InfoBytes, Regulatory Restructuring Report, Issue Ten October 27, 2009
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House Financial Services Committee Approves CFPA Legislation
After a multi-day mark-up, which included 24 approved amendments, the House Financial Services Committee (the “Committee”) reported out of Committee H.R. 3126, the Consumer Financial Protection Agency (“CFPA”) Act, by a vote of 39-29. While a significant portion of the original bill was left in tact, the Committee made some notable changes during the mark-up.
The main vehicle for debate was the “Discussion Draft” circulated by Chairman Barney Frank (D-MA) on September 25 (please see BuckleySandler Regulatory Restructuring Report, Issue Nine, Oct. 6, 2009 for a summary of the changes made by the Discussion Draft to the bill as introduced in July). Although many of the amendments to the Discussion Draft that were adopted by the Committee were minor, some significant changes were made relating to the jurisdiction of the CFPA generally, the scope of federal preemption for banks and their subsidiaries, and the regulation and supervision of banks with assets under $10 billion.
First and foremost, the Committee adopted Chairman Frank’s manager’s amendment, which primarily revised the scope of the persons, services and products covered by the Act. In particular, the manager’s amendment clarifies the application of the Act to a number of different persons, including persons providing tax planning services (as a function of a “financial adviser”), municipal securities dealers registered with the Securities and Exchange Commission (“SEC”), SEC-registered self-regulatory organizations, national securities exchanges registered under the Securities Exchange Act of 1934, and the Municipal Securities Rulemaking Board (as entities “regulated by the SEC”), and, most notably, “service providers.” This term covers any person who provides a “material service” to a covered person when providing a consumer financial product or service. Essentially, the term “service provider” covers entities that have “direct interaction” with a consumer, that facilitate the design or operations relating to the provision of such product or service, or that processes transactions relating to that product or service. However, the term does not apply to service providers that provide only ministerial support services or that do not materially affect the financial product or service. Also, under the manager’s amendment, the term “financial activity” includes acting as an investment adviser regulated by not only the Commodity Futures Trading Commission and SEC, but also state securities regulators. Also, the sale or issuance of stored value remains a “financial activity,” but, in the case of sale, only if the seller influences the terms or conditions of the stored value provided to the consumer.
The manager’s amendment also includes new language aimed at increasing coordination between regulators, including that the Federal Trade Commission must give the CFPA Director 30 days written notice before initiating an enforcement action based on a law where there is overlapping authority, and requires federal banking agencies to share data relating to consumer complaints with the CFPA. Finally, the manager’s amendment also creates a ne