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					Wall Street Reform and Consumer
Protection Act
Title X: Consumer Financial
Protection Act of 2010

                      Daniel Morton
      Sr. Vice President & Associate General Counsel
                 Huntington National Bank

                      Forrest Stanley
       Sr. Vice President & Deputy General Counsel
                         Key Bank

                       Jeff Quayle
          Sr. Vice President & General Counsel
                  Ohio Bankers League
The Disclosures
 Prepared by Daniel W. Morton, Sr. Vice
 President & Associate General Counsel, The
 Huntington National Bank, Forrest F. Stanley,
 Sr. Vice President & Deputy General Counsel
 for Key Bank and Jeff D. Quayle, Sr. Vice
 President & General Counsel for the Ohio
 Bankers League.
 This document is not intended as legal advice,
 and readers should consult their own counsel
 for, legal advice with respect to the matters
 contained therein. This document reflects the
 views of the authors and not of The Huntington
 National Bank, Key Bank NA or the Ohio
 Bankers League.

CFPB - Purpose Of The New

Implement and enforce (where
applicable) Federal consumer
financial laws to ensure consumer
access to fair, transparent, and
competitive products and services.

CFPB - Objectives Of The New

•To ensure consumers are provided with
 timely and understandable information;
•To protect consumers from unfair,
 deceptive, or abusive acts and practices
 and from discrimination;
•To reduce regulatory burden through
 regular review of outdated, unnecessary or
unduly burdensome regulations.

CFPB - Objectives Of The New
    • To ensure Federal consumer
      financial laws are enforced
      consistently without regard to status
      as a depository institution, and
    • To ensure markets for consumer
      financial products and services are
      transparent and efficient.

CFPB - Rulemaking Authority

    • Prescribe rules, issue orders and
      guidance to carry out the purposes
      and objectives of Federal consumer
      financial laws and to prevent
      evasion of such laws.
    • Exclusive authority for rulemaking
      under "enumerated consumer laws."

CFPB - Enumerated
Consumer Laws

 • Alternative Mortgage Transaction
   Parity Act
 • Consumer Leasing Act
 • Electronic Fund Transfer Act
 • Equal Credit Opportunity Act
 • Fair Credit Billing Act
 • Home Owners Protection Act
 • Fair Debt Collection Practices Act
CFPB - Enumerated
Consumer Laws
• Sections of FDIC Act
• Privacy Sections of the Gramm-Leach-
  Bliley Act
• Home Mortgage Disclosure Act
• Home Ownership and Equity Protection
• Real Estate Settlement Procedures Act
• S.A.F.E. Mortgage Licensing Act
• Truth in Lending Act
• Truth in Savings Act

CFPB- Rulemaking Authority

• Prescribe rules identifying as
  unlawful unfair, deceptive or abusive
  acts or practices in connection with
  a consumer financial product or
  service (in consultation with Federal
  banking agencies).
• Prescribe rules to ensure full and
  accurate disclosures (including
  model forms).

CFPB- Rulemaking Authority

• Propose model mortgage loan
  disclosure combining TILA and
  RESPA disclosures (within one year
  of designated transfer date).
• Restrict or impose conditions on use
  of mandatory pre-dispute arbitration
  provisions (after conducting a

CFPB- Rulemaking Authority

Prescribe rules regarding
consumer access to information
from financial institution
concerning the consumer's
financial product or service.


Bureau has no authority to set
federal usury cap.

Entities Regulated by the CFPB

• The CFPB will have the primary
  responsibility for rulemaking under the
  consumer financial regulations
  (Regulation Z, Regulation E, etc.) that
• The CFPB supervision/examination and
  enforcement authority for consumer
  financial matters.

Supervision/Examination and
Enforcement Authority

  Primary authority for all banks,
  thrifts and credit unions with
  assets of more than $10 billion
  and any affiliate thereof.

Supervision/Examination and
Enforcement Authority
 Primary authority for various non-
   depository financial companies:
• Companies originating, brokering or
   servicing consumer loans secured by real
• ―Larger‖ participants in markets for other
   consumer financial products or services
• Companies the CFPB has reasonable
   cause to believe are engaging in conduct
   that imposes risks to consumers in
   connection with the offering or provision of
   consumer financial products or services
• Private education lenders
• Payday lenders
Entities Regulated by the

Tag-along authority to join exams by the
prudential regulator, but enforcement is
retained by prudential regulator for
banks, thrifts and credit unions with
assets of $10 billion or less

• Merchants/retailers
• Real estate brokers
• Manufactured/modular home retailers
• Accountants and tax preparers
• Attorneys
• Companies regulated by state
   insurance regulators (insurance
• Companies regulated by the SEC or
   state securities regulators
• Auto dealers
CFPB Authorities Beyond Rulemaking
Prohibiting unfair, deceptive or abusive acts
or practices:

    The CFPB is authorized to take any of the
    types of enforcement action authorized for
    the CFPB to prevent a ―covered person‖ or
    service provider‖ from committing or
    engaging in an ―unfair, deceptive, or abusive
    act or practice‖ under federal law in
    connection with any transaction with a
    ―consumer‖ for a ―consumer financial product
    or service‖ or the offering of a ―consumer
    financial product or service.‖
The Term ―Abusive‖ is a New
Legal Concept
• The Act defines ―abusive‖ act or practice as one that:
• materially interferes with the ability of a consumer to
     understand a term or condition of a consumer
     financial product or service, or
• takes unreasonable advantage of
(i) a lack of understanding by the consumer of the
     material risks, costs or conditions of the product or
(ii) the inability of the consumer to protect his/her
     interests in choosing a consumer financial product or
     service, or
(iii) the reasonable reliance by the consumer on a
     covered person to act in the interests of the
The Term ―Abusive‖ is a New
Legal Concept
This might mean that a product or
    service is ―abusive‖ if:
• it is not simple enough for all
    consumers to readily understand;
• it involves a contract of adhesion;
• it is not offered in the best interest of
    the consumer;
• the CFPB doesn’t like it.

The Scope of the UDAAP Authority
is Very Broad

       • The catch-all category at the end of
         the list of products/services in the
         definition of ―financial product or
         service‖ is open-ended.
       • The CFPB’s UDAAP authority is
         with respect to any ―covered person"
         and any ―service provider.‖

More CFPB Rulemaking Authority
     CFPB has the authority to issue rules
       applicable to covered persons and
       service providers identifying as
       unlawful acts or practices that are
       unfair, deceptive or abusive in
       connection with any transaction
       with a consumer for a consumer
       financial product or service

General CFPB powers against the entities
over which is has supervision and
enforcement or UDAAP powers

    Makes it unlawful:
    • If any covered person or service
        provider offers/provides to a
        consumer any financial product or
        service that violates or is not in
        conformity with any ―Federal
        consumer financial law.‖
    • If any covered person or service
        provider engages in any unfair,
        deceptive or abusive act or practice.
General CFPB Enforcement Powers

   Makes it unlawful:
   If any covered person or service
       provider does not, as required by
       ―Federal consumer financial law‖
   • (i) permit access to or copying of
   • (ii) establish or maintain records
   • (iii) make reports or provide
       information to the CFPB

General CFPB Enforcement Powers

              Makes it unlawful:
                If any person knowingly or
                recklessly provides substantial
                assistance to a covered person or
                service provider in their violation of
                the above requirements, and such
                person is deemed to be in violation
                to the same extent as the person to
                whom assistance is provided

Substantial Assistance + Service
Provider = Problem

     The ―substantial assistance‖ provision
       in connection with the ―service
       provider‖ definition makes the reach
       of this prohibition very extensive

•   an investment banker and/or credit rating agency
    in connection with a securitization by a bank that
    is making ―abusive‖ mortgage loans
•   if the investment banker qualified as a ―service
    provider‖, then this would appear to cover
    anyone providing ―substantial assistance‖ to the
    investment banker, such as outside counsel,
    accounting firms, valuation companies
•   a creditor of the bank that is providing funding
    the bank is using to make ―abusive‖ loans
•   if the creditor is a ―service provider‖, then also
    anyone providing ―substantial assistance‖ to the
•   a consulting firm hired to design an ―unfair‖ or
    ―abusive‖ overdraft product
•   if such consulting firm is a ―service provider‖,
    then also anyone providing ―substantial
    assistance‖ to the consulting firm
Other Enforcement Powers of

  (1) Investigations and administrative
      discovery (§1052)
  (2) Hearings and adjudication
      proceedings (§1053)
  (3) Litigation authority (§1054)
  (4) Referrals to the U.S. Attorney
      General for criminal violations

Relief (remedies) available to the
CFPB in enforcement actions (§1055)
Rescission or reformation of contracts
• refunds
• return of real estate
• restitution
• disgorgement or compensation for unjust
• damages or other monetary relief
• public notification of the violation and the
    costs of notification
• limits on activities or functions of the violator
civil money penalties (1st tier=$5,000/day; 2nd
    tier=$25,000/day; 3rd tier=$1 million/day),
    subject to consideration of listed mitigating
• costs of the action                             29
Whistleblower Protection

Important Definitions
Federal consumer financial law‖
• Title X of the Act
• the ―enumerated consumer laws‖
• other laws for which authority is
   transferred to the CFPB under the
   transfer provisions of Title X
   (Subtitles F & H)
• any rule or regulation issued by the
   CFPB under any of the foregoing

Important Definitions
Consumer - an individual or an agent, trustee,
  or representative acting on behalf of an

consumer financial product or service - a
  financial product or service:
• for use by consumers primarily for personal,
  family, or household purposes, or
• lending, real estate settlement services,
  collecting/providing consumer reports
  information or debt collection in connection
  with a financial product or service used by
  consumers primarily for person, family, or
  household purposes.

  Important Definitions

―service provider‖—any person that provides a
   material service to a covered person in
   connection with the offering or provision by such
   covered person of a consumer financial product or
   service (generally includes any person who
   participates in ―designing, operating, or
   maintaining‖, or ―processes transactions relating
   to‖, the consumer financial product or service, but
   does not include a person solely because that
   person provides ―a support service of a type
   provided to businesses generally or a similar
   ministerial service‖ or time or space for an
   advertisement for a consumer financial product or
   service through print, newspaper, or electronic
Important Definitions
―financial product or service‖—
• loans
• deposits
• real estate settlement services
• payment and financial data processing
• financial advisory services not regulated by
    the SEC or a state
• securities regulator
• collecting/providing consumer report
• debt collection
Important Definitions
 Other financial product or service as
    may be defined by the CFPB may
    also be covered if the CFPB finds
    that such financial product or
(i) is conducted as a ―subterfuge‖ or
    ―with a purpose to evade‖ any
    ―Federal consumer financial law‖ or
(ii) permissible for a bank or a financial
    holding company under Federal law
    and has or will likely have ―a
    material impact on consumers.‖
Important Definitions

―covered person‖ - any person
  that engages in offering or
  providing a consumer financial
  product or service and any
  affiliate thereof if the affiliate
  acts as a service provider

  The idea that the nation benefits
    from an efficient national banking
    system with one seamless
    regulatory scheme has been
    trumped by the notion that
    consumers need additional

• New standards and procedural
  hurdles applicable to the OCC are
  incorporated in the new law

   – Make it more difficult to preempt state
   – limit the breadth of preemption
     determinations; and
   – will lower the protection OCC
     determinations receive if they are
     challenged in court


• The same rules will apply to
  both banks and thrifts as well
  as to the subsidiaries of both.

• Important Definition: What is a state
  consumer financial law?
   – If a state law is not a state consumer
     financial law, CFPA does not directly
     affect whether that law is preempted.
   – A state law 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.

• So what might not be
  – State UDAP laws, insofar as it
    generally proscribes unfair and
    deceptive practices, since it
    applies generally and not directly
    and specifically
  – State law created by judicial
  – State Licensing laws
  New Standard to Preempt the Application of State
  Laws to National Banks and
  Federal Thrifts
• A state consumer protection law will be preempted in any of
  the following circumstances:
        • A state law discriminates against a national bank or
          federal savings association;
        • A provision of state law is preempted by a provision
          of federal law not in the National Bank Act; or
        • In accordance with Barnett Bank v. Nelson, the State
          law "prevents or significantly interferes" with the
          exercise of a national bank or federal thrift of its
          powers. (Significantly interferes is not defined).

• The OCC must act on a "case
  by case" basis
     • This means the OCC determination
       must relate to a particular State law,
       although it can also relate to the
       laws of another State with
       substantively equivalent terms.
     • This may serve to limit the precedent
       value of preemption determinations
       from state to state

• New standard for judicial
  review of OCC preemption
• Under current law, the
  determination of federal
  agencies is given great
  deference. As a practical
  matter, Agency decisions are
  rarely overturned.
• Rather than giving the agency this
  standard deference usually afforded
  to federal agencies, the court will
  assess the validity of the preemption
  determination depending upon the
       • The thoroughness evident in
         the agency's consideration;
       • The reasoning of the agency;
       • The consistency of the
         decision with other
         determinations, and
       • Other factors the court may
         find persuasive.             45

• The court may not uphold a
  determination to preempt a
  State law unless it finds that
  the determination is supported
  by ―substantial evidence‖.

Strategic Planning Point
• This bill overturns existing case law
  that extends preemption protection
  to operating subsidiaries, affiliates or
  agents of the national bank.
       • If you have various affiliates
         under the bank (such as a
         mortgage company) do you
         want to roll that back up into
         your national bank charter?
       • If not, you will need to go to
         the expense to obtain local
         licenses & making disclosures
         required by local laws.
 Any Good News?
• Fortunately, the new preemption provisions
  do not impact the ability of national banks to
  establish interest rates based on one state’s
  law and export those limitations to any place
  it does business.

• The CFPA and the actions of the Bureau do
  not affect formal and informal guidance
  regarding the applicability of state law to any
  contract entered into prior to the effective
  date                                          48
Attorney General
• The Attorneys General gain
  enforcement authority over both
  federal and state charters:
      • A State Attorney General may bring an
        action in Federal District Court or State
        court to enforce the consumer protection
        regulations issued by the CFPB.
      • A State Attorney General may also bring
        an action to enforce any other applicable
        state or federal law against a national
        bank or federal savings association.

Interchange Fees
• The Electronic Funds Transfer Act is
  amended to authorize the Fed to
  issue regulations limiting the
  interchange transaction fee that an
  issuer may receive or charge for an
  electronic debit transaction to the
  amount that is ―reasonable and
  proportional to the cost incurred by
  the issuer with respect to the
Interchange Fees

• The Fed has only limited authority to
  issue rules on network fees to
  ensure that network fees are not
  used to subsidize issuers for debit
  transactions or to otherwise
  circumvent interchange fee

Interchange Fees
• The FRB is required to distinguish
  between the incremental cost incurred
  by an issuer specific to a particular
  electronic debit transaction and general
  costs incurred by the issuer which are
  not specific to a particular electronic
  debit transaction
• Costs not specific to a particular
  electronic debit transaction will not be
  considered in the assessment of
  whether a charge is reasonable and
       • The Fed may however adjust the
         fee charged for preventing fraud
         in relation to electronic debit   52
Interchange Fees
     • Any issuer that, together with its
       affiliates, has assets of less than $10
     • An interchange transaction fee charged
       with respect to a transaction in which a
       person uses a government-administered
       program payment card; or
     • An interchange transaction fee charged
       with respect to a debit card transaction in
       which a person uses a general purpose
       pre-paid card (other than those marketed
       as "gift cards").

Interchange Limitations

    • Merchants are given much
      more authority to discriminate
      between differing methods of
      payment and to encourage one
      form of payment over another.

  Interchange Limitations
• Payment networks may not
  – Inhibit merchants from providing a discount or in-
    kind incentive for payment by the use of cash,
    checks, debit cards, or credit cards;
  – Penalize any person for the providing of a discount
    that is in compliance with Federal law and
    applicable State law;
  – Inhibit the ability of any person to set a minimum
    dollar value for the acceptance of credit cards, so
    long as the minimum does not exceed $10; or
  – Inhibit the ability of any Federal agency or institution
    of higher education to set a maximum dollar value
    for the acceptance of credit cards.


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