How the banking rule rollback will affect your mortgage, credit and more

  • President Donald Trump signed the Dodd-Frank overhaul into law on Thursday.
  • The measure includes various provisions that affect consumers, including one that could make it easier to get a mortgage at their local bank or credit union.
  • Freezing your credit report also will become free nationwide, and other changes affect the rules for private student loans.

Legislation that eases banking regulations — and modifies rules governing credit reports and some consumer loans — was signed into law by President Donald Trump on Thursday.

The bill, which was approved by the Senate in March, passed the House on Tuesday by a vote of 258 to 159.

The measure rolls back some of the regulations imposed by the Dodd-Frank Act of 2010. That legislation came on the heels of the financial meltdown that rocked the U.S. economy a decade ago, when risky and unaffordable mortgages contributed to millions of homeowners losing their houses to foreclosure.

Pedestrians pass in front of a JPMorgan Chase & Co. bank branch in New York.
Eric Thayer | Bloomberg | Getty Images
Pedestrians pass in front of a JPMorgan Chase & Co. bank branch in New York.

Supporters of the bill are lauding its passage as a boon to community and regional banks.

The changes "will help America's banks, particularly community banks, get back to the basics of lending to creditworthy borrowers and businesses," said Rob Nichols, president and CEO of the American Bankers Association, in a statement.

Consumer advocates, however, say the legislation will lead to banking practices that contributed to the financial crisis.

"It's hard to watch Congress ignore the painful lessons of the Great Recession that started with an historic financial collapse that occurred less than 10 years ago," said Mike Litt, consumer campaign director for advocacy group U.S. PIRG, in a statement.

Among the major changes enacted under the bill is one that raises the threshold for when a bank is considered "systemically important" — and therefore subject to stricter regulations — to $250 billion in assets from $50 billion.

"It's hard to watch Congress ignore the painful lessons of the Great Recession that started with an historic financial collapse that occurred less than 10 years ago." -Mike Litt, Consumer campaign director for U.S. PIRG

It also exempts banks with less than $10 billion in assets from complying with the so-called Volcker rule, which bans financial institutions from making risky investments with their assets.

Additionally, the bill eases reporting requirements for many mortgage lenders. Consumer advocates say the move will eliminate the government's ability to identify patterns of discriminatory or predatory lending.

"There is a strong chance we will see an increase in mortgage fraud, racial discrimination and risky banking practices," Litt said.

Here are how some other parts of the legislation will affect consumers.

Mortgages

Getting a mortgage from a community bank or credit union could become easier under one of the provisions.

In simple terms, the changes will let smaller institutions — those with up to $10 billion in assets — offer mortgages that are not subject to some of the strictest federal underwriting requirements, as long as they meet certain other conditions.

The Dodd-Frank Act created a so-called qualified mortgage. Basically, if lenders meet a variety of strict guidelines — such as ensuring a borrower's loan payment is no more than 43 percent of their income — they get legal protection if a consumer later makes a claim that they were sold an inappropriate mortgage.

The bill that Trump signed will let those smaller banks and credit unions still qualify for the legal protections without meeting all of the requirements that typically go with underwriting qualified mortgages.

However, they still will be required to assess the borrower's financial resources and debt as part of the underwriting process.

The loan also cannot be interest-only or one whose balance could grow over time (so-called negative amortization). Those types of loans proliferated leading up to the mortgage crisis and contributed to homeowners' inability to keep up with their payments.

The lender also would be required to keep the mortgage in its own portfolio instead of selling it to investors. That would mean the risk remains with the bank.

Private student loans

The legislation includes two provisions affecting the repayment of private student loans.

The first will prohibit a lender from declaring default or accelerating repayment terms when a co-signer of the loan declares bankruptcy or dies.

Also, if a student borrower were to die, the lender will be required to release the co-signer from any remaining debt.

The other provision will make it easier for you to remove a private student loan default from your credit report.

Basically, if a lender offers a rehabilitation program that involves a borrower resuming consistent payments on the loan, the borrower could ask the bank to remove the mark from their credit. The request could only be done once per loan.

These new rules will apply to private loan agreements entered into 180 days or more after the bill's passage.

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Credit reports

Under the legislation, consumers will be able to put a freeze on their credit report without having to pay a fee.

Freezing your report generally blocks outside access to your file. This means a scammer can't use your personal information to get a loan or establish credit, because the potential lender can't check your report to approve the application.

The congressional push for the change came in the aftermath of the 2017 cyberattack at Equifax, in which the personal information of about 148 million consumers was compromised. The data revealed in the breach includes names, birth dates, Social Security numbers, addresses and driver's license numbers.

U.S. PIRG has argued that while free credit freezes are good, this legislation will pre-empt states from pursuing rules that would go further to protect consumers in their dealings with credit reporting firms.

"Why are the credit bureaus getting a break in this bill only nine months after news of the massive Equifax data breach?" Litt said.

Only a few states have required credit freezes to be free. U.S. PIRG estimated last year that consumers collectively would face a $4.1 billion tab to freeze their credit reports at the three largest firms: Equifax, Experian and TransUnion.

In states where fees have been legal, consumers pay anywhere from $2 to $10 per freeze.

The legislation also bans credit firms from charging you for a temporary removal of your freeze when you want a lender to check your credit report so you can get a loan.

Additionally, short-term fraud alerts will be extended to one year from the current 90 days. These alerts are separate from freezes: Under a fraud alert, a lender seeking to approve an application must first contact you to verify the request is not from an imposter.

With such an alert, you only need to contact one credit reporting firm, which in turn is legally obligated to share your notice with others. It also already is free.