consumer protection regulatory structures in house and senate bills

8/9/2019 Consumer Protection Regulatory Structures in House and Senate Bills

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Consumer Protection Regulatory Structuresin the

Financial Reform bills in the House and Senate

House bill (as passed) Senate bill (Dodd)

Name Consumer Financial Protection Agency Bureau of Consumer Financial Protection

Structure Independent agency Housed within the Federal Reserve withindependent powers. Feds may not:

Intervene in any proceedings of theBureau

Appoint, direct or remove any officer

Merge or consolidate any part of theBureau

Subjects the Bureau's rules or orders toreview

Delay or prevent the issuance of any ruleby the Bureau

Control Director at first, commission of 5 afteragency conversion date (which is 2years after 'designated transfer date,which is 180 days after enactment).

Commission will be 5 members,appointed by the President, confirmed bythe Senate, no more than 3 members of

one political party.

Commission members or Director may bedismissed by the President for cause(inefficiency, negligence or malfeasance)only.

Chair of Commission is the principalexecutive officer of the Agency; hasappointment authorities.

Commission members have 5 year terms;may continue to serve until replacementis appointed, and confirmed, or up to oneyear after term expires, whichever issooner.

Director, appointed by the President,confirmed by the Senate; Deputy Directorappointed by the Director.

Director has full authority overappointments within the Bureau.

May be dismissed by the President for

cause (inefficiency, negligence ormalfeasance) only.

Director has 5 year term; may continue toserve until a replacement is appointed andconfirmed.

Specific/FunctionalUnits

Research

Community Affairs (focused onunderserved consumers)

Consumer Complaints

Research

Community Affairs (focused onunderserved consumers)

Collecting and Tracking Complaints


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Consumer Financial Education

Office of Fair Lending and EqualOpportunity

Office of Financial Protection for OlderAmericans (serving consumers 62 yearsor older, headed by own Director)

Office of Fair Lending and EqualOpportunity.

Director of the Bureau is made ViceChair of Financial Literacy & EducationCommission (headed by the Secretary ofTreasury)

Transfer ofRegulatoryAuthoritiesfrom OtherFederalRegulators

All consumer protection authorities,powers and fucntions transferred to theAgency from the following entities:

The Federal Reserve

Comptroller of Currency

Director of the Office of ThriftSupervision

Federal Deposit Insurance Corporation

Federal Trade Commission

National Credit Union Administration Department of Housing and Urban

Development

Once the President nominates a Director,that person is acting Director betweennomination and the time of Senateconsideration.

Designated transfer date: 180 days afterenactment.

All consumer protection authorities,powers and functions transferred to theBureau from the following entities:

The Federal Reserve

Comptroller of Currency

Director of the Office of ThriftSupervision

Federal Deposit Insurance Corporation

Federal Trade Commission

National Credit Union Administration Department of Housing and Urban

Development

FTC retains authority with respect to creditrepair organizations and telemarketingregulations.

Until Director is confirmed, Secretary ofTreasury has authority to perform thesefunctions.

Designated transfer date: within 60 days ofenactment, Secretary of Treasury sets atransfer date between 6 and 18 monthsfrom enactment.

GeneralPowers

Promote transparency, simplicity,fairness, accountability, equal access

Ensure consumers have and can useinformation, protected from abuse,unfairness, deception, discrimination

Exclusive rulemaking authority

Director/Commission can exempt fromrule or regulation or from consumer law.

Power to require reports, etc.

Must provide IRS with any reportsidentifying possible tax law violation

Examination authority can be delegatedto another agency.

Primary enforcement authority except

Enforce federal consumer law. Protectconsumers from from unfair, deceptive,abusive practices.

Provide transparency, issue regulations,address undue regulations.

Exclusive authority to issue rules &regulations.

May exempt entities from rules issuedbased on asset, volume, etc.

Access to all confidential informationfrom covered entities

Bureau (BCFP) and FTC can intervene,but FTC authority does not takeprecedence.


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FTC matter, in which it has jointauthority if one agency doesn't actwithin 120 days of receiving noticefrom the other, the remaining agencymay act.

Preservation of authorities for:Secretary of TreasuryAttorney GeneralAuthority arising under Fair HousingAct.Farm Credit Administration

AuthoritiesBased on Sizeof EntitiesRegulated/

CoordinationRequirements

Current regulators continue to regulateand enforce laws on depositoryinstitutions with assets of $10 billion orless.

Agency has access to all reports andrecords.

Agency can add its own examiner

Agency may recommend action

If current regulator does not act within120 days of receiving recommendation,Agency may act (and vice versa forlarger entities).

If concerns arise directly from theagency's consumer complaint system,Agency can directly investigate and act.

If current regulator is deemed not to beenforcing consumer protections,Director/Commission may remove thatregulator and put CFPA in charge ofconsumer responsibilities, effective afterautomatic appeal to Secretary of Treasury(assuming Secretary rules in CFPA'sfavor).

Supervisory coordination with other

agencies (in other cases). In case of aconflict, appeal to governing panelcomposed of a representative of theAgency, a representative of the otherregulator and one from the federalbanking agency that heads (or in next inline to head, if the head agency is inconflict) the Financial InstitutionsExamination Council (members: FDIC,

Current regulators continue to regulatedepository institutions with assets of $10billion or less.

Bureau has access to reports and records.

Response required from other agencywithin 60 days is Bureau notifies them ofpossible violation.

Bureau has primary enforcement powerover institutions with $10 billion or morein assets.

May require compliance reports

Other agencies can refer consumermatters to Bureau; if Bureau fails to actwithin 120 days, other agency may act.

Bureau and other prudential regulator(FDIC, NCUA, etc.) coordinatesupervisory action in case of conflict,appeal to governing panel consisting of arepresentative of the Bureau, arepresentative of the other regulator, anda rotating member from among FDIC,NCUA, Federal Reserve and Comptrollerof Currency (an agency not involved inthe dispute)


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NCUA, Federal Reserve, Comptroller ofCurrency).

Authority toRestrict

MandatoryArbitration

May issue regulations to restrictmandatory pre-dispute mandatory

arbitration. Right ofvoluntary arbitration preserved.

May issue regulations in consumer andpublic interest to restrict mandatory pre-

dispute artbitration. Right to voluntary arbitration preserved.

SpecificAuthorities

Any action to prevent unfair, abusive ordeceptive acts

Power to issue regulations defining'unfair' and 'abusive', except it must beconsistent with FTC policy statements.

'Deceptive' only if an act will result inconsumers' inability to understand apractice and contribute to instabilityand greater risk to system

Disclosure of costs benefits and risks offinancial products, model disclosureform. But no confidential or fraudprevention information.

May establish regulations establishingduties re: compensation practices, butno ability to set compensation caps

Non-compliance with agencyregulations re: unfair, deceptive, abusivepractices considered illegal

Regulation for banks to displayinformation and charges on overdraftprotection in branch offices.

Prohibiting unfair, abusive, deceptivepractices, may issue rules.

'Unfair' if act will cause substantial injurythat is not easily avoided and the injuryoutweighs countervailing benefits toconsumer and competition.

'Abusive' only if practice materiallyinterferes with consumer's ability tounderstand terms and conditions or takes

unreasonable advantage of consumer'sinability to protect themselves.

Requiring disclosure in plain language,validated through consumer testing,issuing forms for disclosure.

Requiring entities to provide consumersaccess to all related information about aproduct except confidential/fraudprevention information, or informationconsidered confidential under law, or ifthey cannot retrieve such information inthe course of an ordinary business day.

Non-compliance with agency regulationsre: unfair, deceptive, abusive practicesconsidered illegal

EnforcementPowers

Investigative can engage in joint orseparate discovery investigations.

Power to issue subpoena for testimonyand documents or tangible things.Subpoena power enforceable throughcourt.

Power to issue cease and desist orders,with hearing held within 30-60 days.Non-appearance considered consent.Cease and desist orders can be appealedto court.

Power to bring civil action and power tosettle.

Refer possible criminal matters to DOJ(Department of Justice).

Investigate can engage in joint orseparate discovery investigations.

Power to issue subpoena for documents,testimony or things. Subpoena powerenforceable through court, punishable bycontempt of court.

Power to issue cease and desist orders,hearing scheduled within 30-60 days.Non-appearance considered consent.Subject to judicial review, but judicialreview does not grant automatic stay.

Power to bring civil action. No actionafter 3 years of discovery. Notify AG.

Refer possible criminal matters to DOJ.


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May appear before the Supreme Courtwith approval of Attorney General (of ifAG does not respond).

Power to grant relief, includingrescission or reformation of contracts,refunds, restitution, compensation forunjust enrichment, payment fordamages, public notice, limits onactivity, civil penalties. No power togrant punitive damages.

Employee protection employeescannot be fired, demoted, etc. forproviding information to Agency.Complaint can be filed with Secretaryof Labor, who has power to grant reliefincluding back pay, compensatorydamages and reinstatement. IfSecretary of Labor does not act within210 days of filing (or 90 days ofdetermination), employee can take caseto court. In court, either party canrequest a jury trial. Final order of theSecretary not subject to judicial

review. These rights cannot berestricted through mandatory arbitrationrequirements, except in collectivebargaining agreements.

May appear before Supreme Court withapproval of Attorney General (of if AGdoes not respond).

Power to grant relief, includingrescission or reformation of contracts,restitution, refunds, civil penalties (of upto $5,000/day for violation of order, up to$25,000/day for reckless violation of lawand up to $1 million/day for knowinglyviolating the law), recovery of cost.

Employee protection employees cannotbe fired, demoted, etc. for providinginformation to Agency. Complaint can befiled with Secretary of Labor, who haspower to grant relief including back pay,compensatory damages andreinstatement. If Secretary of Labor doesnot act within 210 days of filing (or 90days of determination), employee cantake case to court, or an employee can gostraight to court. Employee must bringcase to Secretary of Labor within 180days of violation. Secretary's decision issubject to judicial review. These rightscannot be restricted through mandatoryarbitration requirements, except incollective bargaining agreements.

Limitation onPowers andAuthorities

The Agency does not have authorityover:

Non-financial good or service, includingmerchants who directly extend credit forthe purpose of buying a non-financialgood or service, unless the value of debtis over market value of product orservice, or if debt is sold.

Mortgage/real estate licensees.

Accountants/tax preparers

Attorneys unless they provide financialproduct as legal service.

Credit extended for motor vehicles ifsuch credit is provided directly toconsumer and not assigned to a thirdparty

Insurance companies (state insuranceregulators retain authorities).

Employee compensation plans

The Bureau does not have the authorityover:

Non-financial good or service, includingmerchants who directly extend credit forthe purpose of buying a non-financialgood or service, unless the value of debtis over market value of product orservice, or if the debt is sold or is payablein more than 4 installments or carries afinance charge.

Mortgage/real estate brokers Tax preparers

Attorneys unless they engage inproviding financial products

Insurance companies (state insuranceregulators retain authority).

Employer benefit and compensationplans, unless requested by Secretaries ofTreasury and Labor.


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Entities regulated by the SEC or a statesecurities commission

Entities regulated by CFTC

Charitable contributions

Entities regulated by the FederalHousing Finance Agency

Entities regulated by the Farm CreditAdministration

Interest rate (usury) regulations

Pawnbrokers

Consumer reporting agencies

Entities regulated by the SEC or a statesecurities commission

Entities regulated by the CFTC

Charitable contributions

Interest rate (usury) regulations

Oversight/AdvisoryPanels andAuthority

Consumer Financial ProtectionOversight Boardin advisory positiononly, no executive authority.

Composition:1. Chair of Federal Reserve2. Head of agency responsible for

chartering and regulating banks(Treasury)

3. Chair, FDIC (Federal DepositInsurance Corporation)

4. Chair, NCUA (National Credit UnionAdministration)

5. Chair, FTC (Federal TradeCommission)

6. Secretary of HUD (Housing andUrban Development)

7. Chair, Liaison Committee ofRepresentatives of State Agencies tothe Financial Institutions ExaminationCouncil

8. Five (5) additional membersappointed by the President, no morethan 3 of one political party

Consumer Advisory Board appointed by

Director/Commission. No more than +1 members of one party. Advisory poweronly.

Financial Stability Oversight Councilhasauthority to, upon being petition by one

of its member agencies, set aside final

regulations of the Bureau if it believes

the regulation would put safety andsoundness of banking or financial systemat risk. A decision to set aside aregulation is subject to judicial review.

Council must act within 45 days of anotice. A regulation can only be set asidewith 2/3rds of the voting membershipagreeing.

Voting membership:

1. Secretary of Treasury, Chair.2. Chair, Federal Reserve3. Comptroller of Currency4. Director of the Bureau itself5. Chair, SEC (Securities and Exchange

Commission)6. Chair, FDIC7. Chair, CFTC (Commodities and

Futures Trade Commission)8. Director of Federal Housing Finance

Agency

9. Independent member appointed by thePresident.

Funding Federal Reserve to transfer 10% of totalsystems expense to theDirector/Commission

Fees on covered entities assessed (basedon size, complexity, risks)

Federal Reserve to transfer amountdetermined by the Director of the Bureauto be reasonably necessary, but notexceeding a percentage of Fed's totaloperating expenses:


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Fees assessed on depository institutions(cannot charge institutions with lessthan $25 billion in assets a highermarginal rate than institutions withmore than that in assets)

Fees assessed in nondepositoryinstitutions (incl. Registration fees)

Congressional appropriations of $200million a year from FY 2010 2014

10% in FY 2011

11% in FY 2012

12% in FY 2013 and subsequent years

Penalties andFinesCollected

Victims Relief Fund/Civil Penalty Fund

Established from fines and penaltiescollected by the Agency

To be paid to victims of adverseactivities

If victim can't be located or payment is

impracticable, 5% of the fund may betransferred (up to $10 million a year) tothe Treasury to carry out financialeducation

Victims Relief Fund/Civil Penalty Fund

Established from fines and penaltiescollected by the Bureau

To be paid to victims of adverse activities

If victim can't be located or payment isimpracticable, Bureau may use fund for

consumer education and financialliteracy programs

Sources:1. House Financial Services Committee website. Bill passed on House floor. HR 4173, Wall

Street Reform and Consumer Protection Act of 2009.http://financialservices.house.gov/

2. Senate Banking Committee website bill sponsored by Sen. Chris Dodd (D-CT). Bill passed incommittee.

http://banking.senate.gov/

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