Frank Memo on Financial Consumer Protection Agency Identifies Exemptions

September 23, 2009

The following are excerpts from Rep. Barney Frank’s memo to Democratic lawmakers on the possible changes to the proposed Consumer Financial Protection Agency.

Nonfinancial Businesses Exempt – Merchants, retailers and other nonfinancial businesses will be excluded from the regulation and oversight of CFPA. That means that merchants and retailers can continue to give their customers tabs and layaway plans without becoming subject to a new layer of regulation. Also, doctors and other businesses that bill their customers after a service is provided, including telephone, cable, and internet providers, will be excluded.

Credit and other financial activities of nonfinancial business will continue to be subject to the Truth in Lending Act and other consumer statutes as they are today.

The Federal Trade Commission will continue its longstanding role of providing oversight for these activities.

Other Exemptions – In addition to providing clear exclusions for securities, commodities, investment and general insurance products (other than financial planners), the following businesses will not be subject to CFPA regulation for acting in their traditional capacities:

  • Accountants and other businesses that perform tax preparation services;
  • Real estate brokers and agents;
  • Lawyers;
  • Auto dealers;
  • Telecom, cable and other communications providers;
  • Consumer reporting agencies;
  • Providers of IRAs, 401(k) plans, 529 plans and pension plans; and
  • Service providers that provide strictly ministerial and support services to financial institutions.

No “Plain Vanilla” Requirement – Financial institutions will not be required to offer plain vanilla products and services and CFPA will not have authority to approve or change business plans.

No “Reasonableness” Standard – CFPA will not be able to mandate “reasonableness” standards that would place financial institutions in the untenable position of having to assess whether consumers comprehend the products and services they are being offered. Instead, CFPA will be mandated to improve the current disclosure regime with an emphasis on clarity, simplicity, conciseness, and reduction of regulatory burden.

Simultaneous and Coordinated Exams – Depository institutions will have simultaneous federal safety and soundness and consumer compliance examinations (unless they request exams at different times). Whatever they choose, the banking agencies and CFPA will have to coordinate and consult one another on the timing, scope and results of exams to ensure a minimum regulatory burden.

Dispute Mechanism – Depository institutions that receive contradictory or conflicting supervisory determinations or directives from CFPA and their prudential supervisors will be able to appeal the decisions to a disinterested governing panel and receive a quick and definitive answer.

Registration and Supervision of Nonbanks – All nonbank financial institutions that provide consumer financial products and services will be required to register with CFPA; and nonbanks will be subject to a level of supervision and scrutiny that is no less burdensome or comprehensive than that governing traditional banks and thrifts and that will fully reflect the risks posed by these previously unregulated entities.

Assessments on Nonbanks – Nonbanks will be subject to assessments and the legislation will make explicit that neither small nor large banks will pay for the examination and supervision of nonbanks.

Federal Reserve Payments – To ensure adequate funding of CFPA without placing additional burden on financial institutions, the Federal Reserve will fund CFPA at a level that reflects amounts the banking agencies currently pay for consumer compliance.

Agency Structure – CFPA will be run by a single Director, who will be advised by a Consumer Financial Protection Oversight Board, which is made up of the Federal banking agencies, NCUA (National Credit Union Administration), FTC (Federal Trade Commission) and HUD (Housing and Urban Development) and the Chairman of the State Liaison Committee of the FFIEC (Federal Financial Institutions Examination Council). In addition, CFPA will have an Office of Fair Lending and Equal Opportunity to ensure that the agency has adequate resources to address fair lending and civil rights laws under its jurisdiction. We also will clarify that financial literacy will be an important part of the new agency’s mission.

(Reporting by Rachelle Younglai)

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