Title X, also referred to as the Consumer Financial Protection Act of 2010, establishes within the Federal Reserve System a new Bureau of Consumer Financial Protection to regulate and oversee consumer financial products and services. Creation of the Bureau reflects the belief of many in Congress that federal agencies failed to effectively supervise the consumer lending activities of banks and nonbanks. The Bureau is given broad regulatory and enforcement powers, including the power to prohibit the use of arbitration agreements regarding future disputes between consumers and "covered persons" under the Act.
Purpose and Nature of Bureau
The Bureau of Consumer Financial Protection is established to regulate consumer financial products and services, enforce compliance with federal consumer financial laws and ensure that markets for such products and services are "fair, transparent and competitive." A variety of units and offices within the Bureau, such as the Office of Fair Lending and Equal Opportunity and the Office of Financial Education, are responsible for researching and analyzing markets in consumer financial products or services, equal access to credit and consumer behavior. The Bureau is also charged with monitoring consumer complaints through a single database.
Scope of Bureau Authority
The Bureau monitors compliance of "covered persons" with regulations and federal laws relating to "consumer financial products and services." General exclusions from the definition of "covered persons" are made for certain classes, including persons engaged in the business of writing insurance or transmitting electronic data related to consumer financial products or services and persons who are licensed or registered real estate brokers or agents, manufactured or modular home retailers, accountants, tax preparers, auto dealers, attorneys or regulated by the CFTC. More specifically, the Act provides that:
- A "covered person" is any person engaged in offering or providing a consumer financial product or service; the term also includes any affiliate of such person which acts as a service provider for such person.
- "Consumer financial products and services" are generally financial products and services offered or provided to an individual primarily for personal, family, or household purposes.
- For purposes of Title X, the term "financial products and services" encompasses a broad spectrum of financial activities, such as extending credit; servicing loans; brokering leases under certain circumstances; providing real estate settlement or appraisal services; accepting deposits and maintaining deposit accounts; transmitting funds; selling stored value cards (with certain exceptions); providing check cashing, collection, or guaranty services; and collecting, analyzing and maintaining consumer report or account information.
Prudential regulators retain exclusive authority to enforce federal consumer financial laws with respect to insured depository institutions and insured credit unions with assets of $10 billion or less. The Bureau is granted primary enforcement authority with respect to insured depository institutions and insured credit unions with assets greater than $10 billion, although other agencies authorized to enforce federal consumer financial laws may also take enforcement actions if the Bureau fails to act within a prescribed window of time.
Powers of the Bureau
Generally, the authority to prescribe rules and issue orders previously vested in various federal agencies and offices, including the Board of Governors of the Federal Reserve System, the Comptroller, the OTS, the FDIC and, to a limited extent, the FTC, are transferred to the Bureau under the Act. The transfer of "consumer financial protection functions" (which encompass rulemaking authority and the power to examine covered persons) must be accomplished during the second 180-day period following enactment of the Act.
The Bureau is empowered to investigate and respond to complaints related to consumer financial products and services, monitor markets for such products and services to identify consumer risks, supervise covered persons, enforce federal consumer financial law and issue and implement rules, orders and guidance regarding federal consumer financial law. If determined necessary and appropriate by the Bureau, any class of covered persons may be exempted (conditionally or unconditionally) from the Act or the rules promulgated thereunder.
Civil actions against covered persons to enforce and seek penalties and relief for violations of federal consumer financial law may also be brought by the Bureau. Such actions must be brought within three years following discovery of the violation giving rise to the action, and the relief sought may include (but is not limited to) contract rescission or reformation, refunds and return of property, payment of damages and civil money penalties.
Review of Bureau Regulations
The Financial Stability Oversight Council may set aside any final regulation, or provision thereof, promulgated by the Bureau if it determines that it "would put the safety and soundness of the United States banking system or the stability of the financial system of the United Sates at risk."
Reporting to Bureau by Covered Persons
The Bureau must coordinate with prudential regulators and State bank regulatory authorities in the conduct of its activities under the Act so as to reduce the burden of compliance shouldered by covered persons. Therefore, reports and information collected by other federal and state regulatory authorities must be made available to the Bureau, with due consideration for confidentiality. Additional periodic reports to and examinations by the Bureau are permitted so that the Bureau may assess compliance, obtain information related such person's activities and procedures and detect and assess consumer risks. The Bureau may also require that covered persons file reports or written answers in response to consumer complaints.
Reporting to Consumers
The Act requires that covered persons make various information available to consumers, including information related to the consumer financial product or service provided to such consumer and supporting written documentation maintained by in the ordinary course of the covered person's business.
State Law and Preemption
The Act diminishes the ability of federally chartered institutions, banks and thrift operating subsidiaries to rely upon federal preemption of state consumer financial laws to prevent suits by state authorities. State laws inconsistent with the Act are expressly preempted, and the Act further clarifies that state consumer financial laws that have a discriminatory effect on or significantly interfere with the exercise of powers by a national bank are also preempted, although any preemption determination may be made by regulation or order of the OCC only on a case-by-case basis. To the extent a state law affords greater protections to consumers, such state law is not deemed inconsistent and is therefore not preempted.
The Bureau can be compelled to promulgate a rule if a majority of states enact a resolution which supports the implementation or revision of consumer protection regulations. Civil actions by state attorney generals and regulators to enforce the Act and Bureau rules are permitted within certain prescribed limits and with notice to the Bureau. The Act preserves the long-standing principle that national banks are permitted to export interest rates and fees.
The Bureau is specifically required to study and present to Congress a report on the use of arbitration agreements in connection with consumer financial products and services. If the Bureau finds it advisable to do so, it may promulgate regulations restricting or prohibiting the use of arbitration agreements relating to future disputes between a consumer and a covered person.
Affirmation of Cuomo v. Clearing House Assn Determination that State Attorneys General May Enforce State Fair Lending Laws
The Act also clarifies that although state authorities may not exercise visitorial powers (i.e., conduct examinations, inspect books and records, and otherwise supervise activities authorized by federal banking laws) with respect to national banks, this restriction does not prohibit enforcement of a subpoena against a national bank or federal thrift in connection with the enforcement of a non-preempted state fair lending law, thus codifying the holding of the United States Supreme Court in Cuomo v. Clearing House Ass'n, L.L.C. (129 S.Ct. 2710 (2009)).
Additional Studies and Regulatory Amendments
In addition to the myriad changes effected by the bulk of the Act, additional studies and regulatory amendments are required, such as:
- Remittance Transfers. The Electronic Funds Transfer Act (EFTA) is amended to include provisions governing "remittance transfers"—electronic (i.e., relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities) transfers of funds by remittance transfer providers, requested by senders located in the states and to a designated recipient. These provisions include a requirement that remittance transfer providers disclose to senders the amount of currency to be received by the recipient, the amount of transfer, fees to be charged, exchange rates, and certain other information.
- Fees and Payment Cards. The EFTA is further amended to provide the Board with the power to:
- Regulate "interchange transaction fees" of issuers with assets greater than $10 billion to keep such fees reasonable and proportional to the costs incurred by the issuer. The regulations will not apply to debit and general-use prepaid cards issued in connection with a governmental payment program or prepaid, reloadable cards redeemable at unaffiliated merchants, service providers, or ATMs.
- Regulate "network fees" to ensure such fees are not used to compensate issuers for electronic debit transactions, to circumvent the provisions of the EFTA or impose restrictions on the number of payment card networks or routing directions which may be used in the processing of electronic debit transactions.
- Compilation of Recommendations Regarding Fannie Mae and Freddie Mac. The Secretary of the Treasury is required to study options related to ending the conservatorship of Fannie Mae and Freddie Mac. The Secretary will provide recommendations regarding the feasibility and taxpayer costs related to the wind-down, privatization, consolidation, or dissolution of these entities.
- Reverse Mortgage Transactions. Within one year following the transfer date designated under the Act, the Bureau is required to study and determine appropriate restrictions on reverse mortgage transactions with due consideration to the objectives of the Act.