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The passage of banking reform by Congress promises greater protection for consumers against predatory practices. But there's much more needed to address the historic imbalance, says one economic expert.
With the Obama administration's hard-fought passage of financial reform, Americans are waiting with bated breath and open wallets to see if their windfall is on the horizon. While people of all races have struggled in the past few years, black Americans have been disproportionately affected by the recent economic collapse, and many are eager to operate under a policy that claims it can help close our nation's skyrocketing white-black wealth gap.
But can the Dodd-Frank Wall Street Reform and Consumer Protection Act really weaken hundreds of years of systemic barriers against African-American wealth? The Root spoke with Dalton Conley, dean of social sciences at New York University and a research associate at the National Bureau of Economic Research, to help illuminate the subject.
The Root: One of the major mechanisms in the financial reform bill is the establishment of a Consumer Financial Protection Board (CFPB). Given the failure of the Securities and Exchange Commission to rein in financial institutions, can we really expect the CFPB to be effective?
Dalton Conley: As fast as the government or activists or whoever can come up with ways to protect those who are financially weaker, financial predators will think of new ways to extract their money from them. There are a lot of very straightforward things in the new bill, like putting into credit card applications information about how long it's going to take to pay off your credit card if you pay only the minimum balance each month. That information is also going to be in a bigger font size, making it more explicit. And sure, that might do something. But you can bet that there's going to be new ways the finance industry finds to make their profits. And if any of those protection measures do work, the consequence is going to be that it's going to be harder for low-income people to get credit because they'll be more attuned to the risks and therefore, less profitable [customers].
TR: We've read that banks, which will be forced to cap user fees like overdraft charges under the new bill, might simply drop customers who aren't profitable once those fees can't be collected. Is that a real risk?
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