Consumer protection agency moves ahead

A key House committee on Thursday approved the most high-profile part of the White House plan to prevent future financial collapse: The creation of a new agency to regulate consumer financial products.

ISSUES OF CONCERN

Below is a short list of people and businesses that are not traditional financial institutions but would likely be subject to regulation and oversight by the proposed CFPA:

1. Churches and faith-based organizations (who perform credit counseling)
2. Funeral providers (who extend credit)
3. Executors of Estates and other wealth management and trust services (custodians of money)
4. Dave Ramsey, Suze Orman and Ric Edelman (financial adviser is included in the definition of "financial activity")
5. Casinos and other gambling facilities (who extend credit)
6. PayPal and Western Union
7. Colleges, Universities and non-profit organizations (for administering a financial literacy program)
8. Landlords and real estate agents (the leasing of real property is considered a "financial activity")
9. Wal-Mart, Target, Macy's and other retail stores (who extend credit)
10. Starbucks, Chili's, Applebee's and other restaurants (who sale or issue stored value cards)
11. Payday Lenders
12. Avis, Budget and Enterprise (the leasing of personal property is considered a "financial activity")
13. Attorneys and Escrow Companies (as custodians of money or any financial instrument)
14. CPAs and Attorneys (for tax planning and preparing)
15. Chicago Title (real estate settlement activities are included in the definition of "financial activity")
16. Advertising Agencies (marketing or advertising financial products are included in the definition of "financial activity")
17. Pawn shops
18. And the catchall -"Any other activity that the Agency defines, by rule, as a financial activity."

Link.

The House Energy and Commerce Committee is scheduled to start markup on H.R. 3126, the Consumer Financial Protection Agency Act on Thursday. The bill has passed the House Financial Services Committee. If the legislation is enacted as is, it would have serious implications for the advertising industry.

The bill as written would transfer much of the regulatory authority for financial products and services from the Federal Trade Commission to the new CFPA. However, the FTC would retain some authority in financial products and services matters. The bill would greatly expand the regulatory authority of both agencies. For example:

* The bill would grant the new CFPA rulemaking authority under the vague and unclear "unfairness" standard. This goes beyond the current authority of the FTC which was rightly limited by Congress.
* The FTC would be given greatly expedited rulemaking authority, doing away with many of the rigorous safeguards currently in place.
* The Commission would be granted expanded "aiding and abetting" authority that could implicate both advertising agencies and the media.


In addition, H.R. 3126 would give the states authority to enforce regulations adopted by the CFPA and enact their own, even stricter, laws. Financial advertisers could be subject to regulation by the CFPA, the FTC and numerous states under different and potentially contradictory standards.

Link.

The Federal Trade Commission would get new powers to oversee and punish companies that run afoul of its rules as part of a financial-services oversight bill currently before Congress, a further step in the Obama administration’s beefing up of the U.S. regulatory machinery.

The provision, which has reached this point virtually unnoticed by all but a few lobbyists and interest groups, will be debated in the House Energy and Commerce Committee Thursday.

The legislation, if approved, would strengthen the FTC by allowing the agency to craft regulations more quickly and enhance its ability to impose civil penalties on companies. It would also allow the agency to take action against companies “aiding and abetting” unfair or deceptive business practices, not just the original perpetrator, according to people familiar with the legislation.

...

The FTC is charged with protecting consumers from unfair or deceptive trade practices, having begun as an antitrust enforcer. Its authority covers a wide range of companies and industries, from Internet marketers to consumer-products manufacturers.

The House Energy and Commerce Committee, which oversees the FTC, will vote on the legislation Thursday. Democrats hold a large majority on the committee and are expected to approve it. It then must pass the full House and Senate.

“It’s the most significant expansion of the FTC since its inception, so it’s a pretty big deal,” said Timothy Muris, who served as chairman of the agency from 2001 to 2004.

Jim Miller, an agency chairman from 1981 to 1985, said the legislation “is like putting the FTC on steroids.”

...

The legislation has caught most industry lobbyists flat-footed as they focus their attention on a high-profile fight over legislation to create a new federal regulatory agency to oversee consumer-oriented financial products. Industry lobbyists have held dozens of meetings in the past few months to plot strategy for defeating the proposed Consumer Financial Protection Agency. The U.S. Chamber of Commerce has spent more than $2 million on advertisements opposing the agency.

Daniel Jaffe, the executive vice president for the Association of National Advertisers, the advertising industry’s oldest trade association, said “one if the problems when you create a mega-agency like the [new financial-services agency] is that people don’t notice the impact on the FTC.”

The two biggest changes pushed by the Obama administration and House leaders would simplify the FTC’s complex rule-making procedures and toughen its enforcement powers over companies.

Currently, much of the FTC’s rule-making authority is subject to a special set of requirements that create high hurdles, which date from the 1970s. On some occasions, “it’s taken eight or nine years or more just to write a rule,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a liberal consumer advocacy group.

The other big change would beef up the FTC’s power to collect civil penalties. Currently for many first-time violations, the FTC can only obtain consent decrees against companies that engage in unfair or deceptive practices. It can require civil penalties only if the company later violates the consent decree. Under the proposal, the FTC would be allowed to seek civil penalties for many first-time violations.

Dem-Controlled Congress Seeks To Strengthen FTC’s Powers Through Financial Overhaul Bill

According to the draft legislation...

* 1) Give the agency broad authority to write rules about services or products including:
a. Deposit-taking activities
b. Extending credit and servicing loans (this could include mortgages, credit cards, etc.)
c. Check-guaranty services
d. Collecting, providing, or analyzing consumer report information
e. Providing real estate settlement services, including title insurance
f. Leasing personal or real property
g. Investment advisers that aren’t already regulated by the CFTC or SEC
h. Processing financial data
i. Sale or issuance of stored value cards
j. Acting as a money service business
k. And any other activity the agency defines as a rule, except for most types of insurance, which are exempt.
...

* 3) Appropriate money to run the agency while also allowing the agency to collect annual fees or assessments from companies it supervises. The bill would also establish a victim’s relief fund for penalties collected by the agency.

...

* 6) Ensure that any rule adopted by the new agency would new preempt state law “if State law provides greater protection for consumers.”

* 7) Allow state attorneys general would be allowed to bring law suits for violations of new federal rules.

* 8) Allow the new agency to file subpoenas to collect information for the companies they oversee.

Link.