Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – Title X - Consumer Financial Protection Bureau

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – Title X - Consumer Financial Protection Bureau August2010

Subtitle A – Bureau of Consumer Financial Protection Becomes effective on enactment date (July 21, 2010).

Establishment of Bureau of Consumer Financial Protection (sec. 1011) • Bureau within the Federal Reserve. • Led by Presidentially-appointed, Senate-confirmed Director. • Fed may not intervene in any matter before the CFPB. • Fed does not have approval or review authority, cannot delay or prevent issuance of any rule.

Enumerated Statutes (sec. 1002) CFPB to implement Federal consumer financial laws, including: • Alternative Mortgage Transaction Parity Act of 1982 • Consumer Leasing Act of 1976 • Electronic Fund Transfer Act (except sec. 920) • Equal Credit Opportunity Act • Fair Credit Reporting Act (except sec. 615(e) and 628) • Home Owners Protection Act of 1998 • Fair Debt Collection Practices Act • Federal Deposit Insurance Act (sec. 43,subsections b-f) • Gramm-Leach-Bliley Act (sec. 502-509, except sec 505 as it applies to sec. 501(b) • Home Mortgage Disclosure Act of 1975 • Home Ownership and Equity Protection Act of 1994 • Real Estate Settlement Procedures Act of 1974 • S.A.F.E. Mortgage Licensing Act of 2008 • Truth in Lending Act • Truth in Savings Act • Omnibus Appropriations Act, sec. 626 • Interstate Land Sales Full Disclosure Act

Definition of Covered Person (sec. 1002) • CFPB’s jurisdiction covers a broad array of transactions related to the sales and marketing of credit, deposit and payment products and services, including: • Loan brokering and servicing • Deposit-taking • Real estate settlement services • Stored value or payment services • Check cashing • Remittances • Debt management and collection • Credit reporting • CFPB will not have jurisdiction over: • securities and commodities activities regulated by the SEC or CFTC or • insurance regulated by the states.

Functional Units – Research (sec. 1013) • CFPB will research, analyze and report on- • Developments in markets for consumer financial products or services including market areas of alternative products/services with high growth rates and areas of risk to consumers; • Access to fair and affordable credit for traditionally underserved communities ; • Consumer awareness, understanding and use of disclosures and communications; • Consumer awareness and understanding of costs, risks and benefits of products or services; • Consumer behavior with respect to consumer financial products/services, including performance on mortgage loans; • Experiences of traditionally underserved consumers, including un-banked and under-banked.

Functional Units –Community Affairs (sec. 1013) • Provide information, guidance and technical assistance to traditionally underserved consumers and communities

Functional Units – Collecting and Tracking Complaints (sec. 1013) • Establish a single, toll-free number, website and database to facilitate centralized collection of, monitoring of, and response to consumer complaints; • Coordinate with FTC, other federal agencies to route calls; • Route calls to states if practicable; • Annual report to Congress no later than 3/31 with complaint numbers, types and resolution of complaints where applicable.

Office of Fair Lending and Equal Opportunity (sec. 1013) (established not later than 1 year after designated transfer date) • Oversight/enforcement of federal laws to ensure fair, equitable and nondiscriminatory access to credit, including Equal Credit Opportunity Act and Home Mortgage Disclosure Act; • Coordinate fair lending efforts with other agencies and state regulators to promote consistent, efficient and effective enforcement of Federal fair lending laws; • Work with private industry, fair lending, civil rights, consumer and community advocates on promotion of fair lending compliance and education. • Annual report to Congress

Office of Financial Education(sec. 1013) (established not later than 1 year after designated transfer date) • Develop and implement initiatives to educate and empower consumers to make better informed financial decisions. • Develop and implement a strategy to improve consumer financial literacy that includes measurable goals and objectives, in consultation with the Financial Literacy and Education Commission, through activities including providing opportunities for consumer to access: • Financial counseling • Information to assist with evaluation of credit products and the understanding of credit histories and scores • Savings, borrowing and other services at mainstream financial institutions • Prepare consumer for educational expenses/financial aid applications and other major purchases, reduce debt, improve the financial situation of the consumer • Develop long-term savings strategies • Wealth-building and financial services to claim EITC and federal benefits. • Report to House and Senate Committees after 2 years, then annually.

Office of Service Member Affairs (sec. 1013) (established not later than 1 year after designated transfer date) • Develops and implements initiatives for service members and their families intended to: • Educate and empower service members and their families to make better informed decisions • Coordinate with complaint unit to monitor service member complaints and responses to complaints • Coordinate efforts among federal and state agencies, as appropriate, regarding consumer protection measures offered to or used by service members and their families. • May establish and maintain regional offices near military bases

Office of Financial Protection for Older Americans (sec. 1013) (established before end of 180-day period after designated transfer date) • Facilitate financial literacy of age 62+ on protection from unfair, deceptive, abusive practices and current and future financial choices, including through dissemination of materials; • Develop goals for senior financial literacy and counseling programs including programs that help seniors recognize warning signs of unfair, deceptive or abusive practices; provide 1-on-1 financial counseling on issues including long-term savings and later-life economic security; and provide consumer credit advocacy to respond to consumer problems caused by unfair, deceptive or abusive practices; • Monitor certifications/designations of financial advisors, alert the SEC and state regulators of certifications/designations identified as unfair, deceptive or abusive; • Submit legislative/regulatory recommendations to Congress on best practices for disseminating information on legitimacy of certifications of financial advisers who advise seniors, methods a senior can use to identify the financial adviser most appropriate for their needs, and to verify a financial adviser’s credentials;

Office of Financial Protection for Older Americans, continued (sec. 1013) (established before end of 180-day period after designated transfer date) • Conduct research to identify best practices and effective methods, tools, technology and strategies to educate and counsel seniors about personal finance management with a focus on protection from unfair, deceptive and abusive practices, long-term savings, and planning for retirement and long-term care; • Coordinate consumer protection efforts of seniors with other Federal agencies and state regulators to promote consistent, effective, and efficient enforcement, and • Work with community and non-profit organizations and other entities involved with educating or assisting seniors (including the National Education and Resource Center on Women and Retirement Planning).

Consumer Advisory Board (sec. 1014) • Advise and consult with the CFPB in the exercise of its functions under the Federal consumer financial laws and to provide information on emerging practices in the consumer financial products or services industry, including regional trends, concerns, and other relevant information. • Experts in consumer protection, financial services, community development, fair lending and consumer financial products/services.

CFPB Funding (sec. 1017) • Fed will transfer no more than • 10% of total operating expenses in FY 2011, • 11% in FY 2012, • 12% in FY 2013 and each year thereafter • Amount will be adjusted annually based on inflation. • Funds are not subject to review by House or Senate Appropriations Committees • Transition Period – beginning on enactment date and until designated transfer date, Fed shall transfer the amount estimated by the Secretary needed to carry out the authorities granted to CFPB • If CFPB Director determines more funds are needed, Director shall submit report to President and House and Senate Appropriations Committees • If Director submits above report, CFPB will receive $200,000,000 for each FY 2010, 2011, 2012, 2013, and 2014

Consumer Financial Civil Penalty Fund (sec. 1017) • Maintained and established at a Federal Reserve Bank. If CFPB obtains a civil penalty against any person CFPB shall deposit the amount of penalty collected into the Civil Penalty Fund • Amounts in the Civil Penalty Fund shall be available to the CFPB for payments to victims. If victims can’t be located, CFPB shall use funds for consumer education and consumer literacy.

Subtitle B – General Powers of the Bureau Becomes effective on designated transfer date except where noted.

CFPB Powers (sec 1021) • Purpose – implement and, where applicable, enforce federal consumer financial law to ensure that all consumers have access to product and services and that markets are fair, transparent, and competitive. • Objectives - • Consumers provided with timely and understandable information to make responsible decisions ; • Consumers are protected from unfair, deceptive, or abusive acts/practices and from discrimination; • Outdated, unnecessary or unduly burdensome regulations are regularly identified to reduce unwarranted regulatory burdens; • Federal consumer law is enforced consistently to promote fair competition; • Markets operate transparently and efficiently to facilitate access and innovation.

CFPB Functions (sec. 1021) • Conducting financial education programs; • Collecting, investigating, and responding to consumer complaints; • Collecting researching, monitoring and publishing information relevant to functioning of markets to identify risks to consumers and the proper functioning of such markets; • Supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations; • Issuing rules, orders, and guidance implementing Federal consumer financial law; and • Performing such support activities as necessary or useful to facilitate the other functions of the Bureau.

“Plain Vanilla” Products and Services • House version of the bill prohibited the CFPB from requiring the offering of standard or “plain vanilla” products or services. • This provision is not in the final bill, meaning that the CFPB could require entities to offer “plain vanilla” products.

Rulemaking Standards and Monitoring (sec. 1022) (becomes effective on date of enactment - July 21, 2010) • Standards for Rulemaking CFPB must consider: • When developing rules, CFPB must consider potential benefits and costs to consumers and industry; impact on small banks and rural consumers. • To support rulemaking and other functions, CFPB shall monitor for risks to consumers, including market developments for products and services • In allocating resources for monitoring, CFPB may consider - • likely risks /costs to consumers associated with buying/using a type of financial product/service; • Consumer understanding of risks of a type of product/service; • Legal protections applicable to offering /providing a product/service, including extent to which the law is likely to adequately protect consumers; • Rates of growth in offering /providing product/service • Extent, if any, that risks of financial product or service may disproportionately affect traditionally underserved customers ;or • Types, number and other pertinent characteristics of entities that offer or provide the product or service. • CFPB must publish annual report of significant findings

Council Veto of CFPB Rules (sec. 1023) • On petition of member agency of the Financial Stability Oversight Council, the Council may set aside a final CFPB regulation if Council decides that the regulation/provision would put safety and soundness of U.S. banking system or stability of financial system at risk. • Council: Treasury Secretary, Fed Chair, Comptroller of Currency, CFPB Director, SEC Chair, FDIC Chair, CFTC Chair, FHFA Director, NCUA Board Chair, independent member with insurance expertise. • Need 2/3 vote of the Council to issue a stay or set aside a regulation.

Supervision of Non-banks (sec. 1024)(becomes effective on date of enactment-July 21, 2010) • Covers: • Mortgage lenders, loan modification and foreclosure relief services or • “Larger” participant of a market for other consumer financial products/services, to be defined by CFPB in consultation with FTC. • Entity is engaging/has engaged in conduct that poses risks to consumers in the offering/provision of consumer financial product/service, based on complaints/ information from other sources; • Offers or provides private education loans; • Offers or provides a payday loan. • Initial rule defining “larger” participate to be issued not later than 1 year after designated transfer date. • CFPB will require reports/conduct examinations on these entities to: • Assess compliance with federal consumer finance law; • Obtain information about activities and compliance systems or procedures; and • Detect and assess risks to consumers and markets .

CFPB Non-bank Risk-Based Supervision (sec. 1024) (becomes effective on date of enactment - July 21, 2010) • CFPB will exercise its authority based on risks posed to consumers in the relevant product and geographic markets, taking into consideration: • Asset size • Volume of transactions • Risks to consumers • Extent institutions are overseen by state authorities • Anything else CFPB deems relevant

CFPB Non-bank Supervision/ Coordination (sec. 1024) (becomes effective on date of enactment - July 21, 2010) • Coordinate supervision and examinations with activities of prudential regulators and state bank regulatory agencies. • CFPB will use reports that have been provided to a federal or state agency to the greatest extent possible. • CFPB will write rules on registration requirements for non-banks.

CFPB Non-Bank Enforcement (sec. 1024) (becomes effective on date of enactment - July 21, 2010) • CFPB has exclusive authority to enforce federal consumer financial laws that authorize the CFPB and another agency to provide enforcement. • CFPB and FTC will negotiate an agreement for coordinating enforcement actions

CFPB Non-Bank Rulemaking and Examination Authority (sec. 1024) (becomes effective on date of enactment - July 21, 2010) • CFPB has exclusive authority to prescribe rules, issue guidance, conduct examinations, require reports, or issue exemptions for non-banks to the extent that federal law authorizes the CFPB and another federal agency to take these actions.

CFPB Supervision of Very Large Banks, Savings Associations, Credit Unions (sec 1025) • Covers insured banks and credit unions with total assets of >$10 billion. • CFPB will have authority to require reports and conduct examinations for purposes of: • Assessing compliance with federal consumer laws • Obtaining info about activities and compliance systems • Detecting and assessing risks to consumers and to markets for consumer financial products/services • CFPB will coordinate supervisory activities with prudential and state bank regulators including consultation on respective examination schedules and reporting requirements – this provision is effective on date of enactment (July 21, 2010).

CFPB Supervision of Very Large Banks, Savings Associations, Credit Unions (sec 1025) (continued) • CFPB has primary enforcement authority for Federal consumer financial law to the extent that the CFPB and another Federal agency are authorized to enforce a Federal consumer financial law. • Any Federal agency that is authorized to enforce a Federal consumer financial law (except the FTC) can recommend that the CFPB initiate an enforcement proceeding. • If CFPB does not initiate enforcement proceeding within 120 days, the agency may initiate an enforcement proceeding.

CFPB Coverage of Smaller Banks (sec 1026) • Covers insured banks and credit unions with assets < $10 billion. • CFPB, to fullest extent possible, will use reports that have been provided to a federal/state agency and information that has been reported publicly. • CFPB can include examiners on sampling basis of examinations performed by prudential regulator. • Prudential regulator must provide all reports, records, documentation included in the sample to the CFPB, involve CFPB examiner in entire process, consider CFPB input . • Prudential regulator will have exclusive authority to enforce compliance. • CFPB must notify prudential regulator if it has reason to believe that a smaller bank or credit union has engaged in a material violation of a federal consumer financial law and recommend appropriate action. Prudential regulator must provide written response to CFPB within 60 days.

Limitations on Authorities of CFPB (sec. 1027) • No CFPB authority over; • Merchants, retailers, sellers of non-financial goods/services and merchant is engaged in sale/brokerage of nonfinancial good /service. Exception for merchant engaged in offering /providing any consumer financial product/service or merchant is otherwise subject to any enumerated consumer law. • Merchant that extends credit directly to a consumer, but the good/service is not a consumer financial product/service, exclusively for enabling consumer to purchase goods/services from merchant. • Debt collection directly or through an agreement with another person by the merchant or merchant sells/conveys debt that is delinquent or otherwise in default.

Exemptions from CFPB (sec 1027) • Merchants are excluded if they offer credit solely for the purpose of enabling a consumer to purchase a nonfinancial good or service. • Merchants are covered if, when they extend credit, it is: • Sold or conveyed to another person, • Significantly exceeds the market value of the good or service, or • Is subject to a finance charge. • If merchant’s offered credit just includes a finance charge, then the merchant is excluded so long as s/he is not engaged significantly in offering consumer financial products or services.

Limitations on Authorities of CFPB (sec. 1027) • Small Businesses • Merchant that extends credit and credit is subject to a finance charge not covered if - • Only extends credit for the sale of nonfinancial goods/services; • Retains such credit on own accounts (except to sell or convey such debt that is delinquent or otherwise in default); and • Meets the relevant industry size threshold to be a small business, based on annual receipts under SBA Act.

Exemptions from CFPB (sec 1027) • Exclusion for: • real estate brokers/agents, • manufactured and mobile home retailers, • accountants and tax preparers, • lawyers, • persons regulated by state insurance regulator or state securities commission, • employee benefit and compensation plans, • charitable contributions unless engaged in the offering or provision of any consumer financial product/service or subject to another consumer law

Usury (sec. 1027) • No authority for CFPB to impose usury limit.

Exclusions for Auto Dealer-Lenders (sec. 1029) • No rulemaking, supervisory, enforcement or any other authority over auto dealer that is primarily engaged in sale and servicing of autos, including motorcycles, boats, motor homes. • FTC given the authority to write rules under the Administrative Procedures Act on auto dealer-lenders. • Federal Reserve and FTC must coordinate with Office of Service Member Affairs to ensure that - • Service members and their families are educated/ empowered to make better decisions regarding consumer financial products/services offered by auto dealers; and • Service member complaints are effectively monitored and responded to, and where appropriate, enforcement action is pursued by authorized agencies.

Mandatory Arbitration (sec . 1028) • CFPB to conduct study/report to Congress on use of pre-dispute arbitration agreements • CFPB, by regulation, may prohibit or impose conditions/limitations on use of mandatory pre-dispute arbitration if it is in the public interest and protects consumers. Findings in rule must be consistent with the study.

Subtitle C – Specific Bureau Authorities Takes effect on designated transfer date.

Prohibiting Unfair, Deceptive, Abusive Acts/Practices (sec. 1031) • CFPB: • authorized to take action to prevent unfair, deceptive or abusive act or practice; • may write rules identifying as unlawful, unfair, deceptive, or abusive acts/practices. • Unfairness – • Act or practice causes/likely to cause substantial injury which is not reasonably avoidable; • Substantial injury not outweighed by countervailing benefits to consumers or competition; • Abusive – • Materially interferes with ability of a consumer to understand a term/condition of product/service; • Takes unreasonable advantage of - • lack of understanding of risks, costs, conditions of product/service; • Inability of consumer to protect the interests of the consumer in selecting/using product/service; • Reasonable reliance to act in the interests of the consumer. • CFPB will consult with banking and other agencies on consistency of proposed rule with the prudential, market or systemic objectives of such agencies.

Disclosures (sec. 1032) • Regulations to ensure the features of any product/service, both initially and over the term of the product/service, are fully, accurately, and effectively disclosed so that consumers understand costs, benefits, and risks. • Final rule may include a model form to be used at the option of the lender. • Model form must contain clear and conspicuous disclosure that minimally, • Uses plain language comprehensible to consumers; • Contains a clear format and design, such as an easily readable type font; • Succinctly explains the information that must be communicated. • Any model form must be validated through consumer testing. • Any covered person that uses a model form included with a rule shall be deemed in compliance with the disclosure requirements. • Not less than 1 year after the designated transfer date, CFPB shall propose rules and model disclosures for public comment that combine Truth in Lending and Real Estate Settlement Procedures Act into a single, integrated disclosure for mortgage loan transactions, unless CFPB determines the Fed and HUD have developed a form that fulfills the same purpose.

Consumer Rights to Access Information (sec. 1033) • Subject to CFPB rules, a covered person is required to make information available to a consumer, upon the consumer’s request, relating to any transaction, series of transactions, or account costs, charges, and usage data. • CFPB by rule shall prescribe standards applicable to covered persons to promote the development and use of standardized formats for information to be made available to consumers.

Response to Consumer Complaints/Inquiries (sec. 1034) • CFPB will establish, in consultation with Federal banking agencies and FTC, procedures to provide a timely response to consumers, in writing where appropriate, to complaints /inquiries concerning – • Steps that have been taken in response to the complaint or inquiry; • Any responses received by the CFPB from the subject of the complaint; • Any follow-up actions or planned follow-up actions in response to the complaint or inquiry. • Any subject of a complaint that is subject to CFPB supervision and primary enforcement must provide response to the CFPB, prudential regulator, and any other agency with jurisdiction, concerning a consumer complaint or inquiry.

Private Education Loan Ombudsman (sec. 1035) • Establish Private Education Loan Ombudsman to: • Provide timely assistance to borrowers of private education loans; • Receive, review and attempt to resolve complaints in collaboration with Dept. of Education; • Compile and analyze data on borrower complaints. • Submit recommendations and annual report to the CFPB, Dept of Education, and Congressional committees of jurisdiction.

Prohibited Acts (sec. 1036) • Unlawful to: • Offer or provide product/service not in conformity with Federal consumer financial law or commit act or omission in violation of Federal consumer financial law. • Engage in unfair, deceptive, abusive act/practice.

Subtitle D – Preservation of State Law Effective on designated transfer date.

Relation to State Law (sec. 1041) • Must comply with laws, regulations, orders, in effect in any state, except to the extent that the law is inconsistent with this act. • If the protection in state law affords consumers greater protection than in this law, then the law is not inconsistent. • CFPB will issue NPRM when a majority of states have enacted a resolution supporting establishment or modification of a consumer protection regulation by the CFPB.

Preservation of State Enforcement Powers (sec. 1042) • State AG may enforce the CFP Act generally and CFPB regulations, except as to national banks and federal thrifts. • State AGs may enforce CFPB regulations against national banks and federal thrifts, but not the general provisions of the Act. • State regulators may enforce CFP Act and CFPB regulations as to state-chartered entities under their jurisdiction. • Before initiating an action, state AG must provide a copy of the complaint to the CFPB and prudential regulator, if any. • State authority to enforce enumerated statutes is status quo as provided in those statutes.

Preemption Standard (sec. 1044) State consumer financial laws only preempted if- • Application of state law would be discriminatory for national banks in comparison with effect on state banks • State consumer financial law is preempted by the legal standard of Supreme Court Barnett Bank decision, in which the state consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers. • State consumer financial law is preempted by a provision of federal law other than this title. • Any preemption determination may be made by a court or by regulation or order of OCC on a case-by-case basis. OCC must first consult with CFPB and take its views into account when making a determination.

OCC Periodic Review of Preemption (sec 1044) • OCC required to conduct a review through notice and public comment, of each determination that a provision of federal law preempts a state consumer financial law. • Conduct within 5 years after determination, and at least once every 5 years thereafter. • OCC must publish decision to continue/ rescind/amend the determination.

Preservation of Powers Related to Charging Interest (sec 1044) • No provision of law shall alter or otherwise affect the laws for charging interest by a national bank at the rate allowed by the laws of the state where the bank is located.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – Title X - Consumer Financial Protection Bureau