With the debate over the Consumer Financial Protection Agency Act (“CFPA”) about to hit the floor of the House of Representatives, there is no better time than now to start digesting the massive reforms proposed by the CFPA.
Will the CFPA pass? Most agree that the CFPA will see several amendments before it comes close to a final vote in both houses of Congress, particularly because the CFPA is part of the larger Wall Street Reform and Consumer Protection Act of 2009 (“WSRCPA”). At the moment, there are over 250 proposed amendments to the WSRCPA in the House. Of those, only about two dozen are likely to see the floor of the House for debate, which could begin as early as today. The clock is ticking, of couse. There are only eight to 10 days left in the current legislative session.
Breakdown of the CFPA
The WSRCPA is a conglomeration of several pieces of proposed legislation directed at financial industry reform, including the Financial Stability Improvement Act, the Corporate and Financial Institution Fairness Act, the Over-the-Counter Derivatives Markets Act, and several other pieces of related legislation. In other words, in addition to consumer protection, the omnibus WSRCPA addresses credit rating agencies, “too big to fail” financial institution, and derivatives, among other topics. If you are interested in reviewing the entire 1279 pages of the WSRCPA, click here.
The CFPA itself is over 350 pages long and consists of seven subtitles. This special series on the CFPA will provide a detailed review of the statute as it currently stands, beginning with this installment on the establishment of a new bureaucracy to oversee financial institutions and the regulation of consumer financial products.
The New Bureaucracy
The Agency
The CFPA establishes a Consumer Financial Protection Agency (the “Agency”), which will be “an independent agency created to regulate the provision of consumer financial products or services” under the CFPA and 13 other “enumerated consumer laws,” such as the Alternative Mortgage Transaction Parity Act, the Truth in Lending Act, and the Real Estate Settlement Procedures Act. The Agency will be headquartered in Washington, D.C. and headed by a Director appointed for a five-year term by the President with the advice and consent of the Senate. The Director “may exercise all executive and administrative functions of the Agency,” which includes rule making powers.
Specific Functional Units
The Agency will have several “Specific Functional Units.” First, the Agency will have a Research Unit, whose functions will include research on things like consumer financial counseling and education and consumer financial products. Second, the Agency will include a Community Affairs Unit. The functions of this unit include “providing information, guidance, and technical assistance regarding the provision of consumer financial products or services to traditionally underserved consumers and communities.”
Third, the Agency will have a Consumer Complaints Unit. The Consumer Complaints Unit will establish a central database for the collection and tracking of consumer complaints about consumer financial products or services. Finally, the Agency will establish a Consumer Financial Education Unit “whose functions shall include activities designed to facilitate the education of consumers on consumer financial products and services . . . .”
The Office of Fair Lending and Equal Opportunity
In addition to the Specific Functional Units, the Agency is required to establish the Office of Fair Lending and Equal Opportunity (the “Office”) within the first six months of the enactment of the CFPA. The Office’s delegated powers include overseeing and enforcement of federal laws, such as the Equal Credit Opportunity Act and the Home Mortgage Foreclosure Act, which are intended “to ensure the fair, equitable, and nondiscriminatory access to credit . . . .”
The Board
The Director of the Agency will be advised by the Consumer Financial Protection Oversight Board (the “Board”). The Board will be composed of 12 members, broken down into two component parts. First, seven of the 12 members will be as follows:
- The chair of the Board of Governors;
- The head of the agency responsible for chartering and regulating national banks;
- The chair of the Federal Deposit Insurance Corporation;
- The chair of the National Credit Union Administration;
- The chair of the Federal Trade Commission;
- The Secretary of Housing and Urban Development; and
- The chair of the liason committee of representatives of State agencies to the Financial institutions Examination Council.
Second, the President gets to appoint the remaining five members of the Board (with the advice and consent of the Senate) from “among experts in the field,” representatives of banks that ”primarily serve underserved communities,” and representatives of communities “that have been signficantly impacted by higher-priced mortgage loans.” Of these five nominated members, no more than three can be from the same political party.
The Consumer Advisory Board
The Director of the Agency is required to establish a Consumer Advisory Board (the “Advisory Board”). The Advisory Board will assist the Director in exercising the functions of the Director and “to provide information of emerging practices in the consumer financial products or services industry.”
Membership on the Advisory Board will include experts in the relevant fields (e.g., financial services, community development, consumer protection, etc.) and representation of the interests of the consumers covered by the CFPA. The Advisory Board’s membership may not consist of more than 50% plus one of any single political party.
The Agency Telephone and Internet Hotlines
Pursuant to the CFPA, the Agency is required to set up a single toll-free hotline for consumer complaints and inquiries. Incoming calls are to be routed to the regulatory agency that is primarily responsible for supervising the financial institution that is the subject of the call. Calls may also be routed to appropriate State agencies under certain conditions.
Within six months of the enactment of the CFPA, the various federal financial institution regulatory agencies are required to report to Congress on their efforts to establish an interagency website for “directing and referring” consumer complaints and inquiries to the Agency. The CFPA does not set a deadline for the website to go live.
What’s Next?
The Bulletin will continue to monitor the debate on the CFPA. Check back frequently for news updates, as well as Part II of the “Getting to Know the CFPA” series: The Powers of the New Bureaucracy.