June 10, 2010

Subject: Restoring American Financial Stability Act of 2010 - The S. 3217 Version of Financial Services Reform

On April 29, 2010, the Senate passed S. 3217, as an amendment to a bill that had been introduced by Senator Christopher Dodd (D-CN).  This bill, known as the Reid/Dodd/Lincoln substitute, which is 1566 pages, proposes a massive overhaul of the financial regulatory system. The Bill is similar to the Bill passed in the House—H.R. 4173.  The part of the bill that impacts consumer finance companies most directly is Title X - Bureau of Consumer Financial Protection.  This Title alone, which begins at page 1206, is over 335 pages.  

Highlights of this Title, impacting consumer finance companies, include:

*  There will be created a new, autonomous Bureau of Consumer Financial Protection to be housed within the Federal Reserve Board, but independent of the FRB with respect to regulating consumer protection.

*  The Bureau's purpose is to "implement and where applicable enforce Federal consumer financial law consistently for the purpose of ensuring that markets for consumer financial products and services are fair, transparent and competitive"  (Section 1021)  [Objectives and Functions – pp.1232-1234.]

*  The Bureau is granted broad and in most cases, exclusive, rulemaking authority over what is termed "Federal consumer financial law" (Section 1022).  While there is a review process, and a proposed rule can be set aside by the Council, it will not be easy to overturn a proposed rule (Section 1023, p.1243).

*  The Bureau will have a single director, appointed by the President, confirmed by the Senate, with a 5-year term of office (Section 1011).

*  The Bureau has primary enforcement authority and exclusive rulemaking and examination authority over consumer finance companies.  While it is specifically limited from having authority to impose usury limits (Section 1027(o)), it does have authority to restrict pre-dispute mandatory arbitration (Section 1028).  "The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers."

*  Further, the Bureau's authority extends to the determination of unfair, deceptive and abusive acts and practices (Section 1031), and establishing civil penalties and fines.    It also has authority to require disclosures including model forms (Section 1032).

*  The true power of the Bureau comes because of Section 1036 (p.1304), that makes it unlawful for any person to advertise, market, offer, sell, enforce, or attempt to enforce, any term, agreement, change in terms, fee or charge in connection with a consumer financial product or service that is not in conformity with this title or applicable rules or orders issued by the Bureau or to engage in any unfair, deceptive, or abusive act or practice…  [This is the language from the Dodd Bill, but substantially similar in S. 3217.]

*  State law, where more restrictive remains in force, and states' attorneys general or their equivalent, may bring civil action in the name of the state, as parens patriae to enforce provisions of Title X (Section 1041, p. 1306).

[Enforcement Powers from CCH]

*  The Bureau will establish a research office to evaluate consumer behavior in connection with consumer products.

*  It will establish an Office of Financial Literacy and an Office of Fair Lending and Equal Opportunity.  Also, the Bureau will create a toll-free number for consumer complaints, and have the responsibility to collect data on complaints and report to Congress annually. 

*  Funding for the Bureau will be based on no more than 10% of the total expenditures of the Federal Reserve System, which translates to a potential budget of approximately $500 million per year.

[Exclusions from Section 1027, pp. 1271-1290]

*  The law is very long and very detailed.  There are nineteen pages of definitions for Title X alone. 

*  The consumer laws that are relegated to the Bureau's enforcement include: the Alternative Mortgage Transaction Parity Act, the Consumer Leasing Act, the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, The Home Owner's Protection Act, the Fair Debt Collection Practices Act, parts of the Federal Deposit Insurance Act and Gramm-Leach-Bliley Act, the Home Mortgage Disclosure Act, the Home Ownership and Equity Protection Act, the Real Estate Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the Truth in Lending Act and the Truth in Savings Act.

This long awaited Senate version of a financial services reform bill is a big disappointment for consumer finance companies.  What the final form of the Bureau or Agency will take and what its powers will be, remains to be seen.  The competing versions are in Conference now.  And, of course, any final law will have to pass both houses of Congress in exactly the same form.

If you would like a copy of the Senate or House Bill, please let me know, and I will forward it to you. 

Maury Shevin, Association Director 

In a mammoth 1336 page bill released last week, Senator Christopher Dodd (D-CN) has proposed a massive overhaul of the financial regulatory system. The part of the bill that impacts consumer finance companies directly is Title X - Bureau of Consumer Financial Protection.  This Title alone is over 100 pages.    Highlights of this Title, impacting consumer finance companies, include:

October 30, 2009

House Financial Services Committee passes H.R. 3126

On October 22, 2009, the U.S. House of Representatives' Financial Services Committee in passed H.R. 3126 -- a far reaching bill that would establish a Consumer Financial Protection Agency. The Committee voted to create the Agency with centralized authority in a single director, serving for a five-year term with Senate confirmation. The bill as finally approved places tremendous authority in the agency's director.

Other highlights of the Bill include:

• covering entities that provide financial products and services to consumers, including consumer reporting agencies, but specifically, not including insurers, retail sellers, accountants, tax preparation services, real estate brokers and agents, lawyers, auto dealers [unless they offer their own financing], telecom providers, and retirement and pension plan providers
• giving supervisory, examination, and enforcement authority over all consumer financial products and services to the CFPA
• largely eliminating federal preemption of state consumer protection laws for banks
• allowing enforcement by the CFPA itself, the DoJ, the federal regulatory agencies, the state AGs and other state authorities, and through private rights of action
• establishing two oversight panels to advise the new director, but the director need not follow their recommendations--which would be unique among the 33 existing independent federal agencies, to have such unprecedented authority
• mandating the CFPA to address unfair, deceptive and abusive practices, through investigation, regulation and prosecution
• giving the director the power to exempt any entity or financial product that the Agency regulates
• providing that the director would have to consult with the two panels--one made up of seven regulators and five members appointed by the president and confirmed by the Senate, who are experts on fair lending and civil rights; and the second would be experts in community development, appointed by the director
• providing a mechanism to resolve supervisory disputes between the prudential examiners [e.g., FDIC] and the Agency if the two conflict
• exempting banks with $10 billion or less of assets from enforcement, but not from examination authority

The bill as passed by the Committee does not include the "plain vanilla" products or services disclosure that we previously heard so much about.

There are other bills before the House which are expected to be considered on the House floor before the end of the year. Over in the Senate, the Banking Committee is developing a separate regulatory reform package, which may be markedly different from H.R. 3126. In the Senate, Chairman Dodd has worked to bring Ranking Minority Member Senator Shelby to an agreed reform bill. We know very little about the parameters of what they may agree upon, but we do know that Chairman Dodd wants the ultimate bill to be bi-partisan. So, assuming that H.R. 3126 is the vehicle that the House presents to the Senate, the battle over the CFPA will continue there, with the hope that the Senate will slow or alter this radical approach to consumer protection.

April 28, 2009

ALA Members:

I take this opportunity to report to you on recent activity by Alabama Banking Department Examiners concerning non-sequentially numbered contracts. The failure of licensees to adequately account for "missing contracts" is resulting in findings of violation.

There can be a number of reasons that a sequential numbered form does not turn into a customer contract. For example, the numbered form could have been used on a test calculation, or on a voided contract.

However, the Department now considers the failure to account for such "missing contracts," to be a violation of Reg. Sections 155-2-2-.10(1) and 155-2-3-.09(2), based upon the view that the failure to account for the missing contracts, means that the licensee has failed to maintain sufficient records to verify compliance. The Department will require that such contract forms with "missing" numbers be maintained in a "voided"file.

Your software provider may be able to offer to you a systemic "fix" that will avoid the use of a numbered form when running test calculations for a customer, or when it is necessary to void a contract.

Maury 

March 30, 2009

Friends:
 
I attended various National Installment Lenders Association ("NILA")  functions for Senators Jim Bunning [R-KY], Richard Shelby [R-AL], and Christopher Dodd [D-CT], last week in Washington .  At the Bunning reception, Senators Thad Cochran [R-MS], Jim DeMint [R-SC] and Jim Inhofe [R-OK] were sponsors.  Senator Conrad Burns [R-MT] was also in attendance.  The NILA folks in charge of the Shelby Breakfast, sat me next to Senator Shelby, since I know him fairly well, after having called on him over the years.
 
I had the opportunity to speak to all of the Senators about the importance of the consumer finance industry to our customers as well as our employees.  I distinguished our 100+ year old installment lending industry from the newer type of lender that Sen. Durbin is concentrating on.  And, I emphasized that consumer credit is the fuel that drives the American economy--that this is precisely the wrong time to do anything to dry up this source of economic stimulus.
 
These senators all understand.  They know the difference between installment loans and loans offered by other alternative lenders.  They recognize the risk/reward of lending to consumers -- those within the economic levels of our typical installment consumer finance company customer.
 
It is gratifying to see that NILA is making an impact.  It remains questionable whether Democrats will embrace the Durbin Bill.  Hopefully Chairman Dodd will keep it within the Banking Committee.  That seems to be the strategy of NILA in reaching out to Sen. Dodd, and trying to find some like-minded Democrats on the Banking Committee in addition to Republicans.
 
Most of NiLA's activity to date has been directed in the Senate.  The Industry still has many friends in the House, not least of which is the ranking minority member of the House Financial Services Committee, Spencer Bachus, my Congressman.  The strategy of NILA seems to be to win in the Senate, so as to avoid a broader battle in the House.  (There is a companion bill to the Durbin Bill that has already been introduced into the House by Cong. Speier [D-CA],  HR 1608.)  I think that we are into this battle for some time -- maybe for both sessions of this Congress.  What I mean by this, is that this legislative battle is going to be costly, both in terms of time and money.
 
Please let me know if you have any questions or if you need any additional information concerning NILA.
 
Maury

March 30, 2009

 
ALA Members and Friends:
 
Congress passed and President Obama signed the Omnibus Appropriations Act on March 11, 2009.  This important stimulus law does more than its name implies.  In addition to addressing the nation's economic ills, the new law also gives first-time authority to the Federal Trade Commission ("FTC") to write rules for real estate mortgage loans; and, it gives states' attorneys general new authority to enforce both the new FTC rules that are to be written, and the Truth-in-Lending Act.  This is a new, and somewhat ominous, development.
 
The new law requires the FTC to initiate rulemaking with respect to real estate mortgage loans by June 9, 2009.  (Up until now, the FTC has never had direct authority to engage in rulemaking affecting mortgages.)  Once the new mortgage related rules are in place, a violation would be treated the same as a violation of any other FTC trade regulation rule, resulting in statutory penalties of up to $16,000 per violation, as well as administrative enforcement actions that can be taken by the Commission.
 
In addition, the Act gives states' attorneys general authority to enforce the Truth-In-Lending Act as well as the to-be-adopted, new FTC Rules affecting mortgages.  This blanket authority is new.  Interestingly, the state attorneys general may have inadvertently gained enforcement authority over banks and other regulated institutions, although U.S. Senators have gone "on the record" by means of a Colloquy--put in the Congressional Record--stating that this was not their intention.
 
I will be reporting on the recent real estate mortgage changes in Truth-in-Lending, and any FTC rule-making, at our upcoming Annual Conference in June.  Meanwhile, let me know if you have a question.
 
Maury

Febuary 2nd 2009

Legislator to sponsor tax prep bill

<http://www.gadsdentimes.com/article/20090126/NEWS/901260278>.

January 21,2008

The AlabamaBanking Department is promoting legislation that would affect all types ofconsumer finance in Alabama, including personal finance, real estate finance,pawnshops, title pledge, and deferred presentment.  In a somewhatunprecedented move, Superintendent John Harrison has sent a number of proposedbills that the Department wants to have introduced in this legislative session,to House and Senate leadership.

The billthat would most directly impact Alabama Lender Association members is theproposed change to the Mini-Code.  Basically, the bill would remove theSection 31 exemption for real estate loans available to certain lenders. This change is primarily designed to accommodate the Department's proposedMortgage Act which would occupy a field of lending in Alabama, which is largelyunregulated today.

Copies ofthe bills will be posted on our website when they become available to us.

Maury Shevin
AssociationDirector