1. The Dodd-Frank Wall Street Reform and Consumer Protection Act
Title X – The Consumer Financial Protection Act of 2010
SLSA Private Loan Committee Meeting
June 22, 2011
Presented by Arthur J. Rotatori

2. BACKGROUND
Dodd-Frank (H.R. 4173) Public Law No , passed 7/15/2010; signed 7/21/2010
Sixteen Titles, 67 Studies, 22 Reports
Consumer Law issue are in Title X and Title XIV (mortgage lending)

3. TITLE X Creates the Consumer Financial Protection Bureau
Establishes new standards for the preemption of State law by Federal law
Preserves rate exportation authority
Mandates consumer Arbitration study

4. The 4 Big Myths About the CFPB & Its Powers (American Banker 6/3/2011)
The CFPB is the most powerful agency to ever exist.
The CFPB has virtually unchecked authority.
The CFPB is not subject to congressional oversight.
The CFPB has unparalleled budget authority.

5. ORGANIZATION OF THE BUREAU
Single director, appointed by President and approved by Senate, for a five-year term
Housed in Federal Reserve Board, but completely independent
Eight functional units

6. BUREAU FUNCTIONAL UNITS
A research arm to monitor the consumer financial product marketplace and develop consumer education programs.
A community affairs arm to provide information, guidance and assistance to traditionally underserved consumers and communities.
A unit to track consumer complaints and route those complaints to the proper federal or state agency.
An Office of Financial Education.

7. BUREAU FUNCTIONAL UNITS (Continued)
An office of Fair Lending and Equal Opportunity to provide oversight and enforcement of federal fair lending laws.
A Consumer Advisory Board to advise and consult on CFPB functions and the enumerated consumer laws and to provide information on emerging practices in the consumer financial products or services industry.
An Office of Service Member Affairs to provide financial-services to service members (including any member of the Armed Forces and any member of the National Guard or Reserves).

8. BUREAU FUNCTIONAL UNITS (Continued)
An office of Financial Protection for Older Americans to facilitate financial literacy for people who are 62 years old or above.

10. Coordination with State Regulators
1/4/11-MOU between CFPB and CSBS to coordinate supervision of consumer financial products and services, establish consistent examination procedures, minimize regulatory burden and efficiency deploy supervisory resources.
4/11/11-CFPB and NAAG published a Joint Statement of Principles to provide for information sharing, regular consultations, coordinated investigation and enforcement actions and joint training programs.
These agreements reflect the reality of the scope of the CFPB’s jurisdiction and the need to “deputize” state regulators.

11. CFPB Implementation Process
CFPB Implementation Positions Filled
Leonard J. Kennedy, General Counsel
Richard Cordray, Chief of Enforcement
Holly Petraeus, Office of Service Member Affairs
Raj Date, Associate Director of Research, Markets and Regulation
2. CFPB HQ Selected HQ
1700 G Street, NW
Former OTS HQ
3. New Website
CFPB Press Releases
Consumer complaint center
“Transparency” and Dr. Warren’s Calendar

12. BUREAU AUTHORITY Rulemaking authority Supervisory authority
Enforcement authority

13. BUREAU RULEMAKING AUTHORITY
Title X takes all consumer protection rulemaking, supervision and enforcement away from the bank regulators (the FTC retains it’s FTC Act rulemaking and enforcement authority)
Bureau has exclusive rulemaking authority to promulgate regulations for the “enumerated consumer protection laws”

14. THE ENUMERATED CONSUMER PROTECTION LAWS
The Alternative Mortgage Transaction Parity Act
The Fair Credit Reporting Act (FCRA)
The Fair Credit Billing Act
The Home Owners Protection Act
The Fair Debt Collection Practices Act (FDCPA)
The Home Mortgage Disclosure Act (HMDA)
The Home Owners Equity Protection Act (HOEPA)
The Real Estate Settlement Procedures Act (RESPA)
The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act
The Truth in Lending Act (TILA)

15. THE ENUMERATED CONSUMER PROTECTION LAWS (Continued)
The Equal Credit Opportunity Act (ECOA)
The Unfair and Deceptive Acts and Practices Act [§ 626 of 2009 Omnibus Appropriations Act] (UDAP)
CFPB NPC regarding rules that it will enforce (76 Fed. Reg , 5/31/11): This Notice is largely a formality as the CFPB’s enforcement authority is defined by Dodd-Frank

16. REVIEW OF BUREAU REGULATIONS
A member of the Financial Stability Oversight Council can petition to set aside a Bureau regulation on safety and soundness grounds
A set aside of a regulation requires:
A good faith attempt to resolve issues with the Bureau
Publication of the petition in the Federal Register; filing with Congress
2/3 vote of Council members
Is this Myth #2?

17. Congressional Oversight of CFPB
New Dodd-Frank §1016A requires annual independent audits of the CFPB’s operations and budget; GAO annual audit of CFPB; financial statements
New Dodd-Frank §1016B requires GAO to conduct an annual study of CFPB’s regulations
Is Myth #3 based on frustrating testimony?

18. The CFPB’s Budget
CFPB is not funded as part of the appropriations process (but neither are the FDIC, the OCC, the Federal Reserve); regulatory agencies such as the FTC and the SEC are part of the appropriations process
CFPB is funded by the Federal Reserve (up to 10% of the Federal Reserve’s budget); the actual amount is disputed
Is Myth #4 based on a dispute over whether the CFPB is a banking agency or a regulatory agency?

19. BUREAU’S GENERAL REGULATORY POWERS
Bureau has authority to regulate:
Covered persons
Service providers
Related persons

20. COVERED PERSONS The term “covered persons” means:
A. Any person that engages in offering or providing a consumer financial product or service; and
B. Or any affiliate of a person described in A if such affiliate acts as a service provider to such person.
NOTE: Bureau will decide by regulation which non-depository entities are covered persons.

21. CONSUMER FINANCIAL PRODUCTS OR SERVICES
The term “Consumer financial product or service” includes, but is not limited to:
A. Extending credit and servicing loans, including, acquiring, purchasing, selling, brokering, or other extensions of credit.
B. Extending or brokering leases of personal or real property that are the functional equivalent of purchase finance arrangements.
C. Providing real estate settlement services, except performing appraisals of real estate or personal property.

22. CONSUMER FINANCIAL PRODUCTS OR SERVICES (Continued)
D. Engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument.
E. Selling, providing, or issuing stored value cards or payment instructions. Reloadable stored valuecards will only be deemed a financial product or service if the seller retains substantial control over the terms or conditions of the card.

23. CONSUMER FINANCIAL PRODUCTS OR SERVICES (Continued)
F. Providing check cashing, check collection, or check guaranty services.
G. Providing payments or other financial data processing products or services to a consumer including payments made through an online banking system or mobile telecommunications network.
H. Providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including:
i. Providing credit counseling to any consumer.

24. CONSUMER FINANCIAL PRODUCTS OR SERVICES (Continued)
ii. Providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
I. Collecting, analyzing, maintaining, or providing consumer report information or other account information, including information relating to the credit history or consumers, including credit scores.
J. Collecting debt related to any consumer financial product or service.

25. SERVICE PROVIDER
Any person that provides a material service to a covered person in connection with the offering or provision of a consumer financial product or service, including
A. Participating in designing, operating or maintaining the consumer financial product or service or
B. Processes transactions relating to the consumer financial product or service
Exception:
Does not include a person who offers or provides (1) a support service provided to business generally or a similar ministerial service or (2) type or space for an advertisement for a consumer financial product or service through print, newspaper or electronic media.

26. RELATED PERSON
A. Applies only with respect to a covered person that is not a bank holding company (as that term is defined section 2 of the Bank Holding Company act of 1956), credit union or depository institution;
B. Is deemed to mean a covered person for all purposes of any provision of Federal consumer financial law; and
C. Means;
i. Any director, officer, or employee charged with managerial responsibility for, or controlling shareholder of, or agent for, such covered person;

27. RELATED PERSONS (Continued)
ii. Any shareholder, consultant or joint venture partner, or other person, as determined by the Bureau (by rule or on case to case basis) who materially participates in the conduct of the affairs of such covered person; and
iii. Any independent contractor (including any attorney, appraiser or accountant) who knowingly or recklessly participates in any;
I. Violation of any provision of law or regulation; or
II. Breach of a fiduciary duty.

28. ENTITIES EXEMPT FROM BUREAU’S ENFORCEMENT AUTHORITY
Merchants, retailers or sellers of nonfinancial goods or services.
Licensed real estate broker/agents.
Accountants, tax preparers, attorneys.
Auto dealers.
Persons regulated by:
U.S. Securities and Exchange Commission (SEC)
U.S. Commodity Futures Trading Commission (CFTC)

29. ENTITIES EXEMPT FROM BUREAU’S ENFORCEMENT AUTHORITY (Continued)
Any state securities or insurance regulator.
Qualified retirement or eligible deferred compensation plans.

30. BUREAU’S REGULATORY AND ENFORCEMENT AUTHORITY FOR COVERED PERSONS
The Bureau has the authority to:
Define and enforce “unfair,” “deceptive” and “abusive” acts or practices. (Is this Myth #1?)
Regulate consumer disclosures, including costs, benefits and risks of any consumer financial product or service.
Implement a combined TILA/RESPA disclosure within one year.
Provide consumers access to credit score and transaction files (unless confidential).

31. BUREAU’S REGULATORY AND ENFORCEMENT AUTHORITY FOR COVERED PERSONS (Continued)
Provide firm deadlines in which covered persons must respond to the Bureau in a timely manner concerning consumer complaints and comply with the consumer’s request for information.

32. Unfair Practices An unfair practice is one that:
Causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and
Such substantial injury is not outweighed by countervailing benefits to consumers or competition

33. Deceptive Practices Deceptive practices are not defined in Dodd-Frank
The Bureau has authority to define deceptive practices by regulation

34. Abusive Acts or Practices
An act or practice that:
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service OR

35. Abusive Acts or Practices
Takes unreasonable advantage of:
A lack of understanding on the part of the consumer of the material risks, costs and conditions of the consumer financial product or service OR

36. Abusive Acts or Practices
Takes unreasonable advantage of:
The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service OR

37. Abusive Acts or Practices
Takes unreasonable advantage of:
The reasonable reliance by the consumer on a covered person to act in the interests of the consumer

38. BUREAU’S SUPERVISORY AUTHORITY
For banks with assets of over $10 billion, the Bureau will:
Provide exclusive authority to require reports and conduct compliance exams.
Coordinate exams with prudential regulator.
Develop appeals process for conflicting examination findings.
Work strategically with state Attorneys General to enforce federal consumer finance laws and regulations.

39. BUREAU’S SUPERVISORY AUTHORITY (Continued)
For banks with assets of $10 billion or less:
Prudential regulators retain exclusive compliance authority, but Bureau can require compliance reports.
Bureau can work with the prudential regulator to include its examiners on a “sampling basis” on compliance exams.
Bureau must notify prudential regulator of any known material violations and can make recommendations of appropriate action.

40. BUREAU’S ENFORCEMENT AUTHORITY CIVIL MONEY PENALTIES
Any violation: $5,000 per day.
Reckless violation: $25,000 per day.
Knowing violation: $1,000,000 per day

41. ARBITRATION STUDY
Within one year of effective date, the Bureau must deliver to Congress a study concerning the use of arbitration agreements in connection with consumer financial products or services
Bureau is authorized to prohibit or limit the use of predispute arbitration agreements if doing so is in the public interest and will protect consumers

42. Special Provisions Applicable to Private Education Loans
Section 1035: Private Education Loan Ombudsman
Section 1077: Report on Private Education Loans

43. Private Education Loan Ombudsman
Will be designated by the Secretary of Education in consultation with the Director of the Bureau
Will provide timely assistance to private education loan borrowers

44. Functions of the Ombudsman
Receive, review and resolve consumer complaints
Within 90 days of the designated transfer date, establish a memorandum of understanding with the DOE ombudsman
Compile and analyze data on borrower complaints
Make recommendations to the Director, DOE and Congress

45. Private Education Loan Report
To be submitted by the Director and the Secretary of DOE in consultation with the FTC and the US Attorney-General to Congress
Within 2 years of the Dodd-Frank effective date (7/22/12)
On private education loans as defined in TILA

46. Content of Private Education Loan Report
At a minimum, the report will examine:
the growth and changes in the US PEL market
the factors influencing such growth and changes
the extent to which students and parents rely on PEL’s to finance postsecondary education and the PEL indebtedness of borrowers
the characteristics of PEL borrowers including:

47. Content of Private Education Loan Report
the types of institutions they attend
their socioeconomic characteristics
other forms of education financing used
whether they exhaust federal loans first
whether the borrowers are independent
whether they are enrolled at a program other than a degree program
employment and repayment behaviors

48. Content of Private Education Loan Report
The characteristics of PEL lenders (whether non-profit, for-profit or school)
The underwriting criteria used by PEL lenders including the use of cohort default rates
The terms, conditions and pricing of PEL’s
The consumer protections available to PEL borrowers

49. Content of Private Education Loan Report
including the effectiveness of existing disclosures and requirements; borrower awareness and understanding of terms and conditions
Whether federal regulators and the public have information sufficient to provide them with assurances that PEL’s are made in accordance with fair lending laws and that allows public officials to determine compliance

50. Content of Private Education Loan Report
Any statutory or legislative recommendations necessary to improve consumer protections for PEL borrowers and to better enable federal regulators and the public to ascertain PEL lender compliance with fair lending laws

51. MATTERS NOT SUBJECT TO BUREAU’S AUTHORITY
Preemption
Usury
Rate Exportation

52. NEW PREEMPTION STANDARDS
OCC; OTS field preemption regulations superseded
No operating subsidiary preemption
Barnett conflicts standard: State law is preempted only if it prevents or significantly interferes with the exercise of a national bank’s powers

53. USURY
Bureau is specifically prohibited from establishing a usury limit unless expressly authorized by law
Bureau’s ability to prohibit unfair or abusive practices could be used to create an indirect usury limit

54. RATE EXPORTATION
Marquette interpretation of a national bank’s ability to export interest rate permitted by home state is expressly preserved
Title X is not clear whether other federally insured depository institutions retain rate exportation authority

55. Political Developments
1/11: Neugebauer – Warren correspondence
Organizational chart; staffing levels
Accountability and oversight
Outreach
Rulemaking
2. Legislation
HR 1121 (Bachus) – would replace single CFPB Director with 5-member commission
HR557 (Neugebauer) Moves CFPB into Treasury, regular appropriations process
S.712 (DeMint) would repeal Dodd-Frank in its entirety

56. McGlinchey Stafford, PLLC
QUESTIONS?
Arthur J. Rotatori
McGlinchey Stafford, PLLC
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Cleveland, OH
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