The Consumer Financial Protection

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  • 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.
  • The Consumer Financial Protection

    1. 1. The Consumer Financial Protection [Agency? Bureau?] ACI Prepaid Compliance Conference Andrew Lorentz Ed Woodson June 24, 2010
    2. 2. Consumer Financial Protection [Agency? Bureau?] or How to make a federal entity* from a toaster <ul><li>*Or a bureau inside an agency, or a commission, or something </li></ul>WilmerHale
    3. 3. The Theory <ul><ul><li>Impetus from a 2007 article by Elizabeth Warren in Democracy </li></ul></ul><ul><ul><ul><li>It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street. </li></ul></ul></ul><ul><ul><li>Existing consumer financial regulation is ineffective </li></ul></ul><ul><ul><ul><li>Fed, OCC, OTS regulate for bank safety and soundness, which often conflicts with consumer welfare </li></ul></ul></ul><ul><ul><ul><li>Need an agency whose sole mission to is protect consumers from misleading and dangerous financial products (focus on credit ) </li></ul></ul></ul>WilmerHale
    4. 4. Evolution <ul><ul><li>Administration proposal June 2009 -> House Bill December 2009 -> Senate Bill May 2010 -> Conference [ongoing] </li></ul></ul><ul><ul><li>Independent federal “Agency” -> semi-independent “Bureau” </li></ul></ul><ul><ul><li>Power over any “financial activity” -> carve-outs -> exceptions for smaller institutions </li></ul></ul><ul><ul><li>Broad and near-exclusive supervisory and enforcement power -> more limited powers over things that aren’t gigantic banks </li></ul></ul>WilmerHale
    5. 5. Common Themes: “FTC on Steroids” <ul><ul><li>Substantial Autonomy </li></ul></ul><ul><ul><li>Combined rulemaking, supervisory, and enforcement authority for “enumerated consumer laws” transferred from Fed, the OCC, OTS, FDIC, FTC, and NCUA </li></ul></ul><ul><ul><ul><li>Deposits, mortgages, credit, loan service, consumer reports, debt collection, money transmitting, real estate, stored value </li></ul></ul></ul><ul><ul><ul><li>And anything else defined as a “financial activity” (House Bill) or a “consumer financial product or service” (Senate Bill) </li></ul></ul></ul>WilmerHale
    6. 6. Entity Organization: House Bill (Title IV) <ul><ul><li>Independent “Agency” </li></ul></ul><ul><ul><ul><li>Director for first two years </li></ul></ul></ul><ul><ul><ul><li>Then five-member Commission serving five-year staggered terms </li></ul></ul></ul><ul><ul><li>Consumer Financial Protection Oversight Board </li></ul></ul><ul><ul><ul><li>Seven members (chairs of key regulators), plus up to five presidential appointees that can include consumer protection experts, depositary institutions that primarily serve underserved communities, etc. </li></ul></ul></ul><ul><ul><ul><li>Advises Director, but has not independent authority </li></ul></ul></ul>WilmerHale
    7. 7. Entity Organization: Senate Bill (Title X) <ul><ul><li>“ Bureau” “within” Federal Reserve </li></ul></ul><ul><ul><ul><li>Director appointed by President, not by Fed </li></ul></ul></ul><ul><ul><ul><li>Fed may not intervene in Bureau examinations </li></ul></ul></ul><ul><ul><ul><li>Fed may not prevent issuance of any Bureau rule </li></ul></ul></ul><ul><ul><ul><li>Fed may not appoint or remove any Bureau staff </li></ul></ul></ul><ul><ul><li>Financial Stability Oversight Council </li></ul></ul><ul><ul><ul><li>Other roles in financial reform bill </li></ul></ul></ul><ul><ul><ul><li>Chaired by Secretary of Treasury and composed of representatives of key regulators </li></ul></ul></ul>WilmerHale
    8. 8. Funding <ul><ul><li>House Bill: CFPA/B receives ten percent of the Fed’s operating budget plus ability to assess fees on “covered persons”; no assessments on small banks to cover examination costs </li></ul></ul><ul><ul><li>Senate Bill: CFPA/B receives up to 12% of Fed operating budget </li></ul></ul><ul><ul><ul><li>Director decides what amount, up to the 12% cap, is “reasonably necessary” </li></ul></ul></ul><ul><ul><ul><li>Fed has no control over CFPA/B budget or financial operations </li></ul></ul></ul>WilmerHale
    9. 9. Scope of Rulemaking Authority <ul><ul><li>Assumes authority to issue rules under “enumerated consumer laws” </li></ul></ul><ul><ul><li>Extends to any person engaged in a “consumer financial product or service” </li></ul></ul><ul><ul><ul><li>Exclusive rulemaking authority, unless specifically exempted (small banks, FTC, etc.) </li></ul></ul></ul><ul><ul><ul><li>Can issue regulations, orders, and guidance </li></ul></ul></ul><ul><ul><ul><li>Includes enumerated financial activities and a “bank catch-all” that encompasses all (House) or consumer-related (Senate) banking activities </li></ul></ul></ul>WilmerHale
    10. 10. Rulemaking Standards <ul><ul><li>General : “The [CFPA/B] may take any action authorized under subtitle E to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” (House §4301(a), Senate §1031(a)) </li></ul></ul><ul><ul><li>Procedure : Must consider cost and benefits to consumers, “covered persons”, [and the government], and should consider the potential for loss of access to financial products. The CFPA/B must consult with prudential regulators. (House §4202(a)(2), Senate §1022(b)) </li></ul></ul>WilmerHale WilmerHale
    11. 11. Rulemaking Standards <ul><ul><li>Exemption Authority : Broad, by person or class of persons. Decision to exempt must consider the following factors: assets, volume of transactions, pre-existing regulatory protections. (House §4202(b)(3), Senate §1022(b)(3)) </li></ul></ul><ul><ul><li>Disclosures : CFPA/B can mandate/regulate disclosures, and create model disclosures. Compliance with model disclosures will provide a “safe harbor” (Senate) or “per se” compliance (House). (House §4302, Senate §1032) </li></ul></ul>WilmerHale WilmerHale
    12. 12. Rulemaking Standards <ul><ul><li>Unfair : </li></ul></ul><ul><ul><ul><li>Senate (§1031(c)): The [CFPA/B] may have a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury which is not reasonably avoidable , and which is not outweighed countervailing benefits. Public policy benefits may be considered. </li></ul></ul></ul><ul><ul><ul><li>House (§4301(c)): References §5 of the FTC Act and 1980 policy statement (similar to House but also adds factor of “ unethical or unscrupulous conduct ”). </li></ul></ul></ul><ul><ul><li>Deceptive : </li></ul></ul><ul><ul><ul><li>Senate: Undefined. </li></ul></ul></ul><ul><ul><ul><li>House(§4301(c)): References §5 of the FTC Act and 1983 policy statement (a material representation or omission that is likely to mislead a reasonable consumer ). </li></ul></ul></ul>WilmerHale WilmerHale
    13. 13. Rulemaking Standards <ul><ul><li>Abusive : </li></ul></ul><ul><ul><ul><li>Senate (§1031(d)): If materially interferes with ability to understand terms. OR If takes unreasonable advantage of: lack of understanding; the inability to protect interests in selecting or using a product; or reasonable reliance by consumer on a covered person to act in the consumer’s interest. </li></ul></ul></ul><ul><ul><ul><li>House (§4301(c)): If reasonably likely to result in an inability to understand the terms or protect their own interests in selecting or using a product. OR If widespread use is reasonably likely to contribute to financial system instability. </li></ul></ul></ul>WilmerHale WilmerHale
    14. 14. Institutional Checks on Rulemaking Authority: Senate Bill <ul><ul><li>Financial Stability Oversight Council may temporarily stay or permanently set aside a Bureau regulation if petitioned by a Council member agency </li></ul></ul><ul><ul><ul><li>Stay and set aside requires a 2/3 vote </li></ul></ul></ul><ul><ul><ul><li>Decision based on regulation's risk to: </li></ul></ul></ul><ul><ul><ul><ul><li>Safety and soundness of banking system </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Stability of the U.S. financial system </li></ul></ul></ul></ul><ul><ul><li>If a prudential regulator objects in writing to a proposed Bureau rule, the objection must be addressed in the rule’s adopting release </li></ul></ul>WilmerHale
    15. 15. Scope of Supervisory Authority <ul><ul><li>Large insured depository institutions (at least $10 billion in assets, or 2% of banks), and any affiliates thereof. </li></ul></ul><ul><ul><li>Non-depository Institutions </li></ul></ul><ul><ul><ul><li>House Bill: Potentially all covered persons </li></ul></ul></ul><ul><ul><ul><ul><li>CFPA shall develop “risk-based programs” based on risks posed to consumers in relevant geographic markets and markets for consumer financial products and services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unclear if risk-based programs will exempt certain covered persons </li></ul></ul></ul></ul><ul><ul><ul><li>Senate Bill: Covered persons who: </li></ul></ul></ul><ul><ul><ul><ul><li>Provide various consumer mortgage loan services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Are “a larger participant of a market for other consumer financial products or services” (to be defined by rulemaking) </li></ul></ul></ul></ul>WilmerHale
    16. 16. Scope of Enforcement Authority <ul><ul><li>Depository institutions: </li></ul></ul><ul><ul><ul><li>Primary authority over large banks, and other regulators have backup authority </li></ul></ul></ul><ul><ul><ul><li>Senate: Primary regulator has exclusive authority over small banks </li></ul></ul></ul><ul><ul><ul><li>House: Primary regulator has primary authority over small banks, and CFPA has backup authority </li></ul></ul></ul><ul><ul><li>Nondepository institutions: </li></ul></ul><ul><ul><ul><li>House: Primary authority, concurrent with FTC, and other agencies have backup authority </li></ul></ul></ul><ul><ul><ul><li>Senate: Exclusive authority, concurrent with FTC </li></ul></ul></ul>WilmerHale
    17. 17. Scope of Enforcement Authority <ul><ul><li>CFPA/B to have subpoena power and can conduct hearings. Appeals from CFPA/B determinations to go to Court of Appeals </li></ul></ul><ul><ul><li>Can issue temporary cease and desist orders </li></ul></ul><ul><ul><li>Can bring actions in federal district court or state court for legal and equitable relief </li></ul></ul>WilmerHale
    18. 18. Exceptions to Authority: Regulators <ul><ul><li>Some regulators retain their consumer protection authority </li></ul></ul><ul><ul><ul><li>SEC and CFTC retain authority over regulated entities </li></ul></ul></ul><ul><ul><ul><li>FTC retains existing authority under the FTCA and under any “non-enumerated” law (e.g. Community Reinvestment Act) </li></ul></ul></ul><ul><ul><ul><li>State-regulated insurance and brokerage agencies retain authority </li></ul></ul></ul><ul><ul><li>Primary regulators retain supervisory and enforcement authority over “small” banks and “small” credit unions </li></ul></ul>WilmerHale
    19. 19. Exceptions to Authority: Merchants <ul><ul><li>Sellers of stored value unless they exercise “substantial control” (Senate) over or “influence the terms or conditions” (House) of the stored value product </li></ul></ul><ul><ul><li>Most extensions of purchase money credit and related debt collection, if for nonfinancial goods or services </li></ul></ul><ul><ul><ul><li>Senate: No exemption if merchant is engaged significantly in offering consumer financial products/services and: </li></ul></ul></ul><ul><ul><ul><ul><li>Non-delinquent/default debt is conveyed to another person </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit subject to a finance charge is regularly extended, unless merchant is a small business </li></ul></ul></ul></ul>WilmerHale
    20. 20. Exceptions to Authority: Others <ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Consumer reporting agencies </li></ul></ul><ul><ul><li>Accountants </li></ul></ul><ul><ul><li>Tax preparers </li></ul></ul><ul><ul><li>Attorneys </li></ul></ul><ul><ul><li>Real estate brokers and agents </li></ul></ul><ul><ul><li>Many more! </li></ul></ul><ul><ul><li>House: pawnbrokers and auto dealers </li></ul></ul>WilmerHale
    21. 21. Interchange (Senate Bill only) <ul><ul><li>Durbin amendment passed 64-33 </li></ul></ul><ul><ul><li>Applies to “electronic debit transactions” </li></ul></ul><ul><ul><li>Key Provisions: </li></ul></ul><ul><ul><ul><li>Interchange fees must be “reasonable and proportional to the actual cost incurred by the issuer or payment card network with respect to the transaction ” [emphasis added] </li></ul></ul></ul><ul><ul><ul><li>Exemption for issuers having less than $10B in assets….but… </li></ul></ul></ul><ul><ul><ul><li>Prohibits network restrictions on merchants </li></ul></ul></ul><ul><ul><ul><ul><li>Merchants can provide incentives between networks, forms of payment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Merchants can set minimums and maximums for forms of payment </li></ul></ul></ul></ul><ul><ul><ul><li>Regulatory authority granted to Federal Reserve, but…such authority may transfer to CFPA/B </li></ul></ul></ul>WilmerHale WilmerHale
    22. 22. Remittances (House & Senate Bills) <ul><ul><li>House Bill more robust than Senate Bill </li></ul></ul><ul><ul><li>Disclosure requirements </li></ul></ul><ul><ul><ul><li>Pre-sale disclosure : sum of $$ actually delivered, plus significant other information in House Bill </li></ul></ul></ul><ul><ul><ul><li>Receipt : highly detailed in both bills, including timing expectations </li></ul></ul></ul><ul><ul><ul><li>Some flexibility in means of disclosure delivery for electronic/telephonic remittances </li></ul></ul></ul><ul><ul><ul><li>Web and telephone disclosure/tracking means (House only) </li></ul></ul></ul><ul><ul><ul><li>Foreign language requirements </li></ul></ul></ul>WilmerHale WilmerHale
    23. 23. Remittances (House & Senate) <ul><ul><li>Specific “error” resolution procedures </li></ul></ul><ul><ul><li>No preemption </li></ul></ul><ul><ul><li>Applicability to prepaid card “remittances”? </li></ul></ul>WilmerHale WilmerHale
    24. 24. Preemption <ul><ul><li>No “field” preemption: State consumer financial laws would be preempted only if inconsistent with federal law </li></ul></ul><ul><ul><ul><li>State laws affording broader consumer financial protection are not preempted </li></ul></ul></ul><ul><ul><ul><li>Enumerated consumer protection laws (FDCPA, FCRA, ECOA, etc) not preempted </li></ul></ul></ul>WilmerHale
    25. 25. Preemption: Banks <ul><ul><li>State laws applying to a national bank are preempted only to the extent the laws: </li></ul></ul><ul><ul><ul><li>Significantly interfere with or materially impair a national bank from engaging in the business of banking ( Barnett ) </li></ul></ul></ul><ul><ul><ul><li>Discriminate against the national bank in favor of a state-chartered bank </li></ul></ul></ul><ul><ul><li>Preemption determination may be made by a court, regulation, or OCC order ”in accordance with applicable law, on a case-by-case basis.” </li></ul></ul><ul><ul><ul><li>OCC must consult with CFPA/B before making case-by-case determination </li></ul></ul></ul>WilmerHale
    26. 26. Preemption: Banks <ul><ul><li>No preemption for subsidiaries or affiliates of national banks that themselves are not national banks </li></ul></ul><ul><ul><ul><li>Overrules contrary OCC regulation upheld by Supreme Court in Watters v. Wachovia </li></ul></ul></ul><ul><ul><li>House Bill: National bank preemption requires an applicable federal substantive standard that regulates the particular conduct, activity, or authority that would otherwise be subject to the state consumer financial law </li></ul></ul><ul><ul><ul><li>OCC must consult with CFPA before making finding </li></ul></ul></ul><ul><ul><ul><li>Prevents preemption with no federal replacement </li></ul></ul></ul>WilmerHale
    27. 27. Preemption: Non-federal enforcement <ul><ul><li>State AGs may enforce consumer protection provisions or CFPA/B regulations </li></ul></ul><ul><ul><li>Senate Bill: With respect to national banks: State AGs may only enforce CFPA/B regulations, not provisions of the Senate Bill itself </li></ul></ul><ul><ul><li>Private rights of action not explicitly granted. House Bill explicitly does not create private right, and Senate Bill is silent. </li></ul></ul><ul><ul><ul><li>Private rights may exist under enumerated consumer laws </li></ul></ul></ul>WilmerHale
    28. 28. Outlook <ul><ul><li>Rep. Barney Frank (D-MA) chairing conference committee, which started meeting June 14 </li></ul></ul><ul><ul><li>Base text is Senate bill </li></ul></ul><ul><ul><li>Goal is to have final bill to President Obama before July 4 break </li></ul></ul><ul><ul><li>Larger context of financial services reform </li></ul></ul><ul><ul><li>Some major open issues </li></ul></ul><ul><ul><ul><li>Governance / independence </li></ul></ul></ul><ul><ul><ul><li>Interplay between the CFPA/B and primary regulators </li></ul></ul></ul><ul><ul><ul><li>Scope of preemption </li></ul></ul></ul><ul><ul><ul><li>Who else gets exempted </li></ul></ul></ul>WilmerHale
    29. 29. Recent Proposed Legislation … Future CFPA/B Rulemaking? <ul><ul><li>Prepaid Card Consumer Protection Act of 2009 </li></ul></ul><ul><ul><ul><li>Sen. Robert Menendez, D-NJ, with substantial input from consumer advocates </li></ul></ul></ul><ul><ul><ul><li>Amends the Electronic Funds Transfer Act. </li></ul></ul></ul><ul><ul><ul><li>Not introduced to date (CFPA/B jurisdiction may have reduced perceived need) </li></ul></ul></ul><ul><ul><ul><li>Intended Target: GPR and other reloadable prepaid cards </li></ul></ul></ul><ul><ul><ul><li>Impacted Target: GPR, reloadable, and gift </li></ul></ul></ul><ul><ul><ul><li>Fundamental Effect: A narrowing of the range of GPR/reloadable service offerings (and associated fees) to a “one size fits all” standard </li></ul></ul></ul><ul><ul><ul><li>Possible Rationales? (unfair/deceptive/abusive?) </li></ul></ul></ul>WilmerHale WilmerHale
    30. 30. Recent Proposed Legislation … Future CFPA/B Rulemaking? <ul><ul><li>Prepaid Card Consumer Protection Act of 2009 </li></ul></ul><ul><ul><ul><li>Key Provisions: </li></ul></ul></ul><ul><ul><ul><ul><li>Amends definition of “ account ” to include “spending card accounts” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Amends definition of “ financial institution ” to include “operators and managers” of “accounts” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Defines “ spending card account ” as: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>General Definition…the mistaken “or” </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Specific inclusions: GPR cards and “reloadable not marketed as gift” as provided in the Credit CARD Act of 2009. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Specific exclusions: all other Credit Card Act exclusions (e.g. LAP) </li></ul></ul></ul></ul></ul>WilmerHale WilmerHale
    31. 31. Recent Proposed Legislation … Future CFPA/B Rulemaking? <ul><ul><ul><ul><li>Fees : everything prohibited except what is specifically allowed, such as: activation; monthly periodic (not dormancy), 2 nd replacement card (per year), 5 th customer service contact (per month) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Information & Disclosure Requirements : significant requirements and few charges </li></ul></ul></ul></ul><ul><ul><ul><ul><li>FDIC Insurance : must have pass-through insurance for cardholder (very impactful if applicable to gift) </li></ul></ul></ul></ul>WilmerHale WilmerHale

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