"Wall Street Reform and Consumer Protection Act" Is Now Law
President Obama today signed the "Wall Street Reform and Consumer Protection Act," which will bring comprehensive changes to consumer financial services, and to consumer finance litigation, including mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance. See details about the changes coming, as seen by the White House, and the President's signing remarks.
Financial Regulatory Reform is (Almost) a Done Deal
The U.S. Senate voted 60-39 yesterday to pass the Wall Street Reform and Consumer Protection Act, which the White House says President Obama will sign into law next week. While consumer finance attorneys digest the massive changes coming with this comprehensive bill (in mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance), the scope of the changes will likely depend on the implementing regulations, and how these regulations are interpreted by Courts.
A few things are clear now. First, the OTS is fading away. Second, consumer arbitration may be too. Third, federal preemption is likely to be more difficult to obtain in consumer finance litigation.
Conference Reaches Deal on Financial Regulatory Reform
The House-Senate Conference to reconcile financial regulatory reform reached a final agreement on the legislation on Friday. The "Dodd-Frank Wall Street Reform and Consumer Protection Act" calls for the creation of the Consumer Financial Protection Bureau, an independent agency to be housed at the Federal Reserve, with a broad mandate to regulate consumer financial services of virtually all types.
The Consumer Financial Protection Bureau will have an independent director appointed by the President and confirmed by the Senate, with an independent budget and independent rule writing, examination, and enforcement authority. The CFPB consolidates consumer protection responsibilities of the OCC, OTS, FDIC, Federal Reserve, NCUA, HUD, and the FTC. Among other things, the legislation also creates a new Office of Financial Literacy to disseminate information to consumers and a new consumer hotline for consumer questions.
Continue Reading...Senate Passes Financial Regulatory Bill
The U.S. Senate yesterday passed the financial regulatory bill, S.3217, the "Restoring American Financial Stability Act." The comprehensive bill includes broad new regulation of derivatives, executive compensation, systemic risk, investor rights, mortgages, credit-rating agencies, hedge funds and private equity, insurance, and consumer financial protection.
Significantly, this Senate version of financial regulation calls for a new, quasi-independent Bureau of Consumer Financial Protection within the Federal Reserve. The House version of financial regulation, passed in December, would create an independent, free-standing Consumer Financial Protection Agency. Both the House and Senate bills would limit federal preemption of consumer finance laws in certain ways. The Senate bill includes a detailed preemption provision.
Senate Banking Committee Unveils Financial Reform Plan
The Senate Banking Committee unveiled its version of financial regulatory reform yesterday, including issuing a summary of highlights of the bill as well as the proposed bill. The 1336-page bill differs in substantial respects from the House version passed in December.
Most significantly with regard to consumer finance regulation, the Senate version does not include an independent Consumer Financial Protection Agency, but would house that function at the Federal Reserve. Specifically, Title X of the Senate Version calls for the creation of a "Consumer Financial Protection Bureau" to operate independently within the Federal Reserve.
House Passes Consumer Financial Protection Agency Act
On December 11, 2009, the U.S. House of Representatives passed the “Wall Street Reform and Consumer Protection Act of 2009,” H.R. 4173. This sweeping legislation—a combination of several bills, including a modified version of the Consumer Financial Protection Agency Act, formerly HR 3126—includes broad new regulation of derivatives, executive compensation, systemic risk, investor rights, mortgages, credit-rating agencies, hedge funds and private equity, insurance, and consumer financial protection.
Title IV of the Act (sections 4001 – 4901) provides for the creation of a Consumer Financial Protection Agency (section 4101 – 4703), a new, independent federal agency to oversee virtually every aspect of consumer financial services, including mortgages, credit cards, debit cards, car loans, gift cards, credit reporting agencies, debt collectors, and financial advisers. Certain merchants, such as auto dealers and pawnbrokers, would be exempted.
Continue Reading...Financial Regulatory Reform Moves Out of Committee
The House Financial Services Committee on Thursday voted to approve the Consumer Financial Protection Agency Act, HR 3126.
The legislation is changing in significant ways as it moves through the legislative process. Among the revisions from the administration's original plan, the Committee's approved version would vest authority over the proposed Consumer Financial Protection Agency in a single director, as opposed to a 5-member board. The approved version of the legislation also includes a compromise on federal preemption, which permits the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with a federally regulated bank or thrift’s exercise of its powers.
Powers of the Proposed Consumer Financial Protection Agency
Subpart F, sections 161 through 166, of the Consumer Financial Protection Agency Act of 2009 (HR 3126, July 8, 2009) provides for the transfer of broad areas of power to regulate consumer financial protection functions from a variety of federal agencies and the Federal Reserve to the proposed Consumer Financial Protection Agency.
In general, the CFPA would have the authority and accountability to supervise, examine, and enforce consumer financial protection laws, including mortgages, credit cards, student loans, auto loans, payday loans, and more. The Act would transfer functions and personnel to the new CFPA and provide for interim powers for the Secretary of Treasury pending the establishment of the CFPA and the completion of the transfer of powers and people.
Financial Regulatory Reform Moving Forward
Legislation for federal financial regulatory reform, introduced by the Obama administration in June, is moving forward through the legislative process. Treasury Secretary Geithner testified before the House Financial Services Committee on September 23.
The proposed financial regulatory reform legislation in the U.S. House is the Consumer Financial Protection Agency Act of 2009 in the House (HR 3126). The Financial Services Committee has issued a section-by-section summary of the proposed legislation as well as a September 25 discussion draft.
Track the progress of the legislation at the administration's Financial Stability website.
Tracking the Proposed Financial Regulatory Changes
Last week, President Obama announced sweeping proposed changes in federal financial regulation. U.S. Treasury Secretary Timothy Geithner and Director of the National Economic Council Lawrence Summers wrote an op-ed piece describing the new regulatory structure, called "A New Foundation: Rebuilding Financial Supervision and Regulation."
The Final Report of the proposed comprehensive plan has five stated goals: (1) to promote robust supervision and regulation of financial firms; (2) to establish comprehensive supervision of financial markets; (3) to protect consumers and investors from financial abuse; (4) to provide the government tools to manage the financial crisis; and (5) to raise international regulatory standards and to improve international cooperation.
Continue Reading...FCRA Preempts California Private Right of Action
In Liceaga v. Debt Recovery Solutions, LLC, the First District California Court of Appeal has held that the federal Fair Credit Reporting Act, 15 U.S.C. §1681 et seq. ("FCRA"), preempts the private right of action provision of California's Credit Reporting Agencies Act, Civ. Code §1785.1 et seq. ("CRAA").
Plaintiff Rebecca Liceaga was the apparent victim of identity theft. Her identity was used to open a Sprint cell phone account without her knowledge. When the account became delinquent, Sprint assigned the debt to defendant Debt Recovery Solutions, LLC, which eventually reported the delinquency to credit reporting agencies, despite plaintiff's protests that the debt was the result of identity theft. Plaintiff sued, alleging a violation of California's CRAA. The trial court granted defendant's motion for judgment on the pleadings on the grounds that FCRA preempts any private right of action under CRAA. Plaintiff appealed.
Continue Reading...FTC "Red Flags Rule" Enforcement Begins in May 2009
The Federal Trade Commission announced that it would suspend its enforcement of its new "Identify Theft Red Flags Rule," 16 CFR 681.2, until May 1, 2009, allowing subject institutions additional time to prepare for compliance with the new identity theft rules and regulations. FTC enforcement was previously expected to begin November 1, 2008, and the FTC announcement does not affect other federal agencies' enforcement of the original deadline.
The FTC has issued some guidance on complying with the rule, promulgated pursuant to the 2003 Fair and Accurate Credit Transactions Act ("FACTA"). Generally, the rule requires financial institutions and creditors to develop and implement written identify theft prevention programs for "covered accounts." Specifically, institutions "must provide for the identification, detection, and response to patterns, practices, or specific activities–known as 'red flags'–that could indicate identity theft." The FTC has also issued details related to its enforcement policy.
9th Circuit Rescuscitates California Privacy Law
The Ninth Circuit has partially revived a part of California's erstwhile Financial Information Privacy Law. In American Bankers Association v. Lockyer, the Court held California Financial Code §4053(b)(1) has non-preempted applications and reformed that section to sever its preempted portions.
American Bankers v. Lockyer is a preemption dispute that is as old as the 2003 California Financial Information Privacy Act, California Financial Code §4050 et seq., commonly known as SB1. In American Bankers Association v. Gould, 412 F.3d 1081 (9th Circuit 2005), plaintiffs alleged that the federal Fair Credit Reporting Act ("FCRA") preempted SB1's regulation of information sharing between financial institutions and their affiliates. The Ninth Circuit held that the regulation of nonpublic personal information in 15 U.S.C. 1681t(b)(2) preempted any application to consumer report information in section 4053(b)(1).
The Court remanded for a determination whether any portion of SB1's affiliate sharing regulations in section 4053(b)(1) survived preemption and whether any preempted section was severable. On remand, the district court held that no portion of section 4053(b)(1) survived preemption and that the preempted applications were not severable. Defendants appealed.
Continue Reading...ID on Merchandise Return Not a Violation of Song-Beverly
In Absher, plaintiff used a credit card to purchase a locking gas cap from Autozone and immediately tried to return it after he discovered in the store's parking lot that it was the wrong size for his car. Autozone's cashier swiped plaintiff's credit card and asked him to fill out a form with personal identification information, including his name, address, telephone number and signature. Plaintiff filled out the form, and two weeks later sued Autozone in a class action, alleging that Autozone violated Civil Code §1747.08(a)(3) by utilizing a form with spaces for his personal identification information. The trial court granted Autozone's motion for summary judgment. Plaintiff appealed.
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The Bell Tolls for Some FACTA Class Actions
On June 3, 2008, President Bush signed the Credit and Debit Card Receipt Clarification Act, retroactively amending the statute "to declare that any person who printed an expiration date on any receipt provided to a consumer cardholder at a point of sale (POS) or transaction between December 4, 2004, and the enactment of this Act, but otherwise complied with FCRA requirements for such receipt, shall not be in willful noncompliance by reason of printing such expiration date on it."
This revision does not remove all liability in this circumstance—a merchant may still be liable for actual damages for a negligent violation—but the amendment significantly reduces the prospect of onerous statutory penalties for a willful violation and, as a result, makes class certification in these cases less likely.
No Identity Theft Claim Against Bank That Sold Account
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