Restoring American Financial Stability Act of 2010 - The Dodd Version of financial services reform

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:

*  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 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).

*  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.

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

*  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(n)), 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 1034, 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..."

*  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.

*  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 $300 million per year.

*  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.