Richard P. Hackett Pierce Atwood LLP

1. KEY PROVISIONS OF THE CONSUMER FINANCIAL PROTECTION AGENCY ACT (PROPOSED*)BOSTON BAR ASSOCIATIONJANUARY 19, 2010 Richard P. Hackett Pierce Atwood LLP *Note: Prepared 1-2-2010, based on Committee Print of HR 4137 plus Manager’s floor amendment. To be updated when GPO and LOC have collected all floor amendments.

2. KEY DEFINITIONS • “Consumer Financial Products or Services” means: • – any financial product or service used by an individual or his representative for personal, family or household use. • “Financial Product or Service” means: • – a product or service that directly or indirectly relates to, results from or is related to engaging in a “financial activity.” 2

3. deposit taking extending credit or servicing loans (includes acquiring, purchasing, selling, brokering and servicing, plus origination activities like appraisals) check cashing and guaranty services providing credit history (consumer reports) debt collection real estate settlement services leasing real or personal property or acting as broker investment advice (excluding SEC and state regulatees) “Financial Activity” 14 enumerated classes of activities, plus whatever else the CFPA may define, each broadly described, including: 3

4. financial advisors (excluding SEC and state regulatees) • financial data processing • money transmitting • sale or issuance of stored value • money service business • custodian of money or financial products 4

5. Catch all provision: CFPA Director defining “financial activity” based on • Substantial likelihood of material adverse effect on credit worthiness or financial well being of consumers, or • Activity is incidental to or complementary to regulated activity, or • Activity is a subterfuge to evade Act 5

6. Exclusions from catch-all • Information services for ID authentication • Information products for fraud prevention • Document retrieval or delivery • Public records retrieval • Information services to support AML [LEXIS/NEXIS & CDIA were here] 6

7. Total Exclusions • Electronic data transmission and transient storage on general basis [ISPs] • Business of Insurance 7

8. Financial Advisor • Excludes: ‘40 Act and state registrants • Tax return preparers • Includes: • Educational material providers on individual level • Credit counseling • Tax planning • Debt management and debt settlement 8

9. “Covered Person” means: • – anyone who “engages directly or indirectly in a financial activity, in connection with provision of a financial product or service.” • “Related Person” is a “covered person” and includes: • Any officer, director, responsible employee (piercing corporate veil) of non banks • Controlling shareholders of nonbanks • Lawyers and accountants who knowingly or recklessly assist a legal violation or violation of fiduciary duty • “Provision” means: • – advertising, marketing, solicitation, sale, disclosure, delivery, account maintenance or servicing of a consumer product or service. • Conclusion: The scope of the products, services and activities that are regulated and the persons related to those activities that are regulated is broader than any prior definition of “activities financial in nature,” especially insofar as it covers those involved in sales, marketing, processing and professional services. 9

10. Selected Exclusions § 4205 of Act: • Merchant Credit (except student loans) • Persons Regulated by SEC and CFTC (belt and suspenders with definitions) • Persons Regulated by State Insurance Regulators • FHL Banks • Farm Credit System Institutions • Employer Benefit Plans • Accountants and Tax Preparers • Real Estate Licensees • Auto Dealers • Mobile Home Dealers • Practice of Law 10

11. AMTPA EFTA ECOA FCRA FDCPA HMDA RESPA SAFE TILA TISA GLBA Privacy Provisions Others “Enumerated Consumer Laws” (ECL) These are the laws over which the CFPA obtains rulemaking and enforcement jurisdiction: 11

12. CFPA also assumes “transferred functions” from consumer protection agencies including all “consumer financial protection functions,” meaning research, rulemaking, issuance of orders or guidance, supervision, examination and enforcement activities, powers and duties relating to the provision of consumer financial products and services, including the authority to assess and collect fees for those purposes . . ..” § 4601(d) 12

13. TITLE BY TITLE SUMMARYSubtitle A: Establishment • § 4101 Creates Agency, initially led by a Director until “Agency conversion date,” which is two years after “designated transfer date.” At that point, Agency is run by a five-member Commission. All are appointed by President and confirmed by Senate. Removable only for cause. Chair of Commission acts as Director. 13

14. § 4103 • Chair-Director has full personnel, budget, executive authority, subject to: • General policies of Commission • Specific orders of Commission • Commission vote required for appropriations request 14

15. § 4104 CFP Oversight Board • Fed Chair • FDIC Chair • OCC (or successor agency) • NCUA Chair • FTC Chair • HUD Secretary • Chair of state liaison committee General advisory powers. No executive authority. 15

16. § 4106 Major Functional Areas • Director of CFPA • GC and Secretary • Director of Office of Financial Literacy • Director of Office of Fair Lending and Equal Opportunity • Research Department • “One Call” consumer complaint system “Acorn” is blackballed from participating in any of the foregoing 16

17. § 4111 Funding • Ten Percent of FRB operating budget sent to CFPA • CFPA sets rules and assessments to create • Depository Institutions Fund (costs to supervise banks) • Non Depository Fund (includes BHCos) • Civil Penalty Fund (victim relief) Community Banks (less than $10BB not assessed) Agency intended to be self funding through assessment of Covered Persons, after ‘seed money’ of $200MM 17

18. Subtitle B: Powers • § 4201 Mandate: • Promote transparency, simplicity, fairness, accountability, and access • Protect consumers from abuse, unfairness, deception and discrimination • Promote fair and efficient operation of markets • Protect traditionally underserved consumers and communities 18

19. § 4202 • Full suite of agency powers including • Rulemaking, orders and guidance • Power to assess fees to Covered Persons • Examination of Covered Persons and require reports from Covered Persons • Exclusive rulemaking for Enumerated Consumer Laws and Transferred Functions (but see SEC, CFTC and Department of Justice authority preserved) • Primary enforcement authority for ECLs and Transferred Authority, with backup authority in primary federal regulator or FTC (nonbank) • No usury authority 19

20. § 4203 Small Institution Exceptions • – Banks under $10 Billion • – Credit Unions under $1.5 Billion • are not subject to supervision, examination or assessment by the CFPA • BUT • CFPA has power to kick out federal bank regulators, based on finding the federal agency has failed adequately to examine the bank or CU or seek adequate enforcement. 20

21. § 4204 CFPA vs FFIEC Provision • Bank may invoke administrative arbitration system if CFPA and bank regulator disagree about what bank should be doing 21

22. § 4205 Specific Limitations on Agency Authority • Key Points. Some exclusions are blanket. Others are limited to the exempt regulated activity, others are limited by the definition of “financial activity,” and still others have enumerated only exclusions. All are limited by ECLs. • Merchant Credit • Exception from exclusion if assigned • Student credit excluded is covered • Limited to financing sale of nonfinancial products and services • SEC and CFTC Persons – Blanket exclusion. CFPA has “no authority” to exercise any power or enforce this Act with respect to such a person. • No ECL preservation 22

23. Exclusions (cont’d.) • State Insurance Regulatees • Lose exclusion if engage in ‘financial activity’ (Insurance excluded from definition) • ECLs apply • Accountants and Tax Preparers • Limited to “customary and usual accounting” activity • Financial activity taints exclusions • ECLs apply 23

24. Exclusions (cont’d.) • Real Estate Licensees • Only to extent of listed brokerage activities • Financial activity taints exclusion • ECLs apply • Auto Dealers • Blanket exclusion • Exception for mortgage services • Exception for in-house finance company • Enforcement stays with FTC and FRB! 24

25. Exclusions (cont’d.) • “Practice of Law” • Exclusion only applies to a ‘financial activity’ if: • engaged in as part of practice of law, or • incidental to practice and exclusively within attorney/client relationship and not provided to a consumer who otherwise is not receiving legal advice or services 25

26. § 4206 Information Collection for Covered Persons • § 4207 Monitoring for Risk to Consumers from Financial Products • § 4208 Power to Ban Consumer Arbitration • § 4209 Power to Register Non-Depository Covered Persons 26

27. Subtitle C: Specific Authority • § 4301 Prohibiting Unfair, Deceptive, Abusive Acts and/or Practices (language similar to § 5 of FTCA defining “unfair.” No definition of “abusive.”) • § 4302 Requiring Disclosures • Exercising statutory powers under all ECLs and broad purposes of CFPA to regulate all communication of Covered Persons regarding consumer financial products or services • § 4303 Regulating Sales Practices – to ensure risks and benefits of product are fully and accurately represented • § 4304 Implementing Test or Pilot Disclosures • § 4305 Creating Operational Standards for Covered Persons • states given first option to prescribe for nonbanks; covers character, fiscal soundness, details of operations 27

28. § 4306 Duties of Providers • CFPA may prescribe duties of providers of consumer financial products and services who communicate directly with consumers, to “ensure fair dealing” • Rules based on appearance of acting on consumer’s behalf, reasonable consumer reliance • Includes regulation of compensation methods, but not amount • No private right of action for violation of § 4306 rules 28

29. § 4307 Consumer Access to Business Data • Supports discovery of business data from Covered Persons by consumers. Thinly veiled class action “prequalification” system. • § 4308 Prohibitions • Unlawful to advertise, market, offer, sell, or attempt to enforce any term, agreement, change of terms, fee or charge that is not in conformity with this title and regulations thereunder. • Unlawful to “knowingly or recklessly provide assistance” to any of the foregoing. (call your carrier) • “Plain Vanilla” product authority expressly negated • § 4309 Comprehensive New Regulation of “Remittance Transfer Providers” 29

30. Subtitle D: Preemption • § 4401 CFPA does not preempt anything except “inconsistent” state laws. Anything “more protective” is not inconsistent. Similar ECL preemption standards also retained. • § 4402 State AGs can enforce CFPA • § 4403 Savings clause for contracts entered into prior to effective date of Act. Note cloud over reliance on existing OCC Rules thereafter. 30

31. Preemption (cont’d.) • § 4404 Preemption of “state consumer financial law” only exists if • State law discriminates in favor of state banks, or • State law “prevents or significantly interferes or materially impairs” business of banking (Barnett standard) • Court or OCC must find on case-by-case basis 31

32. Case-by-Case Process • Affects only one state law or laws with “substantially equivalent terms” • OCC must consult CFPA and listen • OCC must base finding on “substantial evidence” of impairment on the record • OCC must find federal law providing “substantive standard” that “regulates the particular conduct, activity or authority” in question 32

33. Judicial Review • is de novo • must consider “thoroughness evident in agency’s consideration, the validity of agency’s reasoning, the consistency with other valid determinations made by the agency” and other factors 33

34. Preemption (cont’d.) • OCC must conduct review of preemption rulings every 5 years • National Bank op subs get no preemption • Section 85 “export” preemption is preserved. 34

35. Preemption (cont’d.) • Effect is: • Creates significant doubt about most of 2004 OCC regulations surviving 5-year review • Expands Cuomo (AG enforcement) • Overrules Watters (bank subsidiary licensing) • Overrules Marquette and Smiley (interest rate export) • § 4407 – 4409 • Federal Thrifts Subject to Same Changes to HOLA (overrules de la Cuesta “field preemption”) 35

36. SOME QUESTIONS ABOUT CFPA AND PREEMPTION • 1. The current CFPA draft repeals section 85 export powers, but not the similar powers of state chartered banks found in DIDA. Will nationals now be “least favored lenders?” • 2. The current CFPA draft does not touch the statutory authority for preemption found in 12 CFR Part 34, namely real estate lending authority found in the Federal Reserve Act and the FDIC Act that is directed to national banks. Is that an oversight? • 3. Most states have “wild card” statutes that give state banks whatever powers a federally chartered institution may have, which would include the ability to ignore some “state consumer laws.” If national banks suddenly lose their preemptive powers, will many state banks suddenly find themselves subject to outmoded and long-ignored restrictions under state law, if those restrictions can be characterized as “state consumer laws?” • 4. Will Congress also repeal the preemption that benefits mortgage lending under DIDA section 501 and AMTPA ?? 36

37. Subtitle E: Enforcement • CFPA has power to use: • subpoenas • CIDs • hearings and adjudication of violations • cease and desist orders • ex parte cease and desist orders • civil actions for all legal and equitable remedies • Civil money penalties up to $1 million/day • Extensive whistleblower protection 37

38. Subtitle F: Transfer of Functions • § 4601 Transfer of Functions means “research, rulemaking, issuance of orders or guidance, supervision, examination, enforcement activities, powers and duties relating to the provision of consumer financial products and services” of every agency enumerated, including FRB, OCC, OTS, FDIC, FTC and NCUA. • Note this transfer of functions is broader than the transferred rulemaking under ECLs. • §162 Process to Set “Designated Transfer Date.” Banking Regulators, FTC, HUD, OMB get together and set date for CFPA to start, up to 18 months out. • § 163 Preserves Prior Acts and Rules of Exiting Regulators. Note effect is temporary grandfathering of many rules. • § 164 Transfer of Existing Regulatory Personnel 38

39. Subtitle G: New Ideas • Collection of Deposit Accounts “HMDA Data” • Collection of Small Business “HMDA Data” • Annual Financial “Autopsy” (of bankruptcies and foreclosures) 39

40. Subtitle H: Conforming Amendments and “Earmarks” • Replace references to agencies in ECPLs • Earmarks • TILA minimum payment disclosure on credit card bills • FCRA model disclosure • FCRA furnisher accuracy rules • HMDA adding new reporting requirements • Adding to § 5 of FTC Act “knowingly or recklessly providing substantial assistance” to a violation of the act • Requiring a single mortgage loan disclosure under RESPA and TILA 40

41. Questions? • Richard P. Hackett • Pierce Atwood, LLP • One Monument Square • Portland, ME 04101 • Tel: (207) 791-1280 • Fax: (207) 791-1350 • rhackett@pierceatwood.com 41