Last month, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. While still in the midst of the most severe recession since the Great Depression, this legislation is being hailed as the most ambitious rewriting of the nations financial rules in decades.
The Dodd-Frank Act is the important first step towards addressing a number of the problems that were created while during the Reagan administration the financial industry was deregulated and as Reagan said the “magic of the marketplace” was what would protect American citizens. According to Politico, Federal Reserve Chairman Ben Bernanke has said, “I think there were important gaps in our regulatory system that became painfully evident in the crisis, and we’ve taken steps to close those gaps.”
Why should African-Americans care about financial reform? Because they have been disproportionally impacted by the economic recession and need to understand how financial reform will impact the community.
Arthur Levitt, Jr., the former Chairman of the Securities & Exchange Commission, said in 1997: “The truth, as we know it, is that Wall Street serves America, but it does not yet look like America.” There’s a provision in the Dodd-Frank Act that allows the federal government to compel financial firms to hire more women and minorities and gives the federal government authority to terminate contracts with any financial firm that fails to ensure the “fair inclusion” of women and minorities. As billions of taxpayers dollars were awarded to firms to assist the federal government in dealing with the financial crisis, many minority and woman owned companies were locked out of this revenue stream. This provision can go a long way in addressing this problem.
According to a recent FDIC study, “Certain racial and ethnic minorities are more likely to be under-banked than the population as a whole. Minorities more likely to be under-banked include Blacks (an estimated 31.6 percent), and Hispanics (24.0 percent).” Without access to federally insured banking institutions minorities are not able to save at the same rates, get low interest mortgage loans and other financial services. They are forced to go to higher fee alternative sources such as “payday” loan companies. This act establishes an independent Bureau of Consumer Financial Protection. This bureau will establish and enforce consistent rules governing financial firms, including those in the business of “payday” lending.
The Bureau of Consumer Financial Protection will also enforce the new credit card law signed by President Obama that bans rate hikes on existing balances and other unfair practices. It will now be easier for consumers to understand their credit terms, the amount of time it will take to pay off credit balances and stabilize rates.
According to a recent Pew Research study a substantial gap still exists in the rate of home ownership. As of 2008, 74.9 percent of whites owned homes, compared with 48.9 percent of Hispanics and 47.5 percent of blacks. Also, blacks and Latinos are far more likely than whites to borrow in the higher priced sub-prime market. “In 2007, 27.6 percent of home purchase loans to Hispanics and 33.5 percent to blacks were higher-priced loans, compared with just 10.5 pecent of home purchase loans to whites that year.” According to the White House, “The bureau will, for the first time, provide ongoing federal oversight of both non-bank companies and banks in the mortgage market and protect borrowers from unfair, deceptive or other illegal mortgage lending practices.”
These are just a few examples of why African-Americans should care about financial reform. As African-Americans establish physical regimens for good health, fiscal well being requires a similar strategy. African-Americans must diet on wealth building and management not consumption. In the book, Talking Dollars and Making Sense, it is reported that African-Americans spend a dollar at a faster rate than most cultural groups in this country. This is a recipe for disaster. Payday loans and check cashing firms rather than financial advising offices in our communities are symbols of consumption and poor understanding of how financial markets work.
Imagine if the educational system included a component of understanding money at the elementary level, along with other course work. It might serve as a game changer. People who understand money usually spend frugally, have an increased net worth, and are elements of change in their communities. President Obama’s financial reform is not the end of the process but the beginning. It’s the impetus for change, change back in our pockets, and that’s change we can believe in.
Dr. Wilmer Leon is the Producer/ Host of the nationally broadcast call-in talk radio program “Inside the Issues With Leon,” and a Teaching Associate in the Department of Political Science at Howard University in Washington, D.C. Go to www.wilmerleon.com or http://www.twitter.com/drwleon