CFSL Bulletin : Consumer Finance Lawyers & Attorneys for Financial Litigation & Class Action Defense

President Obama faces growing pressure to appoint Elizabeth Warren to head the Bureau of Consumer Financial Protection, but even some Senate Democrats are wary of her nomination and Senator Dodd has already warned that she may not have the 60 votes required to avoid a filibuster on her nomination.

The White House, however, may be able to pick up Republican Senators Scott Brown of Massachusetts, Susan Collins and Olympia Snowe of Maine, and Chuck Grassley of Iowa in support of Ms. Warren.  As Noam Scheiber of The New Republic reports, the banks may not even oppose Ms. Warren if she becomes the nominee:  

for the moment, what’s interesting is the banks’ silence. Three industry officials I spoke with took care to assure me that their organizations aren’t actively opposing Warren. One defied me to find someone in the industry who was. Another reflected that, from the banks’ perspective, Warren might actually be preferable to Michael Barr, an assistant Treasury secretary who is also a leading candidate for the position.

Further complicating the matter is the upcoming midterm elections.  New York Times columnist Paul Krugman wrote in his blog today that President Obama's failure to nominate Ms. Warren may have significant repercussions for the upcoming midterm elections: 

Leave aside the merits of appointing Warren, which are considerable, and think about the politics. At this point, not appointing Warren would be seen by the base as a slap in the face, and would seriously dampen enthusiasm going into the midterms. And Democrats need every bit of enthusiasm they can muster to avoid a Republican takeover of the House.

Not surprisingly, the White House is taking its time and no selection appears imminent at this time. 

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On July 22, 2010, the Fifth Circuit affirmed a Western District of Texas opinion in favor of a lender and loan servicer in a lawsuit brought by mortgagors who alleged that the terms of their home equity loan violated the Texas Constitution. Cerda v. 2004-EQR1 LLC and Barclays Capital Real Estate Inc., --- F.3d ----, 2010 WL 2853651 (5th Cir. July 22, 2010) (King, J.). Applying Texas law in a diversity action, and with one judge dissenting on one issue, the Fifth Circuit declined to certify the issues presented to it to the Texas Supreme Court and instead interpreted Article XVI, Section 50 of the state constitution in accordance with past Texas Supreme Court decisions, reliance on agency determinations and textual interpretations, and at one point an “Erie guess.”

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Title X of the Dodd-Frank Act creates a new comprehensive statutory framework and federal regulatory watchdog to deal with the offering and provision of consumer financial products or services.  There is little doubt that this legislation will have a major impact on the financial industry going forward.  To learn more, join the August 2, 2010 Web conference "Consumer Financial Protection Act: What Lenders Need to Know." 

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The White House has posted its Top 10 list of things you may not know about the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The list, in its entirety, is as follows:

• Stronger protections for consumers against unfair credit card practices like rate hikes for existing credit card balances.

• Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.

• Free annual credit scores so people can stay on top of their finances. [Clarification: free credit scores are available if you receive worse terms on a loan because of something on your credit report, or if you are rejected.]

• No more taxpayer-funded bailouts. If a company can’t make it, it will have to liquidate. 

• Greater input by company shareholders over how much a CEO gets paid.  And companies’ compensation boards are now required to be truly independent.

• Brokers who offer investment advice will have to act in the best interests of their customers, not their own financial interests.

• Financial firms won't be allowed to grow so large that if one fails, it will affect the entire financial system. 

• There will be one agency whose sole job is to make sure that consumers get the protections they deserve and to set clear rules to hold banks, mortgage companies, payday lenders, and credit card lenders accountable.

• Businesses can't be charged extra fees for debit card “swipe fees” that exceed the cost of processing transactions.

• You can learn plenty more here at WhiteHouse,gov or at financialstability.gov.

In addition, the White House has produced a slick new animated feature to explain the reforms.  Check it out:

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With the passage and signing of the omnibus Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), a new era of financial regulation has been born. The 2,300 plus pages of new legislation will forever change the way financial services companies do business in the United States (and elsewhere). With that in mind, the CFSL Bulletin will publish a series of articles reviewing the 429 pages of Title X of the Dodd-Frank Act, also known as the Consumer Financial Protection Act of 2010 (CFPA). The series begins with a detailed overview of the Bureau of Consumer Financial Protection (Bureau), the new primary regulator with authority over consumer financial products and virtually every federal consumer financial protection statute. Specifically, this installment will address: 

1. The CFPA's Effective Date;
2. The Bureau's Limitations;
3. The Structure of the Bureau;
4. The Bureau's Rulemaking Authority; and
5. The Bureau's Supervisory Authority.

Subsequent articles will focus on the CFPA's provisions addressing preemption, enforcement, regulatory improvements, and federal consumer financial protection statutory amendments. 

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Pursuant to revisions to Regulation Z, effective July 1, 2010, a creditor cannot use the term “fixed” to describe an annual percentage rate (APR) “unless the creditor also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open.” 12 C.F.R. § 226.5(a)(2)(iii). While this new regulation cannot be applied retroactively in form, the United States Court of Appeals for the Ninth Circuit recently issued a decision (Rubio v. Capital One Bank) that constitutes a retroactive application in effect, despite the court’s express denial of doing same.

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Now that the financial reform bill has been signed into law, the debate has shifted to who will lead the Bureau of Consumer Financial Protection (the "Bureau").  The Bureau will have the power, among other things, to write and enforce rules related to consumer financial services. 

A short-list of three candidates has emerged: Elizabeth Warren, a Harvard Law professor and head of the TARP oversight committee; Michael S. Barr, an assistant Treasury Secretary; and Eugene I. Kimmelman, a deputy assistant attorney general in the antitrust division of the Department of Justice. 

Of these, the most famous is Warren, who became the most vocal proponent of the Bureau.  Nevertheless, she has reportedly ruffled some feathers along the way, including Treasury Secretary Timothy Geithner, who has refused to endorse Warren to lead the Bureau.  If nominated, she will also have a tough confirmation battle in front of her as the Democrats may not have the votes necessary to overcome a filibuster. 

We will be closely following this story in the coming weeks. 

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Jim Puzzanghera of the Los Angeles Times reports that the President has signed the Dodd-Frank Act.  With the enactment of this sweeping financial overhaul legislation comes the birth of the Bureau of Consumer Financial Protection -- a new and principal regulator which will oversee consumer financial products and virtually every consumer financial protection statute.  In the coming days, the CFSL Bulletin will be present a series of articles on the new Act, and the structure and power of the Bureau.  Stay tuned...

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On February 21, 2008, the U.S. Department of Housing and Urban Development (HUD) issued an informal (and non-binding) staff interpretation regarding home warranty companies, which seemed to raise more questions than it answered, primarily on the issues of marketing agreements and the marketing of home warranties. The agency found itself besieged by industry groups demanding clarification. Last week HUD finally provided amplification of its original letter and established clearer guidelines on the circumstances under which home warranty companies may compensate real estate brokers and agents for marketing their products.

Foley & Lardner issued an E-News Alert to clients and contacts detailing the new rules’ likely impact. In it, we note that, although directed at agreements between HWCs and real estate brokers and agents, the rule likely will have a broader impact, affecting many other providers who offer services in the residential real estate market.

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