Finance Reform Act affects state and local governments in many ways: the Wall Street Reform and Consumer Protection Act includes many provisions related to municipal securities, as well as new regulations for advisors hired by state and local governments.

• Author: Gaffney, Susan
• Position: Federal Focus

On July 21, 2010, President Obama signed the Wall Street Reform and Consumer Protection Act (PL 111-203, known as the Dodd-Frank Act). The law brings sweeping changes to the nation's financial services industry, including new financial product consumer protection laws, new requirements for financial institutions, the regulation of previously unregulated financial markets (such as swaps), and new responsibilities for credit rating agencies.

The law will affect state and local governments in a variety of ways, both directly and indirectly. Most notably, it includes many provisions related to municipal securities, as well as new regulations for advisors hired by state and local governments--including public pension funds. An overview of some of the most significant provisions are highlighted below.

HIGHLIGHTS OF THE ACT

Assesses a New Bond Fee to Pay for GASB. A fee will be assessed on new bond issuances to provide a stable revenue stream to support the Governmental Accounting Standards Board (GASB). The amount remitted to the GASB cannot be greater than its annual budget, and the legislation states that the Securities and Exchange Commission (SEC) cannot directly or indirectly involve itself with the GASB's budget, its technical agenda, or the setting of generally accepted accounting principles. The Government Accountability Office (GAO) is also to complete a study on the role and importance of the GASB and the manner in which it has been funded. The GAO must consult with state and local government representatives, including finance officers, for this report.

Limits Debit Card Interchange Fees. The Act requires the Federal Reserve to develop and implement "reasonable and proportional" interchange fees for debit card transactions, in an effort to limit the amount of fees that issuing banks can charge merchants for such transactions. The House and Senate conference committee agreed to a carve-out from these regulations for federal, state, and local government-administered payment programs that use prepaid debit cards. The act also allows merchants to offer discounts to customers who pay with cash, checks, of debit cards, and to permit a minimum purchase threshold up to 10 dollars.

Requires the Use of Universal Rating Symbols by Credit Rating Agencies for All Securities. The rating agencies must define and disclose each rating symbol, then apply the symbols uniformly to all securities (e.g., a AA corporate rating means the same thing as a AA...