The Dodd-Frank Wall Street Reform and Consumer Protection Act Benefits Older Americans

Too many responsible older Americans have paid the price for an outdated regulatory system that left our financial system vulnerable to collapse and left families without adequate protections.  In the summer of 2009, the Obama Administration put forward a legislative proposal crafted to rein in excessive risk on Wall Street and preserve economic opportunity on Main Street.  A year later, the President signed into law a bill aligned to a remarkable degree with that original proposal.  This comprehensive financial reform, which put in place the strongest consumer financial protections in history, included the creation of a new, dedicated Consumer Financial Protection Bureau (CFPB).
The CFPB, an independent entity within the Federal Reserve, will have one mission: to protect consumers by promoting transparency and consumer choice and preventing abusive and deceptive practices.  It will have broad authority to write and enforce new consumer financial protection rules.  The CFPB will use these authorities to promote financial stability and protect consumers – including older Americans – from the unfair practices that contributed to the financial crisis.

Seniors Have Struggled Through the Recent Economic Downturn

  • The Financial Crisis Sharply Reduced the Value of Many Seniors’ Primary Asset—Their Home.  The housing market collapse has sharply reduced the value of many seniors’ primary assetstheir homes.  The median home equity of families with mortgages, which had risen to $91,000 in 2004, is estimated to have fallen over 20 percent nationwide to $71,600 from 2004 through October 2008, below its value at the beginning of the decade.  [Federal Reserve, “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances,” (February 2009) (“SCF”)]
  • Seniors Have Been Caught in the Foreclosure Crisis.  Americans aged 50 and older accounted for approximately 28% of all delinquencies and foreclosures in the second half of 2007.  [AARP Public Policy Institute, “The Impact of the Financial Crisis on Older Americans” (December 2008)]
  • Older Americans Have Gone Deeper into Debt.  From 2004 to 2007, median balances of credit card debt of pre-retirement seniors aged 55-64 increased by 50%.  Over the same time period, there has been faster growth in the share of seniors 55 and over with debt in excess of 40% of income than for any other group.  [SCF]

Seniors Deserve Clear Rules and Strong Enforcement

  • Financial Fraud Reported to Be a Growing Form of Elder Abuse with an Annual Net Loss of at Least $2.6 Billion.  As the Boston Globe reported, “Law enforcement and securities officials say the recession is pushing more people to steal from well-off seniors. ‘Elder financial abuse is becoming the crime of the 21st century,’ said Fred Joseph, president of the North American Securities Administrators Association.  The annual loss is estimated to be at least $2.6 billion, according to the report.  The typical victim of elder abuse is a woman over 75 who lives alone.”  [Boston Globe “As Recession Grinds on, Financial Abuse of Elders Takes a Growing Toll” (July 16, 2009)]
  • Seniors Are Reported to Pay Consistently Higher Interest Rates and Fees in Multiple Financial Markets.  Studies have found that older adults consistently borrow at higher rates and pay more fees in multiple financial markets, including home equity loans, auto loans, credit card interest rates and fees, mortgages, and small business credit cards.  One report found that younger adults and older adults borrow at higher interest rates and pay more fees than middle-aged adults, controlling for all observable characteristics, including measures of risk.  [Agarwal, Driscoll, Gabaix, Laibson, “The Age of Reason: Financial Decisions Over the Lifecycle” NBER Working Paper 13191, (June 2007)]
  • Fine Print is Unfair to Seniors—Seniors Are Reported to Be Less Likely to Know the Details of Their Mortgages.  Reports have shown that 60% of borrowers 65 and older do not know the details of the terms of their adjustable rate mortgages, such as their per-period caps, compared with around 30 percent of younger borrowers.  [Bucks and Pence, “Do Borrowers Know Their Mortgage Terms?” Journal of Urban Economics (2008)]
  • Many households have been automatically enrolled in expensive overdraft programs that can hit consumers with costly overdraft fees for even the smallest purchases.  For example, the FDIC found that the average overdraft charge for a single purchased item—like a $2 cup of coffee—is $30 at banks with assets over $1 billion.  [FDIC, “FDIC Study of Bank Overdraft Programs” (November 2008) at Table IV-3]

The Wall Street Reform and Consumer Protection Act of 2010 Is Beneficial for Older Americans

  • For seniors who want to buy a home:  The CFPB will take steps to consolidate and simplify with plain language two overlapping and sometimes inconsistent federal mortgage forms.  The CFPB will, for the first time, provide ongoing federal oversight of both nonbank companies and banks in the mortgage market and protect borrowers from unfair, deceptive or other illegal mortgage lending practices.
  • Protecting seniors’ retirement security, savings and investments:  The Wall Street Reform and Consumer Protection Act strengthens investor protection by empowering the Securities and Exchange Commission (SEC) to:
    • Raise the standards for brokers and investment professionals when giving advice so that they have a fiduciary duty and are required to act in the interests of investors, rather than their own; and
    • Require brokers to disclose costs and risk factors to investors prior to selling a product, instead of after it is purchased.
  • For seniors with credit cards:  The CFPB will prevent evasion of the Credit CARD Act of 2009, which bans arbitrary rate hikes on existing balances and other unfair practices.  For seniors who have used credit cards to get by when times are tight, the law will give them clarity on the interest rates they are charged.
  • For seniors caught by unexpected overdraft fees:  The CFPB will prevent evasion of new rules that give consumers a real choice as to whether to join expensive overdraft programs so that they are not unknowingly charged unnecessary fees. 
  • For seniors without bank accounts:  The CFPB will be able to rein in practices that may drive some seniors away from banks—including by stopping banks from enrolling customers in expensive overdraft programs without their consent.
  • For seniors using alternative financial services:  The Wall Street Reform and Consumer Protection Act establishes, for the first time, robust federal supervision and oversight over larger alternative financial service companies such as check cashers and payday lenders.  The CFPB will be able to combat abusive practices that harm consumers, helping families avoid hidden fees and keep more money in their wallets.
  • Empowering seniors to make smart financial choices by promoting financial education and financial literacy:  The CFPB will promote consumer financial education and financial literacy, with a dedicated office focused on ensuring that the CFPB’s expertise and research are used to help raise awareness, and educate and empower consumers to avoid unfair practices and make smart financial choices.
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Last Updated: 1/26/2011 10:03 AM