Obama Administration Accomplishments List
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- Accomplishment: Dodd-Frank (DF) Wall Street Reform and Consumer Protection Act.
- What is it?
The biggest financial reform law since the Great Depression. Top highlights of the act are that it protects consumers from "hidden fees, abusive terms, and deceptive practices", prevents bailouts, ensures transparency, and increases enforcement of existing regulations, including conflict of interest and manipulation of the system (from banking.senate.gov).
- Why does it matter?
One of the many reasons, and the one that directly affects the most people, is the reform preventing hidden fees and abusive terms.
"I'll use this Visa to pay the MasterCard, then the MasterCard to pay the AmEx..."
Before DF, credit card companies could entice consumers into making large purchases at low interest rates and then change the terms. Imagine your car suffered severe failure and you charged $3,000 for repairs. Your credit card was at a promotional rate of 10%. You figured out that, paying as much as you could manage, you would be able to pay off the $3,000 in 6 months, and only lose $88 to interest. Then your credit card increased it's rate to 18%, so all future purchases would be a vastly higher interest rate. Before realizing your rate had increased, you stocked up on groceries, charging $110 to the card.
In pre-DF era, credit cards could apply all payments to the lowest balance, refusing to remove the $150 high interest balance until after the $3,000 is paid. So in addition to the original $88 interest on $3,000 over 6 months, you would have $150 stuck accumulating 18% interest that you were not allowed to pay down until after you entirely paid the lower rate balance. Post DF, these are reversed: payments are applied to the highest rate first and then used to pay off any balances that were acquired at a lower rate (note that if you miss a payment this actual can still change your rate on the low-rate balance, since that would be an action on your part and not on the part of the credit card).
