Thursday, May 20, 2010

Big Brother is Watching III

Yesterday the Senate voted not to end debate on SB 3217, which means that interested Americans still have time to call and email their candidates and weigh in on the Financial Reform Bill. We are going to devote today and tomorrow to the specific details of a key provision of this bill: the creation of the Bureau of Consumer Financial Protection. I believe that this will come to be one of the most important, and intrusive, agencies established in the history of the United States. Since SB 3217 gives this agency almost unchecked power over the lending industry and the American Consumer, I think it is wise to look at who they will be and what they will do.

First of all, what exactly is the bureau? Under the provisions of the bill, the Bureau of Consumer Financial Protection will be established within the Federal Reserve System, and it shall "regulate the offering and provision of consumer financial products or services under Federal Consumer financial laws." The Bureau will have a director who will be appointed by the President of the United States and confirmed by the Senate who will serve a five year term. There will also be a Deputy Director appointed by the Director.

Although the Bureau is established within the Federal Reserve, the bill states that "no rule or order of the Bureau shall be subject to approval or review by the Board of Governors [of the Federal Reserve]. The Board of Governors may not delay or prevent the issuance of any rule or order of of the Bureau." Further, the Agency does not answer to any other agency or official in the government as stated on page 1211 (4): No officer or agency of the United States shall have any authority to require the Director or any other officer of the Bureau to submit legislative recommendations, or testimony, or comments on legislation, to any officer or agency of the United States for approval, comments, or review prior to the submission of such recommendations, testimony or comments to Congress," as long as the Director includes a statement that his views and recommendations are his own and not those of the President or the Board of Governors of the Federal Reserve.

The bureau is to be established no earlier than 180 days and no later than 18 months after the bill is enacted into law. If for any reason, all of the provisions cannot be enacted within this time frame, the Secretary of the Treasury may designate a later date with Congressional permission if he explains in writing why the original date is not feasible, why the extension is necessary, and what steps he is taking to make sure that implementation of this act will happen during the extension period.

The new Bureau of Consumer Financial Protection will then take on all of the consumer financial protection functions of the following agencies:
the Board of Governors of the Federal Reserve, the Comptroller of the Currency, and the Office of Thrift Supervision (as an aside, SB 3217 in section 341 halts the office of Thrift Supervision and the Office of the Comptroller of the Currency from issuing any new Federal Savings Association Charters effective the date of the enactment of this bill.) The Bureau also assumes all of the consumer financial protection powers and duties of the FDIC, the Federal Trade Commission, (although the FTC is still allowed to regulate a few select industries), the National Credit Union Administration, and the Department of Housing and Urban Development (HUD). Specifically, the bill takes oversight for enforcing the Real Estate Settlement Procedures Act (RESPA) and the Secure and Fair Enforcement Act (the national licensure for loan originators known by the acronym SAFE) and turns oversight and enforcement of these two Acts over to the new Bureau.

The statute also creates The Office of Fair Lending and Equal Opportunity, which will have whatever powers and duties are assigned to them by the Director of the Bureau. The Office will oversee and enforce Federal laws to ensure, fair, equitable and non discriminatory access to credit, coordinate fair lending and fair housing efforts with the Bureau and other agencies.

The bill gives the Director the Bureau of Consumer Financial Protection a seat as Vice Chairman of the Financial Literacy and Education Commission.

As part of this bill, a separate fund will be established in the Federal Reserve Board, called the "Consumer Financial Protection Fund". All amounts transferred to the Bureau will be deposited into this fund. Any funds that are not deemed necessary for operation of the Bureau can invested by the Board of Governors of the Federal Reserve. The statute creates a separate civil penalty fund for deposits gleaned from Civil Penalties (as as we will see tomorrow, they plan on having plenty of money to invest).

Whom can they regulate? Any organization in the credit business. The current amendments specifically exclude businesses such as dentists, jewelers and the businesses that extend credit as part of selling a good or service that is not credit related. For example, furniture stores would not be covered as the bill is currently written because they offer credit only to enable them to sell the sofa sectional. The bill excludes real estate agents and brokers, manufactured and modular home retailers, and persons covered by state insurance regulators. It also gives the Director of the Bureau power to exempt any class of persons, or service providers, or consumer financial products or services, from any provision of the bill or any rule issued under the bill as the Bureau sees fit.

In addition to all banking entities and credit unions and the few savings institutions that remain, all non depository lending institutions are covered. This includes, anyone who "offers or provides origination, brokerage, or servicing of loans secured by real estate for personal, family or household purposes, or loan modification or foreclosure relief services...or is a larger participant of a market for other consumer financial products or services."

Within 1 year of the enactment of this statute, the Director is to present a list of "covered persons" whom the Bureau will regulate. The Bureau also the power to regulate service providers to any covered persons.

What do they do? The statute gives the Bureau exclusive rule making authority and exclusive enforcement authority over the entities they regulate. Tomorrow, we will look at that in detail.

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