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.
Surveying Developments in Consumer Finance Regulation
A number of significant legislative changes occurred in 2009 related to consumer finance regulation.
The most significant potential change—the Consumer Financial Protection Agency Act—is still in flux as it moves through the U.S. Senate. However, the version of the CFPA passed by the U.S. House contains several provisions of which every practitioner should be aware. New regulations governing credit card products and overdraft fees will also significantly impact consumer finance practice.
See a summary of recent developments in consumer finance regulation.
A Closer Look: Arbitration Under House Version of CFPA
The Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, passed by the U.S. House on December 11, 2009, contains provisions that could have a significant limiting effect on the enforcement of consumer arbitration provisions.
Section 4208 of the Act, entitled "Authority to Restrict Mandatory Predispute Arbitration," gives the Director of the proposed Consumer Financial Protection Agency the power to issue regulations to "prohibit or impose conditions or limitations on" a pre-dispute arbitration provision if the Director "finds that such a prohibition or imposition of conditions or limitations are in the public interest and for the protection of consumers." This provision mirrors the arbitration limiting provisions of the Arbitration Fairness Act, and could effectively prohibit the enforcement of mandatory arbitration provisions in consumer finance agreements.
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.
