Dodd-Frank Legal Issues for Bankers Ann Graham, J.D., M.B.A. Professor of Law, Founding Director Business Law Institute Hamline University School of Law Banking Law Blog: Consumer Financial Protection Bureau

Dodd-Frank Wall Street Reform & Consumer Protection Act – signed July 21, 2010 Federal Reserve Act (1913) - 31 pages Glass-Steagall Act (1933) – 37 pages Gramm-Leach-Bliley Act (1999) – 145 pages Sarbanes-Oxley Act (2002) – 66 pages 2,319 Pages

Obama Administration Financial Regulatory Reform Plan & Consumer Financial Protection Consumer Regulatory Reform – A New Foundation: Rebuilding Financial Supervision & Regulation Consumer Regulatory Reform – A New Foundation: Rebuilding Financial Supervision & Regulation (June 17, 2009) Consumer Financial Protection Agency Act of 2009 Consumer Financial Protection Agency Act of 2009 (June 30, 2009) 80 Law Professors – Letter to Congress (Sept. 29, 2009) 80 Law Professors – Letter to Congress (Sept. 29, 2009) Political Horse-Trading – Spring 2010 Political Horse-Trading – Spring 2010

CFPA: Original Plan Independent Independent Broad Jurisdiction – all consumer laws & all entities Broad Jurisdiction – all consumer laws & all entities Sole Rulemaking Authority Sole Rulemaking Authority Supervisory & Enforcement Authority Supervisory & Enforcement Authority

CFP – Why Do We Need It? Elizabeth Warren: The credit market is broken Elizabeth Warren: The credit market is broken Subprime crisis Subprime crisis Conflicting missions & incentives for existing agencies Conflicting missions & incentives for existing agencies Track record of existing agencies Track record of existing agencies Markets cannot work if information is deficient Markets cannot work if information is deficient Good products will not gain market share, drive out bad products Good products will not gain market share, drive out bad products Public welfare argument Public welfare argument

Consumer Financial Protection Bureau – Title X Dodd-Frank Independent Bureau – within Federal Reserve Independent Bureau – within Federal Reserve Elizabeth Warren: Assistant to the President & Special Adviser to the Treasury Secretary – Sept Elizabeth Warren: Assistant to the President & Special Adviser to the Treasury Secretary – Sept Organizing the CFPB – By July 21, 2011 Organizing the CFPB – By July 21, 2011 Who will be Director? Who will be Director? Funding Funding Staffing Staffing Prudential Regulation retained for <$10B tot. assets Prudential Regulation retained for <$10B tot. assets

Mission & scope of authority Regulate unregulated institutions & products (auto dealers excepted) Regulate unregulated institutions & products (auto dealers excepted) Centralize consumer protection, minimize inconsistency Centralize consumer protection, minimize inconsistency Compartmentalization? Compartmentalization? Safety & soundness Safety & soundness Consumer protection Consumer protection Complementary or Contradictory Complementary or Contradictory The Financial Stability Oversight Council can set aside any CFPB regulation that puts the safety or soundness of the U.S. banking or financial system at risk. The Financial Stability Oversight Council can set aside any CFPB regulation that puts the safety or soundness of the U.S. banking or financial system at risk.

Effect on Community Banks Community Financial Institutions & credit unions with total assets of $10 billion or less Community Financial Institutions & credit unions with total assets of $10 billion or less Prudential regulators retain enforcement authority Prudential regulators retain enforcement authority BUT CFPB regulations will apply BUT CFPB regulations will apply

Staffing Each agency transfers existing consumer protection division Each agency transfers existing consumer protection division Assures expertise, minimizes start-up time Assures expertise, minimizes start-up time BUT new entities, products, services BUT new entities, products, services Priorities, staff allocation Priorities, staff allocation Regulation models: Regulation models: A. Examination Driven B. Complaint Driven C. Report Driven

CFPB Offices Office of Fair Lending & Equal Opportunity. Office of Fair Lending & Equal Opportunity. Office of Financial Education. Office of Financial Education. Office of Service Member Affairs. Office of Service Member Affairs. Office of Financial Protection for Older Americans. Office of Financial Protection for Older Americans. Consumer Complaint Hotline Consumer Complaint Hotline Consumer Advisory Board Consumer Advisory Board

Clarifying Federal Preemption A. CFPB sets federal floor B. States may be more stringent C. State consumer protection laws are NOT preempted D. Watters v. Wachovia (2007) E. Cuomo v. Clearing House (2009) F. State/Federal Balance & Dual Banking System

Weighing Costs & Benefits of Regulation A. Regulatory Burden? B. Stifling Innovation? C. Interference with Free Market? D. Protecting those who cannot protect themselves E. Standard: causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers & such injury is not outweighed by countervailing benefits to consumers or to competition F. No Plain Vanilla

CFPB Political Reaction Political Reaction Industry Reaction Industry Reaction ABA, Financial Services Roundtable ABA, Financial Services Roundtable Consumer Perspective Consumer Perspective Center for Responsible Lending Center for Responsible Lending Large Bank/Small Bank Issues Large Bank/Small Bank Issues Are Disclosures Enough? Are Disclosures Enough? Plain Vanilla Products? Plain Vanilla Products?

Consumer Protection and Bank Compliance Safety & Soundness depends on Consumer Protection Safety & Soundness depends on Consumer Protection State AGs can enforce consumer protection laws State AGs can enforce consumer protection laws Review Policies & Procedures Review Policies & Procedures New Reg Reform Site – Tracks Dodd-Frank New Reg Reform Site – Tracks Dodd-Frank

Articles available: SSRN Ann Graham: SSRN Author page Ann Graham: SSRN Author page The Consumer Financial Protection Agency: Love It or Hate It, U.S. Financial Regulation Needs It The Consumer Financial Protection Agency: Love It or Hate It, U.S. Financial Regulation Needs It Bringing to Heel the Elephants in the Economy: The Case for Ending Too Big to Fail Bringing to Heel the Elephants in the Economy: The Case for Ending Too Big to Fail