The Senate's finance reform bill and what it means to you

Last Thursday, the Senate passed a sweeping financial-reform bill that politicians and pundits alike agree will mean big changes for the way the business of finance is conducted in the U.S. -- even if they don't agree if those changes are good or bad. The House of Representatives passed its version of a reform bill late last year, so now lawmakers have the unenviable job of reconciling the many differences that remain between the two bills before it can become law.

A lot of the details of the bill (all 1,600 pages of it, as the blog Consumerist pointed out) pertain to banking regulations and the way financial firms are overseen and operated. But there are some facets of the bill that will, if they make it into the final version of the law, affect average Americans who own a home, use credit cards, take out loans -- in other words, just about all of us. Here's WalletPop's rundown of the pieces of the bill that will matter most to you.

Far and away, the biggest benefit for consumers comes in the form of a Consumer Finance Protection Agency, says Susan Weinstock, director of the financial reform campaign at the Consumer Federation of America. "That's huge," she tells WalletPop. "We've never had an agency whose primary focus is consumers. They'll look at mortgages, credit cards, overdraft and lending in general -- the Senate version even covers auto loans," she says.

While bank regulators now nominally look out for the protection of consumers, they also have to look out for the health of the banks. Consumer advocates say this is a conflict of interest, since what's good for banks often isn't good for their customers and vice-versa, and that the interests of average homeowners and credit card holders often fall by the wayside. "The protection of consumers has always taken a backseat," Weinstock asserts.

Since a plan for a consumer agency was in both the House and the Senate's version of reform legislation, it's probably a done deal, Weinstock says. It might be under the umbrella of the Federal Reserve, or it might be a freestanding agency; either way, it would be able to make and enforce laws pertaining to consumer finance and lending.

As this very thorough piece in The New York Times says, the Senate bill could affect consumers by letting merchants offer them discounts if they pay cash (or penalizing them if they pay with a credit card, if you want to look at it another way). The Times has in the past highlighted the fees -- sometimes very high ones -- credit card companies charge merchants and the issues that creates. Some consumer advocates prefer regulating those fees because they say that such fees lead to higher costs for consumers.

The bill also contains new laws about mortgages, prohibiting many of the practices that got banks -- and homeowners -- into so much hot water; a related rule would reduce or eliminate mortgage prepayment penalties. In addition, as we told you recently, consumers turned down for a loan would be able to see their credit score that led to the lender's rejection.

In a statement, National Consumer Law Center's managing attorney Lauren Saunders says, "The Senate should be proud of its accomplishment so far," highlighting in particular the mandate to create a Consumer Finance Protection Agency. Other financial experts weighed in, too. Overall, the bill is "much stronger than we expected," personal finance expert Jane Byrant Quinn said in an interview with CBS MoneyWatch. At the same time, though, the legislation isn't without its compromises and controversy.

Quinn pointed out that tough language that would force financial advisers to put their clients' interests first had been watered down. The concept is called fiduciary duty, and right now, it's an inconsistently-applied requirement: Some kinds of advisers are required by law to put the needs of their clients first and foremost. Other professionals, though, such as brokers and sellers of certain types of insurance-like products, aren't upheld to this same standard. In other words, they don't have to sell you the best product out there for you. This distinction is confusing for consumers and infuriates consumer-rights advocates. A piece on CNNMoney blasted the Senate for not taking a stand against these lax standards; instead, the bill only requires the SEC to study the matter.

Still, these setbacks don't detract from what the NCLC's Saunders called a "historic" step forward in the history of financial reform. As this lawmaking process continues, WalletPop will continue to follow it and let you know where and how the new laws will impact you as a hardworking citizen.