United States: Obama Administration Releases Consumer Financial Protection Agency Proposal

Last Updated: July 14 2009
Article by David Ransom, Stephen M. Ryan and Paul M. Thompson

The proposed Consumer Financial Protection Agency would have sweeping authority and carry far-reaching implications for financial institutions.

On June 30, 2009, the Obama administration released a 152-page legislative proposal to create a new Consumer Financial Protection Agency (CFPA) in response to the call for financial regulatory reform and the perceived failure of existing regulatory agencies to adequately police and protect consumer interests. The administration's plan, if enacted, would provide this new agency with sweeping regulatory authority over all financial products and services, supplant the authority of existing agencies to promulgate regulations related to consumer protection, and carry far-reaching implications for any institution or person engaged in the financial services industry.

Financial regulatory reform is a legislative priority for the administration, as well as the Democratic majorities in the U.S. House of Representatives and U.S. Senate. House Financial Services Committee Chairman Barney Frank (D-MA) is a strong proponent of the CFPA and has announced a series of hearings on regulatory reform in July 2009. Chairman Frank intends to mark-up legislation in committee prior to the August Congressional recess, with possible consideration of legislation on the House floor in the fall. Chairman Frank's Senate counterpart, Chairman of the Senate Committee on Banking, Housing and Urban Affairs Chris Dodd (D-CT), likewise has announced his support for the CFPA. Chairman Dodd's committee is scheduled to holding a hearing on the proposal on July 14, 2009. However, the committee is not expected to markup legislation prior to the August recess, with possible Floor consideration in the fall.

Among other major provisions, the administration's proposal would:

  • Establish the CFPA as an independent agency in the executive branch "to regulate the provision of consumer financial products," and provide for a five-member board.
  • Authorize the agency to promulgate regulations and issue orders and guidance, as well as examine or require reports from a "covered person" (defined in the proposal generally as "any person who engages directly or indirectly in a financial activity") to ensure compliance with consumer laws and agency rules.
  • Authorize the agency to "prescribe rules identifying as unlawful, unfair, deceptive or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service," and "prescribe rules to ensure appropriate and effective disclosure or communication to consumers of costs, benefits, and risks associated with any consumer financial product or service."
  • Authorize the agency to weigh in on sales practices by prescribing rules and issuing orders and guidance regarding the "manner, settings, and circumstances for the provision of any consumer financial products or services to ensure that the risks, costs and benefits of the products and services, both initially and over the term of the product or services, are fully and accurately represented to consumers."
  • Allow the agency to prescribe rules establishing duties regarding compensation practices applicable to a covered person, employee, agent or independent contractor "who deals or communicates directly with a consumer in the provision of a consumer financial product or service" – with the exception that the agency shall not prescribe a limit on the total dollar amount of compensation paid to any person.
  • Authorize the agency to prohibit, limit or impose conditions upon the use of mandatory pre-dispute arbitration in agreements.
  • Preempt state law only to the extent that it is inconsistent with federal law or provisions of the CFPA Act, and specifically authorize states to enact or adopt laws, regulations, orders or interpretations that afford consumers greater protection than afforded by this Act.
  • Authorize state attorneys general to bring civil actions in federal district court or state court to "secure monetary relief or equitable relief for violation of any provisions of this title or regulations there under."
  • Authorize the agency or agency investigators to issue subpoenas as part of the investigative and administrative discovery process.
  • Transfer all consumer financial protection functions of the U.S. Federal Reserve System, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Trade Commission and National Credit Union Administration to the agency. ("Consumer financial protection functions" are defined as "research, rulemaking, issuance of orders and guidance, supervision, examination, and enforcement activities, powers and duties relating to the provision of consumer financial products or services.")

Congressional hearings on the administration's proposal have already begun. On July 8, 2009, the U.S. House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection held a hearing to explore the plan's effect on the Federal Trade Commission. Assistant Treasury Secretary Michael Barr, who helped write the administration's proposal, betrayed no defensiveness regarding the broad authority that would be provided the CFPA. He testified that: "A new agency with a focused mission, comprehensive jurisdiction, and broad authorities is also the only way to ensure consumers and providers high and consistent standards and a level playing field across the whole marketplace without regard to the form of a product – or the type of its provider."

While Congress will likely alter the administration's proposal, the general consensus is that Congress will pass legislation establishing a new consumer financial protection agency by year end. Already, key financial services trade associations (e.g., Mortgage Bankers Association, American Bankers Association, National Auto Dealers Association) have joined forces to lobby against the administration's proposal. However, as Scott Talbott of the Financial Services Roundtable has stated: "Politically, it would be difficult to kill it outright. Our goal is to change the agency, change the proposal, to where the benefits outweigh the costs."

The McDermott Difference

McDermott's Government Strategies Practice Group is closely monitoring and, where appropriate, lobbying on this proposal on behalf of a range of clients. There is little question that, as proposed, the CFPA would have the authority to mandate specific disclosures and effectively rewrite contracts; alter certain sales and business practices, including compensation incentives and arrangements; and even ban certain types of financial products. Every financial institution has a strong interest in the consideration and outcome of this legislative proposal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
David Ransom
 
In association with
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.