Hawaii Bar Journal
April 2011 #1.
Financial Reform for Consumers:
Hawaii State Bar JournalApril 2011Financial Reform for Consumers:By Christine Daleiden As described by its creator, Elizabeth Warren, the new Bureau of Consumer Financial Protection (the "Bureau"), which came into life on July 21,2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act" or "Act"),(fn1) was constructed with simple goals in mind: "[P]eople ought to be able to read their credit card and mortgage contracts and know the deal .... The time for hiding tricks and traps in the fine print is over"(fn2)
The Dodd-Frank Act was passed to provide "responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them."(fn3) The Act is ambitious is attempting to meet this goal: it is a colossal piece of legislation containing over 2,300 pages and including 16 separate titles.
In attempting to address countless problems in the country's financial system, many of which are believed to have collectively led to the financial crisis, the Dodd-Frank Act is one of the most sweeping pieces of legislation of recent times. From a regulatory perspective, the passage of the legislation is a start towards reform, but just the beginning.
The legislation is complicated and often broadly worded, so affected agencies are rapidly attempting to implement the legislation by drafting I regulations. It is estimated that the Act requires 243 rules to be adopted and 67 studies to be conducted.(fn4)
The Act will become effective in stages, but the "transfer date" designated by the Secretary of the Treasury is July 21,2011.(fn5) This is the date that the consumer protection functions, currently performed by federal banking agencies, will be transferred to the new federal Bureau. On that date, the Bureau will have the authority to prohibit unfair and abusive acts in the financial industry, and will take over the consumer protection functions of the federal banking regulators, the U.S. Department of Housing and Urban Development ("HUD"), and other agencies. On that date, the Bureau will also "assume responsibility for consumer compliance supervision of very large depository institutions and their affiliates."(fn6) Furthermore, several legislative amendments, which will provide additional consumer protection provisions to existing law, are to become effective on that date.
Structure of the Bureau
The new federal regulatory structure for consumer protection was created in Title X of the Act. This Title includes the creation of the Bureau, which will be an independent age n cy within the Federal Reserve Board. Although housed within the Federal Reserve, the Bureau was intended to be almost completely independent of it. As set forth in Title X, the Federal Reserve is prohibited from intervening in any matter before the Director of the Bureau, cannot exercise any removal or appointment powers over Bureau employees, and cannot merge or consolidate any of its divisions or offices with those of the Bureau.(fn7) The only relationship the Bureau will have with the Federal Reserve is for purposes of funding. Funding of the Bureau is statutorily mandated through the Federal Reserve, but will be based on amounts requested by the Director of the Bureau.(fn8)
The Director(fn9) of the Bureau will be appointed and confirmed by the Senate.(fn10) The Director will oversee a multitude of "units" and "offices" within the Bureau. The units are established according to their respective functions. Separate units will be created for: (1) research, which will analyze trends in consumer financial products; (2) community affairs, which will educate consumers about financial products and allow for broad access to information about financial products; and (3) collecting and tracking consumer complaints, which will be done through a website and toll-free phone number.
Separate offices are also mandated, including an Office of Financial Education, which will develop programs to improve the financial literacy of consumers and improve their awareness of financial products, and an Office for the Financial Protection for Older Americans. In addition, the Act creates an Office of Fair Lending and Equal Opportunity, which will provide oversight and enforcement of federal laws relating to credit. A Service Members Affairs office is also created, which will educate members of the armed services and help them make more informed decisions regarding consumer financial products and services.
In addition to units and offices, the Act establishes two advisory bodies: The Financial Stability Oversight Council, which is given the powers to identify and respond to threats relating to stability in banking,(fn11) and The Consumer Advisory Board, which will consist of a panel of experts who will consult with the Bureau and advise it of emerging national and regional trends relating to consumer financial products and services.(fn12)
Objectives and Functions of the Bureau
The objectives of the Bureau are to ensure that consumers are "provided with timely and understandable information to make responsible decisions about financial transactions" and are " protected from unfair, deceptive, o r abusive acts and practices and from discrimination." The Bureau is responsible for ensuring that: (1) outdated, unnecessary, or unduly burdensome regulations are identified and addressed in order to reduce unwarranted regulatory burdens; (2) federal consumer financial law is enforced consistently; and (3) there is transparency in markets for consumer financial products and services.(fn13)
Consumer financial products, for which the Bureau has jurisdiction, include, with certain limitations:
* extending credit ...