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Presidential Initiative Lays Groundwork For New Consumer Protection Efforts
Karen Cordry, Bankruptcy Counsel
When he became president of the National Association of Attorneys General in June 2010, North Carolina Attorney General Roy Cooper announced that the focus of his year-long Presidential Initiative would be developing a productive partnership between the state Attorneys General and the newly-created federal Consumer Financial Protection Bureau (the “CFPB”) to fight financial fraud against the nation’s consumers. The Wall Street Reform and Consumer Protection Act (“Act”), which created the CFPB, established five primary functions for the agency: a) to ensure consumers receive timely and understandable information about financial transactions; b) to ensure consumers are protected from unfair, deceptive, or abusive acts or practices and discrimination; c) to update outdated or burdensome regulations in this area; d) to ensure consistency in enforcement of consumer protections across all financial institutions; and e) to promote a transparent and efficient consumer financial market.
The Act preserves the role state Attorneys General have long played in the area of consumer protection, but also gives them substantial authority to enforce the substantive protections created by the Act as well as the rules established by the CFPB. It also includes a number of strong anti-preemption provisions with respect to enforcement of state laws so long as those laws are not inconsistent with the provisions of the CFPB, coupled with the specific statement that stronger state laws are not inconsistent with the CFPB for that reason alone. The Act also gives greater protection to efforts by the Attorneys General to enforce general state consumer protection laws against national banks and thrifts.
The Attorneys General recognize that, with the grant of added powers come added responsibilities in exercising those powers. Attorney General Cooper convened a Presidential Initiative Working Group, comprised of his office and the Attorneys General from Connecticut, Illinois, Indiana, Iowa, Michigan and Washington. Their goal was to analyze the law and to develop a working relationship between the Attorneys General and the CFPB in implementing those powers. The Working Group identified three primary focus areas: data sharing, coordination of enforcement, and preemption of state law issues. The Working Group produced an analysis in November 2010, entitled “Wall Street Reform and Consumer Protection Act: Summary for Attorneys General” addressing those issues. It is posted on the NAAG website at: http://www.naag.org/assets/files/pdf/pubs/wall-street-reform-UB.pdf.
Presidential Initiative Summit
The report was a lead-in to the recent Presidential Initiative Summit, held April 10-12 in Charlotte, N.C., to bring together Attorneys General and their staff, federal regulators, regulated parties, consumer protection advocates, academicians, and other interested persons to discuss issues around implementing the new law. As information about the Summit emerged, the registration list quickly swelled to well over 200 attendees. Sixteen Attorneys General and 15 designees from other Attorneys General offices participated.
The program began with a powerful video of consumers who had fallen victim to various fraudulent schemes but had obtained redress through their state’s Attorney General Office. The first program panel dealt with consumer outreach and education efforts ranging from a new smart phone “app” that the North Carolina Attorney’s General Office is developing to a “telenovella” that mixes pointed lessons about consumer scams targeting immigrants and the need for financial literacy into the plot of a Spanish language soap opera.
Professor Elizabeth Warren, the designated assistant to President Obama for the creation of the CFPB, gave the keynote speech. She echoed the theme of the conference: the goal of the CFPB and the Attorneys General is to protect both consumers and legitimate businesses from unfair, deceptive, and abusive acts and practices. In doing so, the CFPB and the Attorneys General intend, where appropriate, to coordinate enforcement efforts with the goal of maximizing consumer protection while minimizing the potential for conflict and confusion for those businesses that comply with the law. Professor Warren announced that the CFPB and the Presidential Initiative Working Group had come to an agreement on key principles to advance those goals. A CFPB news release describing the principles can be found here: http://www.treasury.gov/press-center/press-releases/Pages/tg1134.aspx
Professor Warren noted that the CFPB was equally charged with removing outdated, ineffective, and overly complex regulations and disclosure requirements as with writing new ones, and streamlining those paperwork requirements is a priority. She also stressed that the CFPB will continue to work closely with the Attorneys General on both the substantive and procedural aspects of their enforcement efforts to avoid “double-teaming” and conflicting directives to businesses.
Following Professor Warren, Holly Petraeus, director of the Office of Service Member Affairs at the CFPB and wife of U.S. Army General David Petraeus, spoke about the CFPB’s efforts to combat the scams targeting our nation’s service members who may be particularly vulnerable to scams due to their extended tours of duty, frequent reassignments, and steady government paycheck. The afternoon panelists concentrated on the three key areas identified by the Working Group: enforcement, preemption, and data sharing. Federal Trade Commissioner Julie Brill emphasized that the intention of all of the federal and state agencies is to work cooperatively to alleviate the business concerns articulated by panelists Larry Thompson, Pepsico’s general counsel, and Andy Pincus of Mayer Brown. In the end, though, Brill noted that, as in the case of air traffic controllers on overnight shifts, sometimes redundancy may be a good and even necessary component of effective regulation.
The second afternoon panel reviewed the many changes that were made to preemption standards under the new law and whether these will be easily accepted by federal regulators, particularly those dealing with control of national banks. The final Monday afternoon panel discussed efforts to obtain and share reliable data to aid in enforcement efforts and consumer education. Charles Harwood, deputy director of the FTC’s Bureau of Consumer Protection discussed the “Consumer Sentinel” database that serves as a shared space in which to pool consumer complaints received by local, state, and federal authorities and to share data to help in combating the frauds alleged in those complaints. He urged states that had not yet joined to do so.
On the second day, a morning panel discussed some of the “new and emerging” issues that will likely come to the fore under the CFPB, including provisions affecting auto dealers, the treatment of credit rating agencies, and the addition of the term “abusive” as a standard for violations. Most of the day, though, was devoted to discussing “how did we get here,” “who was responsible,” and “what do the answers to those questions mean about what we should do going forward?” Barry Ritholtz, author of Bailout Nation, gave an opening presentation about the failings of many parties that led to the 2008 financial crisis, including mortgage brokers, banks, credit rating agencies, and regulators. Mark Zandi, chief economist at Moody’s Analytics, and Thomas Hoenig, president of the Federal Reserve Bank in St. Louis, debated whether we should reinstate some of the legal limits on banking activities in an effort to curtail future failures [Hoenig’s position] or whether it was too late to go back and one should instead look to proactive measures to control the demise of such “too big to fail” institutions when they do, in fact, fail [Zandi’s position]. In that regard, it was noted that the new law has given the Federal Deposit Insurance Corporation (FDIC) an “Orderly Liquidation Authority” that it can use to take over and shut down certain systemically crucial institutions.
In his Tuesday lunchtime speech, Bank of America CEO Brian Moynihan emphasized the intention of his company to work with the Attorneys General and other regulators to address problems that had emerged in the mortgage industry, but expressed concerns about reinstating the limitations on banking powers that Thomas Hoenig advocated for during his panel discussion.
The final panel, “Looking Back, Looking Forward,” provided a lively debate between Professor Michael Barr of the University of Michigan and Peter Wallison, of the American Enterprise Institute. Professor Barr identified a “perfect storm” of failings that lead to the crisis, while Wallison reprised his dissenting views in the Financial Crisis Inquiry Commission Report ,stating that the crisis was largely caused by misguided federal housing policies that unduly pressured lenders and other parties into trying to put too many financially unqualified borrowers into houses they couldn’t afford.
Speaker videos and materials from the Summit are available on the NAAG website, www.naag.org. A report of the discussions that took place will be compiled and distributed by June to policymakers and other interested parties.
NAAG President and North Carolina Attorney General Roy Cooper with Professor Elizabeth Warren.
NAAG Presidential Initiative Summit had a reception at the NASCAR Hall of Fame.