Senator Dodd Proposes to Strengthen Consumer Rights

(from the National Community Reinvestment Coalition)

At long last, a Consumer Finance Protection Agency (CFPA) bill that really seeks to protect and expand the interests of all consumers, including low and moderate income communities.

Without commenting on all of Sen. Dodd's proposed bill (which includes systemic risk and other proposed changes to the financial services sector) his CFPA proposal returns us to the vision of President Obama and community leaders who seek to have a strong and substantive consumer protection finance agency. Sen. Dodd's bill the "Restoring American Financial Stability Act of 2009" returns those portions of the CFPA that were gutted by the House Financial Services Committee.

Community leaders need to be out front and heard on their support for Sen. Dodd's initiatives. Also included is the press release NCRC sent out today on Sen. Dodd's proposal)

Here is NCRC's summary of the CFPA section of Sen. Dodd's bill

Mission of the CFPA: Quoting from the bill, "the CFPA shall seek to promote transparency, simplicity, fairness, accountability, and access in the market for consumer financial products or services. The CFPA shall ensure that (1) consumers have, understand, and can use the information they need to make responsible decisions about consumer financial products or services;(2) consumers are protected from abuse, unfairness, deception, and discrimination; (3) markets for consumer financial products or services operate fairly and efficiently, with ample room for sustainable growth and innovation; and (4) consumers, including traditionally underserved consumers and communities have access to financial services.

Governing Structure of the CFPA: Almost the same as the President's proposal. Four members appointed by the President and confirmed by the Senate. One of members is the director of the new prudential regulatory agency, the Financial Institutions Regulatory Administration (FIRA). (The President's bill stipulated that one of the members is the director of the new bank supervisor for nationally-chartered banks). One of the members of the board is the Director of the CFPA. For the four board members including the Director of the CFPA, the President can appoint any citizen who has strong competencies in consumer financial products and services. It is a voting board with real power; it is not advisory. In addition, just like the President's bill, this bill creates a consumer advisory board that is like the Federal Reserve's Consumer Advisory Council, which does not have any significant power.

Transfer of Consumer Protection Laws, including CRA: Several consumer protection laws, including CRA, HMDA, and ECOA are transferred to the CFPA. However, just like the President's bill, the Dodd bill does not provide any power to the CFPA to decide on merger applications. The new prudential regulatory agency (FIRA) will have the authority to rule on merger applications; the FIRA will consider the CRA exams conducted by the CFPA in its merger application decision. We want to fix this, hopefully, via a manager's amendment that provides that both FIRA and CFPA shall rule on merger applications; CFPA has veto authority (we developed language over the summer to this effect).
Data Enhancements: The Dodd bill provides for the same enhancements to HMDA, small business loan data, and branch and deposit data that the President and Frank's bill provides. Recollect that the small business and branch and deposit provisions are directly from H.R 1479 (CRA Mod) and that the HMDA provision was inspired by H.R. 1479.

Office of Fair Lending and Equal Opportunity is established under the CFPA in the Dodd bill just like the Frank bill.

Fees for the CFPA: CFPA can assess fees on depository and non-depository institutions, but cannot assess fees on state chartered depository institutions with assets under $10 billion (the state-chartered provision is different from Frank's bill). The Federal Reserve shall transfer to the CFPA on an annual basis an amount requested by the Secretary of Treasury (based on estimates of the CFPA on amounts needed to enforce consumer protection laws). It seems that the rationale for taxing the Fed is that the Fed had much of the consumer protection responsibilities. The Dodd transfer mechanism is different from Frank's in that Frank mandated that 10 percent of the Fed's budget be transferred annually. I don't see language for Congressional appropriations in Dodd's bill.

Reasonableness Standard: It appears that the Dodd bill is closer to the original reasonableness standard of the President's bill, but there are some differences in the language. I quote the sections.

Section 1032 of Dodd bill: The CFPA may prescribe rules to ensure the appropriate and effective disclosure to consumers of the costs, benefits, and risks associated with any consumer financial product or service. REASONABLE DISCLOSURES.-Subject to rules
prescribed by the CFPA, a covered person shall, with re spect to disclosures regarding any consumer financial product or service, make or provide to a consumer disclosures that reasonably communicate to consumers the terms, costs, benefits, and risks of the product or service, in light of all of the facts and circumstances.

Section 132 of original HR 3126 that mimicked President's bill (a) In General- The Agency may prescribe regulations to ensure the appropriate and effective disclosure or communication to consumers of the costs, benefits, and risks associated with any consumer financial product or service.
(b) Reasonable Disclosures and Communications- Subject to regulations prescribed by the Agency, a covered person shall, with respect to disclosures or communications regarding any consumer financial product or service, make or provide to a consumer disclosures and communications that--
(1) balance communication of the benefits of the product or service with communication of significant risks and costs;
(2) prominently disclose the significant risks and costs, in reasonable proportion to the disclosure of the benefits;
(3) communicate significant risks and costs in a clear, concise, and timely manner designed to promote a consumer's awareness and understanding of the risks and costs, as well as to use the information to make financial decisions; and
(4) comply with standards prescribed by the Agency.

Plain Vanilla: Not explicitly authorized by Dodd's bill; explicitly authorized by President's bill; expressly prohibited by Frank's bill.

Preemption: No preemption in Dodd's bill like President. Case by case preemption in Frank's bill.

Exclusion and Exemptions from CFPA oversight: In Dodd's bill, merchants, accountants, and real estate brokers excluded from full oversight of CFPA like Frank's bill. In Dodd's bill, no exclusion of automobile dealers unlike Frank's bill. Dodd's bill does not exempt banks and thrifts under $10 billion and credit unions with assets under $1.5 billion from oversight of CFPA unlike Frank's bill; in Frank's bill these institutions remain under the supervision of their current regulator. President's bill had no exclusions.