dodd-frank legal issues for bankers ann graham, j.d., m.b.a. professor of law, founding director...
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Dodd-FrankLegal Issues for Bankers
Ann Graham, J.D., M.B.A.Professor of Law, Founding Director Business Law InstituteHamline University School of LawBanking Law Blog: http://lawprofessors.typepad.com/banking/
Consumer Financial
Protection Bureau
Dodd-Frank Dodd-Frank Wall Street Reform & Wall Street Reform &
Consumer Protection Act Consumer Protection Act – signed July 21, 2010– signed July 21, 2010
• 2,319 Pages
Obama Administration Obama Administration Financial Regulatory Financial Regulatory
Reform Plan & Consumer Reform Plan & Consumer Financial ProtectionFinancial Protection
Consumer Regulatory Reform – Consumer Regulatory Reform – A New A New Foundation: Rebuilding Financial Supervision & Foundation: Rebuilding Financial Supervision & RegulationRegulation
(June 17, 2009)(June 17, 2009) Consumer Financial Protection Agency Act of 2009Consumer Financial Protection Agency Act of 2009
(June 30, 2009)(June 30, 2009) 80 Law Professors – Letter to Congress (Sept. 29, 80 Law Professors – Letter to Congress (Sept. 29,
2009)2009) ““Political Horse-Trading” – Spring 2010Political Horse-Trading” – Spring 2010
CFPA: Original PlanCFPA: Original Plan
““Independent”Independent”
Broad Jurisdiction – all consumer laws Broad Jurisdiction – all consumer laws
& all entities& all entities
Sole Rulemaking AuthoritySole Rulemaking Authority
Supervisory & Enforcement AuthoritySupervisory & Enforcement Authority
CFP – Why Do We Need CFP – Why Do We Need It?It?
Elizabeth Warren: Elizabeth Warren: “The credit market is broken”“The credit market is broken”
Subprime crisisSubprime crisis Conflicting missions & incentives for Conflicting missions & incentives for
existing agenciesexisting agencies Track record of existing agenciesTrack record of existing agencies Markets cannot work if information is Markets cannot work if information is
deficientdeficient Good products will not gain market Good products will not gain market
share, drive out bad productsshare, drive out bad products Public welfare argumentPublic welfare argument
Consumer Financial Consumer Financial Protection Bureau – Title Protection Bureau – Title
X Dodd-FrankX Dodd-Frank Independent Bureau – within Federal ReserveIndependent Bureau – within Federal Reserve Elizabeth Warren: Assistant to the President Elizabeth Warren: Assistant to the President
& Special Adviser to the Treasury Secretary & Special Adviser to the Treasury Secretary – Sept. 2010– Sept. 2010
Organizing the CFPB – By July 21, 2011Organizing the CFPB – By July 21, 2011 Who will be Director?Who will be Director? Funding Funding StaffingStaffing Prudential Regulation retained for <$10B tot. Prudential Regulation retained for <$10B tot.
assetsassets
Mission & scope of Mission & scope of authorityauthority
Regulate unregulated institutions & productsRegulate unregulated institutions & products(auto dealers excepted)(auto dealers excepted)
Centralize consumer protection, minimize Centralize consumer protection, minimize inconsistencyinconsistency
Compartmentalization?Compartmentalization?• Safety & soundnessSafety & soundness• Consumer protectionConsumer protection• Complementary or ContradictoryComplementary or Contradictory
• The Financial Stability Oversight Council can The Financial Stability Oversight Council can set aside any CFPB regulation that puts the set aside any CFPB regulation that puts the safety or soundness of the U.S. banking or safety or soundness of the U.S. banking or financial system at risk. financial system at risk.
Effect on Community Effect on Community BanksBanks
““Community Financial Community Financial Institutions” & credit unions Institutions” & credit unions with total assets of $10 with total assets of $10 billion or lessbillion or less
Prudential regulators retain Prudential regulators retain enforcement authority enforcement authority
BUT CFPB regulations will applyBUT CFPB regulations will apply
StaffingStaffing Each agency transfers existing Each agency transfers existing
consumer protection divisionconsumer protection division Assures expertise, minimizes start-Assures expertise, minimizes start-
up timeup time BUT new entities, products, BUT new entities, products,
servicesservices Priorities, staff allocationPriorities, staff allocation Regulation models:Regulation models:
A.A. Examination DrivenExamination DrivenB.B. Complaint DrivenComplaint DrivenC.C. Report DrivenReport Driven
CFPB OfficesCFPB Offices
Office of Fair Lending & Equal Office of Fair Lending & Equal Opportunity. Opportunity.
Office of Financial Education. Office of Financial Education. Office of Service Member Affairs. Office of Service Member Affairs. Office of Financial Protection for Office of Financial Protection for
Older Americans. Older Americans. Consumer Complaint Hotline Consumer Complaint Hotline Consumer Advisory BoardConsumer Advisory Board
Clarifying Federal Clarifying Federal PreemptionPreemption
A.A. CFPB sets federal “floor”CFPB sets federal “floor”
B.B. States may be more stringentStates may be more stringent
C.C. State consumer protection laws are State consumer protection laws are
NOT preemptedNOT preempted
D.D. Watters v. WachoviaWatters v. Wachovia (2007) (2007)
E.E. Cuomo v. Clearing HouseCuomo v. Clearing House (2009) (2009)
F.F. State/Federal Balance & Dual Banking State/Federal Balance & Dual Banking
SystemSystem
Weighing Costs & Benefits Weighing Costs & Benefits of Regulationof Regulation
A. A. Regulatory Burden?Regulatory Burden?B. Stifling Innovation?B. Stifling Innovation?C. Interference with Free Market?C. Interference with Free Market?D. Protecting those who cannot protect D. Protecting those who cannot protect themselvesthemselves
E. Standard: “causes or is likely to cause substantial E. Standard: “causes or is likely to cause substantial
injury to consumers which is not reasonably avoidable injury to consumers which is not reasonably avoidable
by consumers & such injury is not outweighed by by consumers & such injury is not outweighed by
countervailing benefits to consumers or to competition”countervailing benefits to consumers or to competition”
F. No Plain VanillaF. No Plain Vanilla
CFPBCFPB Political ReactionPolitical Reaction
Industry ReactionIndustry Reaction ABA, Financial Services RoundtableABA, Financial Services Roundtable
Consumer PerspectiveConsumer Perspective Center for Responsible LendingCenter for Responsible Lending
Large Bank/Small Bank IssuesLarge Bank/Small Bank Issues
Are Disclosures Enough?Are Disclosures Enough?
Plain Vanilla Products?Plain Vanilla Products?
Consumer ProtectionConsumer Protectionand and
Bank ComplianceBank Compliance
Safety & Soundness Safety & Soundness depends on depends on Consumer ProtectionConsumer Protection
State AGs can enforce State AGs can enforce consumer consumer protection lawsprotection laws
Review Policies & Procedures Review Policies & Procedures New Reg Reform Site – Tracks Dodd-New Reg Reform Site – Tracks Dodd-
FrankFrank www.stlouisfed.org/rrr/
Articles available: SSRNArticles available: SSRN
Ann Graham: SSRN Author page Ann Graham: SSRN Author page http://ssrn.com/author=391481 ----------------------------------------------------------------------------------------------------
The Consumer Financial Protection The Consumer Financial Protection Agency: Love It or Hate It, U.S. Agency: Love It or Hate It, U.S. Financial Regulation Needs ItFinancial Regulation Needs It
Bringing to Heel the Elephants in Bringing to Heel the Elephants in the Economy: The Case for Ending the Economy: The Case for Ending Too Big to FailToo Big to Fail