Advisories

In the early hours of Friday, June 25th, House and Senate conferees agreed on the language of what some are calling the most sweeping change in financial regulation since the Great Depression. The bill, H.R. 4173, now known as the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (the "Wall Street Reform Act"), consists of 16 titles. Due to the inclusion of a $19 billion bank tax provision, which caused Senator Brown of Massachusetts to indicate he might not support the bill, and the death of Senator Byrd of West Virginia, the conferees reconvened on Tuesday, June 29th, removed the bank tax provision and, in its place, introduced a provision to increase Federal Deposit Insurance Corporation ("FDIC") deposit insurance. The Wall Street Reform Act was then sent back to both chambers of Congress, where it passed the House on June 30th and the Senate on July 15th. The President signed the legislation into law on July 21st ("Enactment"), and it is now Public Law 111-203.

Title X of the Wall Street Reform Act may be cited as the Consumer Financial Protection Act of 2010 ("Title X"). Among other things, it establishes the Bureau of Consumer Financial Protection (the "CFPB"), which is housed within the Federal Reserve System (the "Federal Reserve"). Because, as discussed below, the CFPB's powers are broad and largely unchecked, the full implications of Title X may not become clear for some time to come.

This advisory focuses exclusively on Title X. Part I describes the organization and structure of the CFPB; Part II describes the CFPB’s responsibilities and powers. Part III describes certain significant amendments to the Electronic Fund Transfer Act ("EFTA"), including limits on debit interchange, as well as other amendments to the Federal consumer financial laws (described below), including the Fair Credit Reporting Act ("FCRA") and the Equal Credit Opportunity Act ("ECOA"). Finally, Part IV describes Title X's relationship to state laws, including the ability of states to enact (and state attorneys general to enforce) state consumer protection laws that apply more stringent standards than federal laws. In addition to summarizing provisions of Title X, this advisory briefly comments on selected provisions.

I. CFPB organization and structure

The CFPB is an independent executive agency established in the Federal Reserve. The authorities of the CFPB took effect upon Enactment, and the Secretary of the Treasury is authorized to perform the functions of the CFPB until the Director is confirmed by the Senate.

Director. The CFPB will be headed by a Director, to be appointed by the President with the advice and consent of the Senate. The Director is to designate a Deputy Director, who will serve as acting Director in the absence of the Director. The Director will serve a five-year term, unless removed earlier by the President for cause, and is empowered to delegate any power vested in the CFPB to any employee. The Director is also empowered to fix the number of and appoint all employees. As is well known, whom the President should appoint as the initial Director has become a contentious issue.

Location. The CFPB is to be headquartered in Washington, D.C., but the Director may establish regional offices.

Autonomy. While the Board of Governors of the Federal Reserve System (the "Board") may delegate to the CFPB the authority to examine persons subject to the Board’s compliance jurisdiction, the Board cannot otherwise: (i) intervene in any CFPB enforcement actions or examinations; (ii) remove any officer or employee of the CFPB; (iii) merge or consolidate divisions or responsibilities of the CFPB into the Federal Reserve; or (iv) review, delay or prevent the issuance of any rule or order of the CFPB. Neither the Federal Reserve nor the CFPB will be legally liable for any action or inaction of the other.

Funding. Each year (or quarter), the Director will determine the amount "reasonably necessary" to carry out the CFPB’s authorities, and the Board will transfer such amount to the CFPB. The amount transferred cannot exceed a certain percentage of the Board’s total operating expenses for that year (i.e., between 10 and 12 percent, depending on the year, to be adjusted upward, if applicable, each year after 2012 based on the employment cost index for government employees). If the Director determines that funds made available to the CFPB are insufficient to carry out its authorities, the Director is to submit a report to President and Congress explaining why; after the report is submitted, additional funds in the amount of $200 million are to be appropriated to the CFPB for each of fiscal years 2010 through 2014. The CFPB is to regularly submit financial statements to the Office of Management and Budget and is subject to annual audits by the Comptroller General and the Government Accountability Office.

• Consumer Financial Civil Penalty Fund. The CFPB is to deposit, into a separately maintained Consumer Financial Civil Penalty Fund ("Civil Penalty Fund"), any civil penalty against any person in any judicial or administrative action under the Federal consumer financial laws. Amounts in the Civil Penalty Fund will be available to the CFPB for use in making payments to the victims of activities for which civil penalties have been imposed under the Federal consumer financial laws. If such victims cannot be located or such payments are otherwise not practicable, the CFPB is permitted to use such funds for the purpose of consumer education and financial literacy programs.

Structure. The CFPB is empowered to establish its own operating policies and procedures. In addition, Title X provides for the creation of three "special functional units" within the CFPB, as follows:

• Research Unit. Research, analyze, and report on: (i) developments in markets for consumer financial products or services (described below); (ii) access to fair and affordable credit for traditionally underserved communities; (iii) consumer awareness, understanding, and use of disclosures and communications regarding consumer financial products or services; and (iv) consumer behavior with respect to consumer financial products or services.
• Community Affairs Unit. Provide information, guidance, and technical assistance regarding the provisions of consumer financial products or services to traditionally underserved consumers and communities.
• Consumer Complaints Unit. Establish a toll-free telephone number, a website and a database to facilitate the centralized collection of, monitoring of, and responses to consumer complaints regarding consumer financial products or services. The CFPB is to coordinate with other federal and state agencies to route complaints to such agencies, as appropriate. In addition, the CFPB is to present an annual report to Congress on the complaints received during the prior year regarding consumer financial products and services. Each report will include information and analysis about complaint numbers, complaint types, and, where applicable, resolution of complaints. Title X provides that data regarding complaints will be freely shared among federal regulatory agencies.

Title X also establishes other units within the CFPB, including:

• Office of Fair Lending and Equal Opportunity. This Office will: (i) provide oversight and enforcement of ECOA and other federal laws intended to ensure the fair access to credit for both individuals and communities; (ii) coordinate fair lending and fair housing efforts of the CFPB with other federal agencies and state regulators, as appropriate, to promote consistent, efficient, and effective enforcement of federal fair lending laws; (iii) work with private industry, fair lending, civil rights, consumer, and community advocates on the promotion of fair lending compliance and education; and (iv) provide annual reports to Congress on the efforts of the CFPB to fulfill its fair lending mandate.
• Office of Financial Literacy. This Office will be responsible for developing and implementing initiatives intended to educate consumers on financial products and services and the use of credit. The CFPB will develop and implement a strategy to improve the financial literacy of consumers, in cooperation with the Financial Literacy and Education Commission, by providing consumers with access to financial counseling, information about understanding credit scores and histories, information about savings and borrowings programs and mainstream financial institutions and similar resources. The Office will report on its activities to Congress no later than 24 months after its establishment.
• Office of Service Member Affairs. This Office will develop and implement initiatives intended to help service members and their families make informed decisions regarding consumer financial products and services and will monitor their complaints regarding these matters. The Office will also coordinate with the Department of Defense and other federal agencies to resolve such complaints and draft special memoranda of understanding or other agreements with the entities that are the subject of such complaints.
• Office of Financial Protection for Older Americans. This Office will develop programs that teach older Americans financial literacy and provide them with counseling, including programs that, among other things, monitor certifications or designations of financial advisors who advise older Americans and conduct research to identify best practices to counsel older Americans about personal financial management. The Office is to coordinate with state agencies with similar purposes and report to Congress on its activities and recommendations.
• Consumer Advisory Board. This Board will advise and consult with the CFPB at least twice a year on the exercise of the CFPB’s functions and provide information on emerging practices in the consumer financial products or services industry. The Consumer Advisory Board will have at least six members, appointed on a rotating basis by the Director. The Director will "seek to assemble experts in consumer protection, financial services, community development, fair lending and civil rights, and consumer financial products or services and representatives of depository institutions that primarily serve underserved communities, and representatives of communities that have been significantly impacted by higher-priced mortgage loans, and seek representation of the interests of covered persons (described below) and consumers, without regard to party affiliation."
• Private Education Loan Ombudsman. A Private Education Loan Ombudsman will assist borrowers of private education loans "as well as institutions of higher education, lenders, guaranty agencies, loan servicers and other participants in private education student loan programs."

II. CFPB objectives, jurisdiction, and authorities

Objectives. The CFPB is to "seek to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive." Specifically, the CFPB is to exercise its authorities under the Federal consumer financial laws to ensure that, with respect to consumer financial products and services: (i) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (ii) consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; (iii) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (iv) the Federal consumer financial laws are enforced consistently; and (v) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

Transfer of other agency functions. The consumer financial protection functions of other federal agencies will be transferred to the CFPB. These agencies include the Federal Reserve, the Federal Trade Commission ("FTC"), the Office of the Comptroller of the Currency ("OCC"), the Office of Thrift Supervision ("OTS") and the FDIC. Such transfers will take place on a date ("Designated Transfer Date") that is 180 days to 12 months from Enactment, with a further extension permitted to a date no further out than 18 months from Enactment. (The FTC will continue to have authority to administer and enforce the Federal Trade Commission Act other than with respect to consumer financial protection, and Title X does not mandate that any personnel be transferred from the FTC. To avoid duplication or conflict between rules prescribed by the CFPB and the FTC, the agencies will negotiate an agreement with respect to rulemaking by each agency.)

Covered products. The CFPB has authority over "consumer financial products or services." A "consumer financial product or service" is offered or provided for use by consumers primarily for personal, family, or household purposes and includes the following: (i) extending credit and servicing loans; (ii) extending or brokering certain leases of personal or real property; (iii) providing real estate settlement services; (iv) engaging in deposit-taking activities, transmitting or exchanging funds; (v) selling or issuing stored value or payment instruments; (vi) providing check cashing services; (vii) providing payments or other financial data processing products or services to a consumer by any technological means; (viii) providing financial advisory services; (ix) collecting, analyzing, or providing consumer report information or other account information; (x) collecting debt; and (xi) any other financial product or service that may be designated by the CFPB if it finds that such product or service is likely to have a material impact on consumers.

Covered persons. "Covered persons" subject to the authority of the CFPB are those that engage in offering or providing a consumer financial product or service. Also under the jurisdiction of the CFPB are entities that provide "a material service" to a covered person in connection with the offering or provision of a consumer financial product or service. Examples of covered persons include: (i) depository institutions that provide consumer products and services; (ii) providers of consumer mortgage origination, brokerage, servicing, loan modification or foreclosure relief services; (iii) providers of private education loans; and (iv) providers of payday loans.

However, Title X excludes certain businesses from the CFPB’s authority, including:

• Sellers of primarily nonfinancial products. Merchants, retailers, and other sellers of nonfinancial goods or services, to the extent engaged in the sale or brokerage of nonfinancial goods or services or extending credit or collecting debts arising from such sale.
• Real estate agents. Licensed or registered real estate agents and brokers engaged in brokerage activities.
• Professionals. Accountants, tax preparers, and lawyers.
• ERISA plans. Employee benefit and compensation plans and certain other arrangements under the Internal Revenue Code of 1986.
• Securities/commodities/Farm Credit System entities. Persons regulated by (i) a state securities commission; (ii) the Securities Exchange Commission; (iii) the Commodity Futures Trading Commission; or (iv) the Farm Credit Administration.
• Charities. Any nonprofit organization, or agent, volunteer, or representative of that organization, to the extent such person or entity is soliciting or providing advice, information, education, or instruction to any donor or potential donor relating to a contribution.
• Insurance entities. Persons engaged in the business of offering insurance.
• Auto dealers.

Covered laws. The CFPB has authority to issue regulations under and enforce the "Federal consumer financial laws," including: (i) the Truth in Lending Act ("TILA"); (ii) EFTA; (iii) ECOA; (iv) FCRA; (v) the Fair Debt Collection Practices Act; and (vi) the Consumer Leasing Act of 1976. Title X requires courts to treat determinations by the CFPB regarding the meaning or interpretation of a Federal consumer financial law as if the CFPB were the only agency authorized to apply, enforce, interpret, or administer the law.

Authorities in general. The primary functions of the CFPB are: (i) conducting financial education programs; (ii) collecting, investigating, and responding to consumer complaints; (iii) collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets; (iv) supervising covered persons for compliance with the Federal consumer financial laws, and taking appropriate enforcement action to address violations of the Federal consumer financial laws; (v) issuing rules, orders, and guidance implementing the Federal consumer financial laws; and (vi) performing such support activities as may be necessary to facilitate the other functions of the CFPB. Certain specific CFPB authorities are further discussed below.

Rulemaking authority. The CFPB is to exercise any authorities assigned it under the Federal consumer financial laws to administer and enforce such laws. The Director is empowered to promulgate rules, guidance and orders, as appropriate. In prescribing a rule, the CFPB is to consider: (i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services; and (ii) the impact on covered persons and on consumers in rural areas. Before issuing a rule, the CFPB is to consult with other appropriate federal agencies and, when issuing the final rule, is to include any written objections provided by such agencies. To the extent that a provision of a Federal consumer financial law authorizes the CFPB and another agency to issue regulations under a particular provision, the CFPB’s authority supersedes the other agency’s.

• Exemptions. The CFPB will be able to conditionally or unconditionally exempt any class of covered person, service provider, or consumer financial product or service from any provision of Title X or from any rule issued by the CFPB, taking into consideration: (i) the total assets of the class of covered persons; (ii) the volume of transactions; and (iii) existing provisions of law and the extent to which such provisions provide consumers with adequate protections.
• Oversight. Oversight of the CFPB is assigned to the Financial Stability Oversight Council ("Council"), established by the Wall Street Reform Act upon Enactment, which will have 10 voting and five nonvoting members. The voting members include the Secretary of the Treasury (as Chairperson), the Director of the CFPB, the Chairman of the Board, and the heads of the OCC, FDIC, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Housing Finance Agency and the National Credit Union Association. Also voting is an independent insurance expert appointed by the President. By two-thirds vote, the Council may set aside, in whole or in part, a final regulation prescribed by the CFPB if the Council determines that the regulation or provision would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk. The Council may also issue a 90-day stay in advance of the implementation of any regulation in order to assess its potential impact. 

Monitoring authority. The CFPB is to "monitor for risks to consumers" in the provision of consumer financial products or services, including developments in markets for those products and services, by examining covered persons, collecting information from such persons, using information contained in reports received from covered persons and assessing consumer complaints and surveys. The CFPB is to publish annually at least one report of its significant findings in this regard.

Registration. The CFPB may prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person. The CFPB may publicly disclose registration information so that consumers can identify covered persons that are registered with the CFPB.

Other authorities. The CFPB has additional authorities, including the following:

• Supervision. Authority to require reports and conduct examinations of covered persons on a periodic basis to assess compliance with consumer financial laws, obtain information about compliance systems and procedures and detect and assess risk. Persons specified as being subject to such supervision include: (i) those who provide origination, brokerage, or servicing of loans secured by real estate or loan modification or foreclosure relief services; (ii) “larger participants of a market for other consumer financial products or services;” (iii) covered persons engaging in conduct that "poses risks to consumers with regard to the offering or provision of consumer financial products or services;" (iv) providers of private education loans; and (v) depository institutions with assets in excess of $10 billion and their affiliates. The CFPB will also have primary enforcement authority over each of these covered persons with respect to the Federal consumer financial laws. While the CFPB will be obligated to coordinate and cooperate with other prudential regulators and, to the extent available, rely on existing reports, the CFPB will have ultimate examination, reporting and enforcement authority. (For an institution with assets of $10 billion or less, the CFPB may require reports but must "include examiners on a sampling basis of the examinations performed by the prudential regulator to assess compliance with the requirements of Federal consumer financial law." The prudential regulator (e.g., the OCC) will retain primary enforcement authority.)
• Unfair, deceptive, or abusive practices. Authority to prescribe rules prohibiting unfair, deceptive, or abusive acts or practices in connection with providing consumer financial products or services. A practice is "unfair" if it causes substantial injury to consumers which is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or to competition. A practice is "abusive" if it (i) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (ii) takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, the inability of the consumer to protect his or her interests in selecting or using the product or service, or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. The CFPB needs only a "reasonable basis" to conclude that a practice is "unfair" or "abusive."
• Disclosures. Authority to prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are "fully, accurately, and effectively" disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances. The CFPB may issue model disclosures that, if used by covered persons, would provide a safe harbor for compliance.
• Consumer rights to access information. Authority to prescribe rules requiring a covered person to make available to a consumer, upon request, information, including relating to any transaction, series of transactions or to an account, such as costs, charges, and usage data. The information must be made available in an electronic form. However, covered persons cannot be required to disclose confidential commercial information or information collected for the purpose of preventing fraud or money laundering.
• Consumer complaints. Authority to establish reasonable procedures to provide consumers with a timely response, in writing where appropriate, to complaints or inquiries to the CFPB concerning covered persons. Procedures will consider: (i) steps that have been taken in response to the complaint or inquiry of the consumer; (ii) any responses received from the covered person; and (iii) any follow-up actions or planned follow-up actions in response to the complaint or inquiry.
• Arbitration clauses. Authority to prohibit or impose conditions or limitations on the use of mandatory arbitration clauses for future disputes, if the CFPB finds such conditions or limitations to be in the public interest. The CFPB must conduct a study and report to Congress concerning the use of such clauses. However, the CFPB may not prohibit or restrict a consumer from entering into a voluntary arbitration agreement with a covered person after a dispute has arisen.

Notably, Title X does not confer on the CFPB the authority to establish a usury limit applicable to an extension of credit.

Enforcement authority. As discussed above, the CFPB has authority to enforce Title X, the Federal consumer financial laws and the regulations promulgated thereunder, and any other rules created by the CFPB, including rules preventing unfair, deceptive, or abusive acts or practices. Specifically, Title X gives the CFPB enforcement authorities, including the following:

• Investigations. The CFPB may investigate complaints, issue subpoenas, and conduct hearings and adjudication proceedings. The CFPB also is empowered to issue a Civil Investigative Demand ("CID"), requiring the production of documentary material, the submission of tangible evidence, the filing of written reports or answers to questions, or the provision of oral testimony relevant to the violation of a Federal consumer financial law. Title X describes procedures for issuing, serving, responding to, and enforcing CIDs.
• Proceedings. The CFPB may conduct cease-and-desist proceedings and issue cease-and-desist orders, which may be appealed to any United States Circuit Court of Appeals. The CFPB may also commence a civil action in any federal or state court against a covered person to impose a civil penalty or to seek legal or equitable relief, including a temporary or permanent injunction. Except as may otherwise be permitted by law or equity, Title X establishes a three-year statute of limitations for the CFPB to bring an action, measured from the date of discovery of the violation. This provision carves out claims arising solely under the Federal consumer financial laws (e.g., TILA, ECOA); actions arising under those laws will be subject to the applicable provisions of such laws.
• Financial penalties. Title X provides for statutory damages as follows: (i) for violations of final orders or conditions imposed by the CFPB, no more than $5,000 per violation per day; (ii) for reckless violations of Federal consumer financial laws, no more than $25,000 per violation per day; and (iii) for knowing violations of Federal consumer financial laws, no more than $1 million per violation per day.
• Mitigation. The CFPB or a court must take the following into consideration when determining the appropriateness of a penalty: (i) the financial resources and good faith of the person charged; (ii) the gravity of the violation or failure to pay; (iii) the severity of the risks to or losses suffered by the consumer, taking into account the number of products or services sold or provided; (iv) the history of previous violations; and (v) such other considerations as "justice" may require.
• Equitable relief. The CFPB and courts, in a proceeding brought under a Federal consumer financial law, have jurisdiction to grant equitable relief with respect to a violation, including a violation of CFPB rules or orders. Equitable relief authorized by Title X is broad and may include rescission or reformation of contracts, restitution, payment of damages, limits on the activities or functions of a covered person, and attorney’s fees; relief may not, however, include punitive or exemplary damages. Title X does not provide for criminal penalties, though it authorizes the CFPB to transmit evidence of a criminal violation of a federal statute to the attorney general.

Whistleblower protection. Title X protects individuals who have provided information to the CFPB or any state, local, or federal government or law enforcement authority, relating to any violation of, or any act or omission that the person reasonably believes to be a violation of, Title X, or any other law that is under the CFPB’s jurisdiction. If the whistleblower is an employee of, or service provider to, the entity that has allegedly violated the law, such entity may not terminate or otherwise discriminate against the employee or service provider for providing the information. In addition to the provision of information, the protection covers testifying or the intention to testify by the whistleblower as well as a refusal to participate in any activity the person reasonably believes to be a violation of any law or rule that is within the jurisdiction of the CFPB.

Reports to Congress. Twice a year, the CFPB is to report to the appropriate committees of Congress and to the President. These reports are to include: (i) a discussion of the significant problems faced by consumers in shopping for or obtaining consumer financial products or services; (ii) a justification of the CFPB’s most recent budget request; (iii) a list of the significant rules and orders adopted by the CFPB and other significant initiatives conducted during the preceding year, and plans for rules, orders, or other initiatives to be undertaken during the upcoming period; (iv) an analysis of complaints about consumer financial products or services received and collected in the CFPB’s central database; (v) a list, with a brief statement of the issues, of the public supervisory and enforcement actions to which the CFPB was a party during the preceding year; (vi) the actions taken with respect to covered persons that are not credit unions or depository institutions; (vii) an assessment of significant actions by state attorneys general or state regulators; (viii) an analysis of the efforts of the CFPB to fulfill its fair lending mission; and (ix) an analysis of the efforts of the CFPB to increase workforce and contracting diversity.

III. Amendments to EFTA, FCRA, ECOA, and related provisions

Except as otherwise indicated, the following amendments take effect on the Designated Transfer Date.

Interchange.

• Issuance of fee-limitation regulations. Not later than nine months after Enactment, the Board is to issue final regulations establishing standards for assessing whether the amount of any "interchange transaction fee" received or charged by an issuer on an "electronic debit transaction" is "reasonable and proportional" to the cost incurred with respect to the transaction. The regulation is to be effective one year from Enactment. (An "interchange transaction fee" is any fee established, charged, or received by a payment card network to compensate an issuer for its involvement in an electronic debit card transaction. An "issuer" is any person who issues a "debit card" or credit card. A "debit card" is any payment device approved for use through a "payment card network" to debit an asset account, and an "electronic debit transaction" is a transaction in which a person uses a debit card. A "payment card network" is any entity that provides services to conduct authorization, clearance, and settlement of debit card and credit card transactions and that a person uses to accept debit or credit cards to carry out debit or credit transactions.)
• Information collection. The Board may require issuers, their agents, or payment card networks to provide information on fees and costs as necessary to issue the aforementioned regulations, and may disclose such information on an aggregate basis twice yearly.
• Considerations in issuing regulations. In issuing its regulations, the Board is to consider factors including the functional similarity between electronic debit transactions and checking transactions that are required within the Federal Reserve to clear at par. The Board may also allow for an adjustment to the fee amount received or charged by an issuer if such adjustment is reasonably necessary to make allowance for costs incurred by the issuer in preventing fraud relating to electronic debit transactions involving that issuer and if the issuer complies with fraud-related standards established under regulations to be issued by the Board not later than nine months after Enactment. (These regulations are to prescribe, among other things, steps issuers must take to reduce the incidence and costs of such fraud).
• Exemptions. Issuers that, together with their affiliates, have assets of less than $10 billion are exempt from the fee-limitation and fraud-related regulations, as are certain electronic debit transactions in which a person uses a general-purpose prepaid card provided pursuant to a government-administered payment program, or a reloadable, general-purpose payment device that is not issued or approved to access or debit an asset account. (The scope of these exemptions narrows starting two years after Enactment.) Certain nutrition-support-related transactions are also exempt. It is uncertain at this time whether payment networks can differentiate between transactions involving debit cards issued by large and small issuers. The prepaid card exclusion may refocus issuers’ interest from debit cards to prepaid cards.
• Anti-evasion. The Board is also to issue regulations, not later than nine months after Enactment, to ensure that a "network fee" is not used to directly or indirectly compensate issuers with respect to electronic debit transactions or to circumvent or evade the restrictions imposed by the regulations referenced above. (A “network fee” is any fee, other than an interchange transaction fee, that is charged and received by a payment card network with respect to an electronic debit transaction.)
• Enforcement. Institutions will not be subject to civil or criminal liability for violations of the new interchange provisions or the regulations thereunder; instead, compliance is to be enforced administratively.

Payment network restriction limitations. Not later than one year after Enactment, the Board is to issue regulations providing that an issuer or payment card network must not, directly or indirectly:

• Debit exclusivity. Restrict the number of payment card networks on which an electronic debit transaction may be processed to one such network or two or more such networks under common control. We believe that most large issuers’ debit cards are already linked to multiple nonaffiliated networks.
• Routing restrictions. Inhibit the ability of any person that accepts debit cards to direct the routing of electronic debit transactions for processing. The language of this provision does not make clear whether it relates only to electronic debit transactions involving such person.
• Restrictions on offering discounts. Inhibit the ability of any person to provide a discount or in-kind incentive for payment using cash, checks, debit cards, or credit cards, to the extent that such incentives are offered to all prospective buyers, are disclosed clearly and conspicuously, and do not differentiate on the basis of debit card issuers and networks or credit card issuers and networks. Networks also must not penalize any person for providing a discount that is in compliance with federal law and applicable state law.
• Minimums/maximums. Inhibit the ability of any person to set a minimum dollar value for the acceptance of credit cards, so long as such minimum does not differentiate among issuers or networks and does not exceed $10, or of federal agencies or institutions of higher education to set a maximum dollar value for such acceptance, so long as such maximum does not differentiate among cards or networks. (The term “credit card,” for purposes of the new EFTA provisions, is defined the same way as under the Truth in Lending Act.)

Remittance transfers. Each "remittance transfer provider" must make specified disclosures pursuant to rules to be promulgated by the CFPB, in addition to any other disclosures that may be required under the EFTA. (A "remittance transfer provider" is a person or financial institution that provides remittance transfers for a consumer in the ordinary course of its business. A "remittance transfer" is an electronic transfer of funds requested by a sender, located in a state, to a "designated recipient" that is initiated by a remittance transfer provider, whether or not the transfer is also an electronic fund transfer within the meaning of the EFTA. A "sender" is a consumer who requests a remittance transfer provider to send a remittance transfer for the sender to a designated recipient, and a "designated recipient" is a specified person located in a foreign country.) The required disclosures must be made in English and in each foreign language principally used by the remittance transfer provider.

• Disclosures to senders. The remittance transfer provider must provide the sender with the following disclosures, in a retainable written form (except in limited circumstances such as transactions conducted entirely by telephone) that is clear and conspicuous and, if applicable, compliant with the Electronic Signatures in Global and National Commerce Act ("E-Sign Act"):
  • At the time the sender requests the remittance transfer and prior to the sender’s making any payment, the amount of currency to be received by the designated recipient (or, under certain circumstances and for no more than five years following Enactment unless the CFPB extends this period, a reasonably accurate estimate thereof), the amount of fees to be charged by the remittance transfer provider, and the exchange rate to be used for the remittance transfer; and
  • At the time the sender makes payment, a receipt showing the foregoing information, the promised date of delivery, the name and telephone number or address of the designated recipient (if provided by the sender), and a statement of the sender’s error-resolution rights (see below) along with contact information for the provider, the applicable state agency, and the CFPB.
• Storefront and online notice. After specified preliminary analysis, the CFPB may prescribe rules requiring a remittance transfer provider to prominently post and timely update specific notices in each of its physical storefront locations and on the home or landing page of its website.
• Reasonably accurate estimates. If the CFPB determines that a recipient nation does not legally allow a remittance transfer provider to determine that amount of currency that will be received by a designated recipient, the CFPB may prescribe rules within 18 months after Enactment addressing the issue, including standards for the remittance service provider to provide a reasonably accurate estimate.
• Error resolution and related matters. Within 18 months after Enactment, the Board is to issue final rules regarding the resolution of errors in remittance transfers, as well as cancellation and refund policies. Senders’ rights include, among others, up to 180 days from the promised date of delivery to notify the remittance service provider that an error has occurred, triggering an investigation and, if applicable, an error-resolution process.
• Savings. The new provisions on remittance transfers do not affect the application of other federal statues regarding money transmission.
• Liability for actions of agents. A remittance transfer provider is liable for violations by its agents and others acting for such provider.

Amendments to FCRA. These include:

• Credit score disclosure. FCRA is amended to require that adverse action and risk-based pricing notices include the disclosure of a numerical credit score. It will be interesting to see how the CFPB determines which credit score to disclose, as creditors may use multiple credit scores when making a credit determination.
• Red flag guidelines and records disposal. While the CFPB is generally given regulatory authority under the FCRA, this does not apply to Section 615(e) on red flag guidelines or Section 628 on records disposal.

Amendment to ECOA. ECOA is amended to mandate financial institutions’ data on credit applications by businesses that are women-owned, minority-owned or small. The data collected is not to be available to financial institution personnel involved in underwriting. Financial institutions must compile and maintain such data (excluding personally identifiable information), submit it annually to the CFPB, retain it, and make it available to the public. The CFPB is to issue regulations governing the foregoing and, in addition, may compile and aggregate such data and make such compilations public.

Other provisions. Other provisions of Title X that amend Federal consumer financial laws or impact closely related matters include:

• TILA. Title X increases from $25,000 to $50,000 the threshold for the exemption of non-home secured credit transactions.
• Credit scores. Title X mandates a CFPB study, to be provided to Congress not later than one year after Enactment, regarding the nature, range, and size of variations between the credit scores sold to creditors and those sold to consumers, and whether such variations disadvantage consumers.
• Other provisions relating to remittance transfers; no-cost consumer accounts. Title X directs CFPB to work with the Federal Reserve and the Department of the Treasury to expand the use of the automated clearinghouse system and other payment mechanisms for remittance transfers to foreign countries and to report to Congress on this every two years during the 10 years after Enactment, starting no later than one year after Enactment. Also, each federal banking agency and the National Credit Union Administration must provide guidelines to its regulated financial institutions regarding the offering of low-cost remittance transfers and—in notably broad language—"no-cost or low-cost basic consumer accounts." No later than one year after Enactment, they are to report to the President and Congress regarding the manner in which a consumer’s remittance history could be used to enhance the consumer’s credit score, impediments to doing so, and recommendations to enhance the transparency to consumers of exchange rates for remittance transfers.

IV. Relationship of Title X to state law

It became clear during the negotiations that led to the passage of the Wall Street Reform Act that one of the key tenets of the proponents of the legislation would be the elimination of the general policy of federal preemption of state consumer protection laws. As indicated below, except with respect to the preservation of rate exportation, the proponents generally succeeded.

Preemption. Title X is not to be construed as annulling, modifying or affecting state laws, regulations, or interpretations, except as they may be inconsistent with Title X, and then only to that extent. State laws, regulations, and interpretations that are deemed to provide greater protection to consumers than Title X will not be deemed to be inconsistent. All covered persons are also subject to applicable state law, including state regulations and interpretations, except to the extent that such laws, regulations, or interpretations are inconsistent with Title X, and then only to that extent. (Title X carves out a specific exception for the provisions of the Alternative Mortgage Transactions Parity Act of 1982. That law, as amended by Title X, establishes a specific state law preemption rule for alternative mortgages.) Financial institutions that are subject to the provisions of Title X and that have national consumer businesses (or at least individual customers residing in more than one state) will need to undertake significant reviews of state laws and regulations to determine if any of their processes or disclosures must change. One or more state mandates likely have been disregarded by such financial institutions in the belief that such mandates were preempted due to the institution being either a national bank or federal savings association.

Right of states to petition for new/revised regulations. Upon a resolution of a majority of states, the CFPB must consider the states' petition to promulgate new consumer protection rules or amend existing rules. This provision is similar to the process for ratification of an amendment of the U.S. Constitution, except that a simple majority (i.e., 26 states) is necessary to initiate the process.

• Notice of proposed rulemaking. Upon receipt of the petition, the CFPB must issue a notice of proposed rulemaking ("NPR") in the Federal Register. The NPR must include a discussion of: (i) whether the proposed regulation would offer greater protection to consumers than currently exists; (ii) whether the intended benefits outweigh increased costs or inconvenience; (iii) whether the regulation would discriminate unfairly against any category or class of consumers; and (iii) whether a federal banking agency has advised that the proposed regulation is likely to present an unacceptable risk to an insured depository institution.
• Rejection. If the CFPB determines not to issue a regulation or amendment pursuant to the states' petition, it must publish an explanation in the Federal Register and provide a copy of its explanation to the House Financial Services Committee, the Senate Banking, Housing and Urban Affairs Committee, and each state that enacted the resolution.

State enforcement powers.

• Attorneys general and state regulators. Generally, a state attorney general (or equivalent state officer) ("AG") may bring an action in federal or state court that has jurisdiction over the defendant to enforce provisions of Title X or regulations issued pursuant to it. (State regulators, however, may only bring an action or other proceeding against an entity that is state chartered, licensed or authorized to do business in the state, to enforce provisions of Title X or regulations issued thereunder.) AGs may not bring an action against a national bank or federal savings association to enforce any provision of Title X, except for an action to enforce any regulation promulgated by the CFPB pursuant to Title X or to enforce appropriate remedies or as may otherwise be permitted by any other law.
• Notice required prior to initiating suit. Before initiating a suit or administrative/regulatory proceeding, an AG or state regulator must provide a copy of the complaint to be filed and written notice describing the action or proceeding to the CFPB and the applicable prudential regulator, if any. If prior notice is impractical, the AG or state regulator must provide a copy of the complaint, immediately upon instituting the action.
• CFPB responses. The CFPB has the following options if an AG or state regulator commences an action: (i) intervene in the action as a party; (ii) remove the action to a U.S. District Court if the action was brought elsewhere; (iii) be heard on all matters arising from the action; and (iv) appeal any order or judgment.
• Promulgation of regulations. Title X provides that the CFPB "shall prescribe regulations to implement the requirements of this section . . . and, from time to time, provide guidance in order to further coordinate actions with the state attorneys general and other regulators." While there is no guarantee, it would appear that the AGs and state regulators will need to await the issuance of new rules with respect to the notification process prior to initiating any suits as contemplated by Title X.

It will be interesting to follow the actions of the AGs and state regulators in light of these provisions. In the last decade, we have seen a number of high profile actions brought by AGs (particularly those with higher political aspirations) against financial institutions. We assume that Title X will provide additional impetus to continue such activity, notwithstanding the sometimes dubious nature of AGs' claims. We are aware of instances where claims regarding violations of Federal consumer financial laws were legally incorrect and made solely as a result of lack of expertise within the AG offices. Such claims, even those that clearly lack merit, are highly problematic for financial institutions due to the negative publicity they bring and can be exacerbated when individual AGs bring such actions in courts within their jurisdictions, thereby causing significant expense to the institution attempting to defend itself.

Preservation of state claims. The rights of states to bring actions or regulatory proceedings arising solely under state law are not affected by the provisions of Title X (e.g., an AG action for an alleged violation of a state law preventing unfair, deceptive, or abusive acts or practices). In addition, Title X specifies that it does not alter the rights of state securities or insurance regulators to take such actions or promulgate such rules as are permissible under state law.

Preservation of existing contracts. With respect to national banks, federal savings associations and their subsidiaries, neither Title X nor any regulations to be issued thereunder "shall be construed to alter or affect the application of any regulation, guidance or interpretation established by the Comptroller of the Currency or the Director of the Office of Thrift Supervision regarding the applicability of state law under federal banking law to any contract executed on or before the date of enactment of Title X."

Visitorial standards. Title X codifies the holding in Cuomo v. Clearing House Assn., L.L.C. (129 S. Ct. 2710 (2009)). Specifically, Title X provides that none of its provisions that relate to visitorial powers are to be construed to limit or restrict the authority of an AG or other chief law enforcement officer of a state from bringing an action and seeking relief against a national bank to enforce any applicable law as authorized by such law. (There is a parallel provision for federal savings associations and their subsidiaries.) In addition (and in an apparent acknowledgment of the preferences of the class action bar), Title X specifies that, notwithstanding the ability of the OCC to bring an enforcement action (whether under Title X or the FTC Act), private parties will not be precluded from enforcing rights granted under federal or state law.

State law preemption standards. Title X amends the National Bank Act by defining a “State consumer financial law” to mean "a State law that does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction (as may be authorized for national banks to engage in), or any account related thereto, with respect to a consumer."

Generally, the Comptroller of the Currency ("Comptroller") or a court may preempt a State consumer financial law only if:

• Discriminatory effect. Its application would have a discriminatory effect on national banks in comparison with the effects on a bank chartered in that state;
• Interference with powers. The state law prevents or significantly interferes with the exercise by the national bank of its powers (this is the preemption standard set forth in the U.S. Supreme Court decision Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996)); or
• Other preemption. The law is preempted by a provision of another federal law.

Title X specifies that it does not occupy the field in any area of state law, thereby denying future litigants the argument that a state law is presumptively preempted due to the nature of the activity being controlled. A determination of a field preemption means that the Comptroller need not prove the law’s discriminatory effect or that the law prevents or significantly interferes with the operation of a national bank.

Process for making and reviewing administrative determinations.

• Case-by-case determination. Any preemption determination that is made under the Barnett standard may be made by a court or by regulation or order of the Comptroller on a "case-by-case basis." Title X defines this to mean “a determination . . . concerning the impact of a particular State consumer financial law on any national bank that is subject to that law, or the law of any other state with substantively equivalent terms." Before making a determination on a case-by-case basis that a state law is substantively equivalent to another state’s law that is being preempted, the Comptroller must consult with the CFPB. While the opinion of the CFPB must be taken into consideration, the Comptroller's determination is independent of such opinion.
• Substantial evidence requirement for preemption. No OCC regulation or order is to be interpreted as preempting any state consumer financial law unless there is substantial evidence that supports the finding in accordance with the Barnett standard (i.e., the state law prevents or significantly interferes with the exercise by the national bank of its powers).
• Comptroller determination. Reflecting a Congressional concern that preemption decisions could be made by OCC staff and not the Comptroller, Title X specifies that any preemption determination must be made by the Comptroller. The authority may not be delegated. Notwithstanding that Title X sets forth both the standards the Comptroller is to use to make preemption determinations, and that courts are to use in reviewing them (which are not identical), Title X specifies "nothing in this section shall affect the deference that a court may afford to the Comptroller in making determinations regarding the meaning or interpretation of the National Bank Act or other federal laws." Only time will tell how courts determine the interplay of these provisions.
• Publication of OCC preemption determinations. On at least a quarterly basis the Comptroller is to publish a list of preemption determinations then in effect that identifies (i) the activities and practices covered by each determination, and (ii) the requirements and constraints determined to be preempted.
• Administrative review. Title X requires the Comptroller to re-review preemption determinations regarding state consumer financial laws at least once every five years. All such reviews will be performed with notice and comment. After the review, including inspection of the public comments, the OCC is to publish a Federal Register notice stating whether it will (i) continue or rescind the preemption determination, or (ii) publish a notice in the Federal Register of a proposal to amend its prior determination. The Comptroller must also report to both the House Financial Services Committee and the Senate Committee on Banking, Housing and Urban Affairs regarding the Comptroller's intention to maintain, rescind, or amend any prior preemption determination.
• Court review. Title X sets forth the standards courts are to use in reviewing preemption determinations by the Comptroller: (i) the thoroughness evident in the consideration, (ii) the validity of the reasoning, (iii) the consistency with other valid determinations of the Comptroller, and (iv) other factors which the court finds persuasive.

Subsidiaries or affiliates of national banks. Title X amends the National Bank Act and overrides the U.S. Supreme Court decision in Watters v. Wachovia Bank, 550 U.S. 1 (2007) by specifying that Title X and section 24 the Federal Reserve Act "do not preempt, annul, or affect the applicability of any state law to any subsidiary or affiliate of a national bank (other than a subsidiary or affiliate that is chartered as a national bank)." In Watters, the question was whether the OCC's regulation, 12 C.F.R. 7.4006, effectively extends federal authority to operating subsidiaries of national banks to the exclusion of state authorities, notwithstanding that the subsidiaries were created under state law. The Court's decision provided operating subsidiaries of national banks with the same preemption protections as their national bank parents.

Exportation of interest rates. As a compromise reached during the legislative process, and in direct contrast to the position taken with respect to subsidiaries and affiliates, Title X permits national banks to continue to export their home state interest rates across state lines. Title X provides that no provision is to be construed as altering or affecting the charging of interest pursuant to 12 USC 85, including the meaning of "interest" under the National Bank Act. In this case, the lobbying effort of the industry succeeded, having claimed that the burden of conducting a national lending business while needing to determine usury rates under state laws and applicable state regulations would be too great. 

Preemption standards for federal savings associations and subsidiaries. In general, the standards for preemption of state laws as they relate to federal savings associations and their subsidiaries has been made identical to the requirements applicable to the OCC and national banks. In the same manner that Title X specifies that it does not occupy the field as it related to the OCC and national banks, Title X disclaims field preemption with respect to federal savings associations, thereby making any preemption determination more difficult to sustain (and requiring use of the preemption standards as previously referenced herein).

V. Conclusion

The powers of the CFPB are broad and, except for oversight by the Council and possible court challenges, largely unchecked. Creditors can expect an uncertain regulatory landscape as the CFPB promulgates new regulations and likely revisits longstanding interpretations of existing regulations. Creditors are encouraged to continue to make their preferences known to Congress and federal agencies in advance of the Designated Transfer Date, in particular because we expect at least one and possibly more amendments to Title X, in the form of "technical corrections," to be enacted prior to that time.

The Wall Street Reform Act can be found here (Title X begins on page 580).

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