Historic Financial Reform Moving Through Congress

If you ever buy gas with a credit card, employ a financial adviser to make investment choices, borrow from a bank or pay hidden fees on your home mortgage, the most sweeping regulatory overhaul of Wall Street since the Great Depression is sure to affect you.

The financial reform measure, which passed the Senate on Thursday by a vote of 59 to 39, is designed to curtail risk in the financial sector, offer consumers new protections against abusive practices, prevent financial companies from becoming “too big to fail,” and force the trading of complex instruments known as derivatives to take place out in the open, rather than hidden in the shadows.

Despite extensive lobbying by financiers and corporate lobbyists to limit the bill’s scope, consumer advocates hailed the Senate measure as historic. “It’s a turning point in our economic history,” said Heather Booth, executive director of Americans for Financial Reform, a coalition of progressive advocacy groups.

“It ensures the financial system operates to support needs of working families, promotes business growth and economic mobility rather than the interests of the speculators who view the economy as a huge casino,” Booth said.

Opponents, primarily Republicans, disagree. The Obama administration is using the financial crisis as pretext to “expand the cost and size and reach of government,” said Sen. Minority Leader Mitch McConnell, R-Ky. “It punished Main Street for the sins of Wall Street.”

Senate passage of the measure marks the second significant legislative victory for the Obama administration after health care reform. Obama pledged to empower government regulators to build more transparency and accountability into the American marketplace.

A law by July 4?

The Senate bill must now be reconciled, however, with a similar bill passed by the House of Representatives in December, before the president can sign it into law. And both advocates and opponents of the bill urged that the negotiations process, to be led by Rep. Barney Frank, D-Mass., be open to public scrutiny. Frank says he hopes to have negotiations completed and the bill on Obama’s desk before July 4.

“The battle now moves to conference where the big banks will look to weaken or kill the bill behind closed doors,” Booth said. “We cannot and will not allow this to happen. And we need to fight the big bank interests to strengthen the bill in conference.”

In some significant ways, the Senate bill, which passed with the support of four Republicans, offers stronger protections than does the House bill. That may reflect fundamental shifts in the national mood and increasing anger among the public toward events of the past few months: Goldman Sachs, the giant investment bank, was indicted on fraud charges by the Securities and Exchange Commission; former Federal Reserve Chairman Paul Volcker urged banks to be stripped of their power to make “proprietary” trades that don’t benefit their clients; the euro collapsed after Greece faced fiscal insolvency; and the stock market dropped 10 percent this month.

Consumer advocates say the legislation will provide more effective protections for Americans. “If we didn’t get the whole pie, we certainly got three-quarters,” said Mary Wallace, a senior legislative representative for AARP.

As House and Senate conferees gear up to negotiate final legislation, here are some key areas to watch:

•  Credit cards. An amendment to the Senate bill permits the Federal Reserve to impose rules ensuring that credit card companies don’t charge more than is reasonable to process debit and credit card charges. Right now, Visa and MasterCard issuers often charge retailers 1 or 2 percent of the bill, far more than it actually costs them to carry out the electronic transfers.