need to put the proper safe-guards in place, including financial education of the public and reasonable regulation of business. Just because you own or run a company doesn't mean that your intelligent or honest.
Great article and so true. My husband and I were just discussing the fact that a lot of these regulations used to be in place in one form or another.
Well done.
The constitution gives *Congress* the power to *coin* money. It does not give Congress the power to create and sustain a banking cartel, which is exactly what the Federal Reserve System is; and it does not give Congress the power to declare the worthless paper bank notes, created by the cartel, as "legal tender," effectively destroying the right of individuals to to deal in sound, lawful money.
We are compelled by law to deal in the Federal Reserve's funny money paper, which in and of itself is an act of plunder; as the Fed, the government, and a handful of special interest, are the direct benficiaries of hidden wealth redistribution -- what we know of as "inflation." The purchasing power we lose, as holders of Fed Notes, when the Fed expands the money supply (what might otherwise be called "counterfeiting," but for the woefully ignorant American public and their blind assent to the political class) does not vanish into the ether. It is siphoned up to the first people to receive and spend the newly-printed paper and the newly-created artificial bank credit -- namely the government, the bankers, and a few politically-favored, nominally "private" interests -- your Halliburton's, Blackwater's, and General Dynamic's, and such.
The constitution does not authorize the government and it's banker friends to steal from the public via money manipulation, enabled by "legal tender" statutes that the constitution did not authorize them to make. It authorizes them to mint gold and silver coins, which the public might or might not find useful, and might or might not prefer to use for their transactions. Period. Nothing more.
I do not completly disagree with you. Congress is given the power to coin money AND regulate the value thereof. It could be interpeted that they are doing just that. Nevertheless Congress has that power not the federal reserve
Yes, I suppose it could be interpreted that way; if the interpretation you are seeking is one that sanctions fraud, robbery, and usurpation.
Or, it could be interpreted like this: Congress's power to "regulate the value" of the coins it mints, is part and parcel to it's power to set the standards of weights and measures. Congress could, if it so chose, legitimately and constitutionally, arbitrarily change the specific weight and purity of the coins they mint.
Beyond that, the provision is meaningless. A "dollar" -- whether it be a coin minted by Congress, or a piece of paper printed from out of thin air by a banking cartel -- will yield whatever "value" individuals acting on the market are willing to ascribe to it.
The ruling class and the Corporations which run this nation will always find a way to
screw the common man.
I agree we should go back on the gold standard.