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- 1. The Consumer Financial Protection [Agency? Bureau?] ACI Prepaid Compliance Conference Andrew Lorentz Ed Woodson June 24, 2010
Notas del editor
- Elizabeth Warren, Unsafe at Any Rate , Democracy: A Journal of Ideas, Summer 2007, at www.democracyjournal.org/pdf/5/Warren.pdf. Warren is a bankruptcy professor at Harvard Law who specializes in consumer bankruptcy. She was chair of the Congressional Oversight Panel created to oversee the Emergency Economic Stabilization Act, and is a favorite to lead the consumer financial protection entity.
- Administration Bill (June 2009) available at http://www.financialstability.gov/docs/CFPA-Act.pdf . Admin bill would have given CFPA authority over any “financial activity,” including deposit-taking activities, extending credit and servicing loans, check guaranty services, collecting, analyzing, maintaining, and providing consumer report or other account information, debt collection related to a consumer financial product or service, real estate settlement service (including title insurance), leasing personal or real property or acting as agent for such services, investment advisory not subject to CFTC or SEC regulation, financial data processing, sale or issuance of stored value, money transmitting, acting as a custodian of money or a financial instrument. CFPA § 1002(18). House: Consumer Financial Protection Agency (title IV of HR 4173) Senate: Bureau of Consumer Financial Protection (title X of Senate Bill, which is an amended version of HR 4173)
- The definitions of “financial activity” and “consumer financial product or service” are substantively similar. Senate Bill does not include “acting as a money services business” or “acting as an investment advisor” Autonomy described in next slide, but even in Senate bill, provides the entity more autonomy than typical bureau. Enumerated laws include: TILA, EFTA, ECOA, FCRA, FTC Privacy Rules, RESPA, HMDA, Truth in Savings, FDCPA. Senate bill adds Fair Credit Billing Act, Consumer Leasing Act, HOEPA
- In both bills, the Director/Chair is removable only for cause. Both bills establish a “Consumer Advisory Board.” Members to include experts in financial services, community development, fair lending and civil rights, and consumer financial products. Oversight Board includes Chairs of Fed Board of Governors, FDIC, NCUA, FTC, liaison committee of representatives of state agencies to the Financial Institutions Examination Council, Secretary of HUD, the head of the agency responsible for chartering and regulating national banks, and five others which can include consumer protection experts, depository institutions that primarily serve underserved communities, etc.
- Financial Stability Oversight Council has role in other sections of financial reform bill. It is chaired by the Treasury Secretary and composed of key regulators such as the Fed, OCC, FDIC, SEC and CFTC, would have the following enumerated purposes: (1) identifying risks to U.S. financial stability that could arise from the financial distress or failure of large, interconnected bank holding companies or nonbank financial companies; (2) promoting market discipline by eliminating expectations on the part of shareholders, creditors and counterparties of those companies that the government will shield them from losses in the event of failure; and (3) responding to emerging threats to the stability of U.S. financial markets.
- Some analysts say Senate organization likely to prevail because of simplicity of funding source (percentage of FRB budget). Small banks upset with House CFPA because they think the CFPA can trump the primary regulator at any time through its backup enforcement authority. http://www.americanbanker.com/usb_issues/119_12/cfpa-exemption-in-name-only-1004234-1.html House Bill: The Agency shall assess fees on covered persons pursuant to this subsection based on the size, complexity of, risk posed by, and the compliance record of the covered person under the enumerated consumer laws, the laws and authorities transferred under subtitles F and H, and this title. HR 4173 § 4111(b). CFPA would have authority to order assessments to cover non-examination costs § 4111(b)(3)(B)(ii) Senate Bill: Section 1017(a)(1) – Each year (or quarter of such year), beginning on the designated transfer date, and each quarter thereafter, the Board of Governors shall transfer to the Bureau from the combined earnings of the Federal Reserve System, the amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year).
- Definitions of “consumer financial product or service” are mostly, the same, but catch-alls are different. House Catch-all: activity that “is financial in nature or is otherwise a permissible activity for a bank or bank holding company, including a financial holding company, under any provision of Federal law or regulation applicable to a bank or bank holding company, including a financial holding company” § 4002(19)(aa) Senate catch-all: Any financial product or service permissible for a bank or for a financial holding company to offer or provide under federal law or regulation that has, or likely will have, a “material impact on consumers,” as determined by the Bureau satisfies the definition.
- Senate stay and set aside addressed in § 1023. “ An agency represented by a member of the Council may petition the Council, in writing, and in accordance with rules prescribed pursuant to subsection (f), to stay the effectiveness of, or set aside, a regulation if the member agency filing the petition— (A) has in good faith attempted to work with the Bureau to resolve concerns regarding the effect of the rule on the safety and soundness of the United States banking system or the stability of the financial system of the United States; and (B) files the petition with the Council not later than 10 days after the date on which the regulation has been published in the Federal Register.” Objection provision is § 1022(b)(2)(C): “ if, during the consultation process…a prudential regulator provides the Bureau with a written objection to the proposed rule of the Bureau or a portion thereof, the Bureau shall include in the adopting release a description of the objection and the basis for the Bureau decision, if any, regarding such objection”
- § 4209(a) Risk-based Programs- “ (1) IN GENERAL- The Agency shall develop risk-based programs to supervise covered persons that are not credit unions, depository institutions, or persons excluded under section 4205 by prescribing registration requirements, reporting requirements, and examination standards and procedures. (2) BASIS FOR PROGRAMS- The risk-based supervisory programs established pursuant to paragraph (1) shall be based on— (A) relevant registration and reporting information about such covered persons, as determined by the Agency; and (B) the Agency's assessment of risks posed to consumers in the relevant geographic markets and markets for consumer financial products and services.”
- Senate primary authority over large banks: 1025(c)(1) Senate Exclusive Authority: Section 1024(c)(2): For covered nondepository institutions, “to the extent that Federal law authorizes the Bureau and another Federal agency to enforce Federal consumer financial law, the Bureau shall have exclusive authority to enforce that Federal consumer financial law.” House Backup Authority for small banks: 4203(c)(2) - If the appropriate agency does not, before the end of the 120-day period beginning on the date on which the appropriate agency receives a recommendation under subparagraph (A), initiate an enforcement proceeding, the Agency may initiate an enforcement proceeding as permitted by Federal law. House primary authority over covered nondepository institutions: 4202(e)(1)
- Contrast FTC lack of authority to issue TROs/C&D orders (15 U.S.C. § 53) and DOJ right of first refusal in litigation for civil money penalties (15 U.S.C. § 56). See Senate 1053, House 4502
- The Senate bill also gives the FTC authority to enforce Bureau-related regulations with respect to person subject to FCTA jurisdiction. Under the House bill only the FRB retains its Consumer Advisory Council HR 4173 § 4601(a)(C). The CFPA also gets all HUD consumer financial protection functions. For small banks, see Senate 1026 and House 4203
- Merchant exceptions: House 4205(a), Senate 1027(a). The Senate merchant exemption is more complicated. Senate version (1027(a)(2)(a): General exception for purchase money credit (B) APPLICABILITY.--Subparagraph (A) does not apply to any credit transaction or collection of debt, other than as described in subparagraph (C)(i), arising from a transaction described in subparagraph (A)- [finance charge or transfer of debt] (C)(i) IN GENERAL.--Notwithstanding subparagraph (B), and except as provided in clause (ii), the Bureau may not exercise any rulemaking, supervisory, enforcement, or other authority under this title with respect to a merchant, retailer, or seller of nonfinancial goods or services that is not engaged significantly in offering or providing consumer financial products or services. (ii) SMALL BUSINESSES.--A merchant, retailer, or seller of nonfinancial goods or services that would otherwise be subject to the authority of the Bureau solely by virtue of the [finance charge rule] shall be deemed not to be engaged significantly in offering or providing consumer financial products or services under subparagraph (C)(i), if such person [is a small business]
- Senate passed a non-binding “Vote to Instruct Conferees” to include the auto dealer exemption in the final bill. Cong. Rec., Vote No. 163, pp. S4130-36, 38 (May 24, 2010). Lawyers: House excepts lawyers providing foreclosure prevention services; Senate excepts lawyers providing consumer financial products or services. Although consumer reporting agencies are exempt, any person who takes an “adverse action” must provide the consumer with his or her numerical credit score and other additional information not previously required. No authority to set usury limit: “No provision of this title shall be construed as conferring authority on the Bureau to establish a usury limit applicable to an extension of credit offered or made by a covered person to a consumer, unless explicitly authorized by law.” Bill codifies Marquette usury exception: “No provision of this title shall be construed as altering or otherwise affecting the authority conferred by section 5197 of the Revised Statutes of the United States (12 U.S.C. 85) for the charging of interest by a national bank [savings association] at the rate allowed by the laws of the State, territory or district where the bank is located, including with respect to the meaning of ‘interest’ under such provision.”
- One exception to non-preemption of existing laws: Alternative Mortgage Transaction Parity Act of 1982 Case-by-case standard: Senate 1044, House 4044. Other enumerated laws: RESPA, FDCPA, EFTA, TILA, Truth in Savings, Homeowners Protection Act of 1998, and more
- Change from Admin proposal: preemption strengthened to Barnett standard from proposal to amend the National Bank Act/HOLA to provide that any state consumer financial protection law of applicable to state banks applies also to national bank or thrift Senate version cites Barnett Bank v. Nelson directly, House version just refers to standard Both Bills: “When making case-by-case determination pursuant to this section that a State consumer financial law of another State has a substantively equivalent terms as one that the Comptroller ]is preempting, the Comptroller shall first consult with the [CFPA/B] and shall take such Agency’s views into account when making the determination.”
- Watters v. Wachovia , 550 U.S. 1 (2007) ( holding that Wachovia’s mortgage business, whether conducted by the bank itself or through the bank’s operating subsidiary, is subject to OCC’s superintendence, and not to the licensing, reporting, and visitorial regimes of the several States in which the subsidiary operates) Overrule of Watters House 4406(a), Senate 1044 (adding 12 U.S.C. § 5136(b)(2)): Substantive Standard: House 4406(a) (adding 12 USC § 5136C(d)) “Other Federal Laws.--. . . the Comptroller of the Currency may not prescribe a regulation or order pursuant to [the preemption standard] until the Comptroller of the Currency, after consultation with the Consumer Financial Protection Agency, makes a finding, in writing, that a Federal law provides a substantive standard, applicable to a national bank, which regulates the particular conduct, activity, or authority that is subject to such provision of the State consumer financial law.
- Senate also requires AG’s to bring action in own state; House bill does not have this requirement House Private Right of Action: Sec. 4508 Attorney General: Senate 1042, House 4402
- Using Senate bill as base text gives Senate bill substantial advantage in conference committee.