While Bank Reform Bill Offers Some Relief for Taxpayers, the IRS Remains Poised to Enforce Collections to Pay for Bailout

Recently, President Obama signed into law the most thorough set of changes to the American financial regulation since the 1930s, with the comment that “every American from Main Street to Wall Street has a stake in our financial system”.

The bill, called the Dodd-Frank Wall Street Reform and Consumer Protection Act places new fees and limits on the biggest banks, imposes new restrictions on the $450 trillion derivatives market, and crafts a major new consumer-protection division for mortgage and credit-card products. The main aim of signing this new law in place is to avoid and be protected against a future banking system failure, such as the one that led us into the current recession we are experiencing now. (Note: the failure of the big banks makes this the largest recession since the Great Depression.)

No surprise that such an immense bill would be rather complicated, long-winded and full of debatable and unclear areas. However, here’s a quick summary of the key new measures that will be put up in place to achieve the desired future financial protection:

* Volcker Rule will force big banks to sell hedge funds (read more about what this means here: Volcher Rule)

* New transparency, reporting and capital rules for derivatives

* Liquidation mechanism for big failing banks to minimize market impact

* Combine two bank regulators at the center of the crisis

* Create a council of regulators to watch for systemic risk

* Give shareholders more power in corporate governance and CEO pay

* Audit of the Fed’s emergency and other lending facilities

The the average American consumer these provisions sound like a good idea, albeit a bit vague and meaningless as they will indirectly affect taxpayers. But the good news is that the new Consumer Financial Protection Bureau (housed in the Federal Reserve) is aimed at addressing this by purely focusing on fighting consumer abuses in the marketplace. Specifically, it will aim to do this through four big changes affecting consumers:

-Credit Scores

-Mortgage Risk

-Credit and Debit Cards

-Financial Adviser Disclosures

You can read more about the consequences of each of these four measures, both positive and negative in the quick summary offered by GE Miller on mint.com.

In summary, taxpayers as consumers will experience greater protection from this immense new law. Specifically they will no longer have to ‘foot’ the bill for big bad banks as there will be no more bailouts. The bill is aimed to offer all around protection in the marketplace, from the big banks, small businesses and to the individual taxpayer.

Though it is a good point to mention the 2,000+ page bill goes in great depth regarding what and how it aims to accomplish this change. Keeping this in mind, the future of this bill will not reflect an immediate and overnight change. For example, the Securities and Exchange Commission, is expected to be responsible for writing 95 new rules, while the Federal Reserve would be required to create 54. This will take years to implement and as of now, it is unclear how tough the final law will be until regulators approve the hundreds of new rules required by the statute.

However, the approval of this bill is a huge triumph for Obama in his effort to ‘rein in’ Wall Street after the excesses that drove our economy to the brink of collapse in 2008. The recent government bailouts largely contributed to the growth in the federal deficit. And since the $750 billion financial bailout, the only place for the government to get revenues to pay for this is to go after non-filers and tax cheats. Congress has appropriated a record budget this fiscal year for the IRS to beef up collection efforts. They are at the highest level of brutal enforced collection than I have witnessed during in the past 11 years.

So make no mistake – the government is still intent on zeroing in on individual taxpayers as the IRS is poised to do whatever it takes to collect every penny missing from the government bank account.

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