Wall Street reform and the price of milk

WASHINGTON (CNNMoney.com) -- Congress is expected to finally pass the massive Wall Street reform bill later this week. And the lobbyists have already moved on to their next line of attack: The regulators who will issue the hundreds of new rules called for in the legislation.

Regulators will have lots of leeway. They will decide everything from when a risky financial firm should be taken over to how to crack down on debit card swipe fees.

And some of those decisions could directly affect consumers' wallets.

For the first time, regulators will rein in speculative bets in the energy and commodities futures markets -- something that could affect what you pay for such things as gasoline and milk.

The impetus for the change goes back to 2008, when many in government believed speculation in oil trading pushed the price of gas, as measured by motorist group AAA, to a record average of $4.11 a gallon.

The reform bill lets the Commodity Futures Trading Commission craft rules to limit speculation and, with it, wild swings in commodity prices.

"The ability to tamp down speculative activities that affect the price of staples such as agricultural products will be finally nailed down," said Michael Greenberger, a law professor at the University of Maryland who worked as a regulator of commodity markets during the Clinton Administration.

But there are economists who don't believe futures speculation was involved in the 2008 price swings.

One of them, Scott Irwin, an agricultural marketing professor at the University of Illinois, suggested that clamping down on speculation could cause greater price swings. He wrote that speculative bets help companies hedge against risk and stabilize prices.

"I think these reforms will have just the opposite impact of what the proponents expect," Irwin said in a recent report he co-wrote for the Paris-based Organization for Economic Cooperation and Development.

Congress leaves the biggest decisions about how safe banks should be to a panel of regulators. Those regulators' decisions could determine if you get the loan you want.

The regulators will craft rules to ensure banks and giant financial firms don't loan out too much money or make too many risky bets. They also must come up with rules that will limit risky trades for banks' own accounts and bank ownership of hedge funds.

Their job is to balance protecting taxpayers from future bailouts with protecting consumers' availability to credit.

"If they err on the side of toughness, it may limit legitimate bank activities and increase customer costs, whereas if they err in the other direction it could effectively gut what Congress intended," said Brookings Institution fellow Doug Elliott, a former investment banker, in a report.

Some in the banking industry predict that during the next year or two, while regulators are creating the new rules, investors and banks could be cautious, causing the economy to lag and curbing credit access.

"People in the market will be guessing," said Wayne Abernathy of the American Bankers Association. "As investors just sit on their hands ... and wait to see how to park it, that money isn't working."

Consumer advocates deny that regulatory reform will have a chilling impact on the economy or access to credit, saying that the industry is using "scare tactics," said Kathleen Day, spokeswoman for the Center for Responsible Lending.

"This is not red tape. This is the idea that you have reasonable common sense rules, traffic light and stop signs," Day said.

Congress leaves the big decisions about protecting consumers to whoever is chosen to run the new Consumer Financial Protection Bureau.

That presidentially appointed director, who is expected to be named quickly, would be responsible for determining whether mortgage and credit card fees are fair or abusive.

Financial experts expect that the bureau's early decisions will have broad and lasting implications going forward.

"Future boards are likely to be influenced considerably by the choices made in the first years of its existence, if only because it is more dangerous, politically and bureaucratically, to change a past precedent than to make an entirely new ruling," Elliott said.

While much is unpredictable with how consumer protection will shake out, consumers can count on one type of fee going away: penalty fees for paying off mortgages early.

Under the bill, the consumer regulator must stop these penalty fees for subprime mortgages, and cap and phase out the fees for more traditional mortgages.