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Title X - Bureau of Consumer Financial Protection
Title X of Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) creates a new executive agency, the “Bureau of Consumer Financial Protection” (Bureau) which “shall regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws” (Section 1011(a)). The Bureau generally has jurisdiction over “consumer financial products and services” such as loans and other financial products from credit card companies, mortgage companies, brokers, banks and others. Covered persons subject to the Bureau’s jurisdiction include any person that engages in offering or providing a consumer financial product or service and any affiliate of such person if that affiliate acts as a service provider to the covered person. There are important exclusions from the Bureau’s jurisdiction.
To see Sutherland's June 23, 2010 legal alert, please click here.
Bureau Powers and Authority
Title X of the Act provides, in part, that it shall be unlawful for any covered person to engage in any “unfair, deceptive, or abusive act or practice” (UDAP), or to provide any financial product or service not in conformity with Federal consumer financial law or otherwise to commit any act or omission in violation of Federal consumer financial law. The Bureau, through rulemaking, can define UDAPs 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. “Federal consumer financial law” is a defined term.
Importantly, the Bureau’s primary functions include conducting financial educational programs, collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets; supervising of covered persons for compliance with the Federal consumer financial laws, taking appropriate enforcement action to address violations of Federal consumer financial laws; issuing of rules, orders, and guidance under the Federal consumer financial laws, and preventing the evasions thereof. The Bureau can prescribe rules to ensure that the features of any consumer financial product or service are fully, accurately, and effectively disclosed to consumers, and can examine and compel information from covered persons. Further, after completion of a study, the Bureau may prohibit or impose conditions on the ability of covered persons to use mandatory pre-dispute arbitration with consumers for consumer financial products. The Bureau has exclusive supervisory power to require reports and conduct examinations of very large insured depository institutions or credit unions, including primary enforcement authority over these institutions, in connection with these laws. However, Title X of the Act provides certain limitations to the Bureau’s authority (beyond the exclusions discussed below); e.g., the Bureau is prohibited from establishing a usury limit applicable to an extension of credit offered or made by a covered person to a consumer, unless explicitly authorized by law.
Exclusions
Title X of the Act excludes numerous groups and activities from the Bureau’s authority. These exclusions include:
- Merchants, retailers, and other sellers of nonfinancial goods and services
- Real estate brokerage activities
- Manufactured home retailers and modular home retailers
- Accountants and tax preparers
- Lawyers
- Auto dealers
- Employee benefit and compensation plans and certain other arrangements under the internal revenue code of 1986 (the “code”)
- Persons regulated by a state securities commission
- Persons regulated by a state insurance regulator
- Persons regulated by the SEC
- Persons regulated by the CFTC
- Persons regulated by the farm credit administration
- Activities related to charitable contributions
Most exclusions preserve the authority of the primary regulator (e.g., no provision of Title X may be construed as altering, amending or affecting the authority of the SEC to adopt rules, initiate enforcement proceedings, or take any other action with respect to a person regulated by the SEC). Exclusions relating to merchants, retailers and other sellers of nonfinancial goods or services, employee benefit and compensation plans and certain other arrangements, insurance, and persons regulated by the SEC are discussed below.
Exclusion for Merchants, Retailers, and other Sellers of Nonfinancial Goods or Services. Title X of the Act provides that the Bureau may not exercise any rulemaking, supervisory, enforcement, or other authority with respect to a person who is a merchant, retailer, or seller of a nonfinancial good or service and is engaged in the sale or brokerage of such nonfinancial good or service unless such person is engaged in offering or providing any consumer financial product or service or is otherwise subject to any enumerated consumer law or any law transferred to the Bureau.
Exclusion for Employee Benefit and Compensation Plans and Certain Other Arrangements under the Code. Title X of the Act includes exclusions for employee benefit and compensation plans and certain other arrangements under the Code, including “529” qualified tuition programs. Those exclusions provide that no provision of Title X alters, amends, or affects the authority of the Secretary of the Treasury (Secretary), the Secretary of Labor, or the Commissioner of Internal Revenue to adopt regulations, initiate enforcement proceedings, or take any actions with respect to any specified plan or arrangement (specified plan or arrangement means any plan, account, or arrangement described in sections 220, 223, 401(a), 403(a), 403(b), 408, 408A, 529, or 530 of the Code, or any employee benefit or compensation plan or arrangement, or any prepaid tuition program offered by a State). The exclusions also provide that the Bureau may not exercise any rulemaking or enforcement authority with respect to products or services that relate to any specified plan or arrangement. However, Title X does give the Bureau the power to exercise rulemaking authority and the authority to enforce rule(s) concerning any specified plan or arrangement if so requested by the Secretary and the Secretary of Labor.
Exclusion for Business of Insurance. The Act defines “financial product or service” broadly to include many enumerated products or services, including such “other financial product[s] or service[s]” as the Bureau may define by regulation, but provides that the term “does not include the business of insurance.” The Act also provides separately that “the Bureau may not define as a financial product or service, by regulation or otherwise, engaging in the business of insurance.” The term “business of insurance” is defined broadly to mean “the writing of insurance” (or reinsuring of risks) “including all acts necessary to such writing” (or reinsuring), by persons who act as, or are, officers, agents, employees or other persons authorized to act on behalf of such persons.
Exclusion for Persons Regulated by a State Insurance Regulator. The Act states that Title X does not alter or amend any State insurance regulator’s rulemaking, enforcement, or other authority over persons regulated by a State insurance regulator, and includes an exclusion for such persons. The exclusion is limited to activities subject to such regulation, and provides that the Bureau shall have no authority to enforce Title X of the Act with respect to persons regulated by a state insurance regulator, except to the extent that such persons are engaged in the offering of any consumer financial product or service (or is otherwise subject to a Federal consumer financial law).
Exclusion for Persons Regulated by the SEC. Title X of the Act also includes an exclusion for persons regulated by the SEC, including broker-dealers, investment advisers, and investment companies, and employees, agents, and contractors thereof (to the extent that such person is acting in a regulated capacity). This exclusion provides that Title X does not alter or amend the SEC’s rulemaking, enforcement, or other authority over such persons. The exclusion also provides that the Bureau shall have no authority to enforce Title X with respect to such persons (unlike the exclusion noted above for persons subject to State insurance regulation, this provision does not contain an exception for offering consumer financial products or services). However, Title X of the Act does require the SEC to consult and coordinate, where feasible, with the Bureau on any rule (including advance notice of any rulemaking) regarding an investment product or service that is the same type of product as, or that competes directly with, a consumer financial product service subject to the jurisdiction of the Bureau.
Scope of Exclusions. The exclusions from the Bureau’s authority provided by Title X of the Act vary in scope. Numerous exclusions are quite broad, and provide that the Bureau may not exercise any rulemaking, supervisory, enforcement, or other authority with respect to the excluded person (see, e.g., merchants and retailers of nonfinancial goods or services). Other exclusions are more limited, and provide that the Bureau may not exercise any enforcement authority. Those exclusions do not appear to limit the Bureau’s other powers and authority such as the Bureau’s rulemaking authority (see, e.g., exclusion for persons regulated by the SEC). Certain exclusions are subject to individual qualifications, such as excluding the person from the Bureau’s authority but only to the extent that excluded person is performing the excluded activity for consumers.
Independence
The Bureau was established within the Federal Reserve System but as an independent Executive agency. No rule or order of the Bureau shall be subject to review by the Board of Governors of the Federal Reserve (the Board). The Bureau has dedicated funding, and is autonomous from the Board with respect to any matter or proceeding before the Bureau’s Director (including examination and enforcement actions), and the ability to appoint, direct, or remove any officer or employee of the Bureau. The Bureau will have an independent director who will be appointed by the President for a five-year term, who will be confirmed by the Senate, and who can only be removed by the President for cause.
Effective Date and “Start-up” Procedures
The Bureau was legally established upon the enactment date of the Act (July 21, 2010), but only certain functions and authority of the Bureau went into effect on that date. Most functions and authority of the Bureau will go into effect on the “designated transfer date” (see below). Until the Director is confirmed, the Secretary is authorized to perform the functions of the Director.
Within 60 days of the enactment date, the Secretary must, in consultation with certain regulators, establish a single date for the transfer of functions to the Bureau (the designated transfer date). The designated transfer date shall not be earlier than 180 days nor later than 12 months after the enactment date. This date can be extended to 18 months after the enactment date if the Secretary transmits to Congress a written determination that an extension is necessary.
Numerous consumer financial protection responsibilities and functions, as well as staff employees, will be transferred to the Bureau from other agencies, offices and departments (including the Federal Reserve System, the Federal Trade Commission, the Federal Deposit Insurance Corporation, HUD, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration). The consumer financial protection function will be transferred as of the designated transfer date, and the staff employees must be transferred no later than 90 days after the designated transfer date. Further, on the designated transfer date, certain Bureau authorities will become effective such as the ability to take any action to prevent a covered person from engaging in any UDAP, the ability to require that certain disclosures be made to consumers, the state preemption provisions, and the Bureau’s enforcement powers.
Functional Units, Bureau Offices, Consumer Advisory Board, and Private Education Loan Ombudsman
Title X of the Act provides guidance on the types of units and offices that must be established within the Bureau. Title X requires that the Bureau establish various functional units to manage research, community affairs, and the collection and tracking of complaints. In addition, Title X requires that the Bureau create certain offices including the Office of Fair Lending and Equal Opportunity, the Office of Financial Education, the Office of Service Member Affairs, and the Office of Financial Protection for Older Americans. The Bureau also must establish a Consumer Advisory Board to advise and consult with the Bureau on Federal consumer financial laws, and to provide information about emerging practices in the consumer financial products and services industry, including regional trends, concerns and other relevant information. Further, Title X of the Act requires the Secretary, in consultation with the Director of the Bureau, to designate a Private Education Loan Ombudsman within the Bureau to provide timely assistance to borrowers of private education loans. The Bureau also must appoint an ombudsman to act as a liaison between the Bureau and any affected person with respect to any problem that such party may have in dealing with the Bureau, resulting from the regulatory activities of the Bureau. The ombudsman must assure that safeguards exist to encourage complainants to come forward and preserve confidentiality.
If you have questions regarding anything you have read on Title X, please contact any of the attorneys listed below or your regular Sutherland contact.
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