Update on the CFPB and the
Speed Bump Amendment
Can it slow Betsy down?
November 12, 2010 Payday Bar Association
Update on the Dodd-Frank Act
• President Obama signed the Dodd-Frank Wall Street Reform and
Consumer Protections Act into law on July 21, 2010.
• Treasury has announced that the Bureau of Consumer Financial
Protection, the new agency created by the Act, will assume the
consumer financial protection regulatory functions of the banking
agencies and the other agencies (HUD and FTC) on July 21, 2011.
• Elizabeth Warren named special assistant to
the President and Treasury Secretary to lead
the establishment of the Bureau.
• Warren is expected to be aggressive in
interpreting the powers of the Bureau, and
will strongly influence rulemaking and the
selection of the first director.
• She has said her first targets will include
credit-card marketing.
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Update on the Dodd-Frank Act
• Between now and July 2011, the Bureau will:
− Research current consumer financial products and services
− Develop a national consumer complaint response center
− Begin integrating examiners from the Fed, FDIC, OCC, OTS,
and NCUA into the Bureau
− Begin implementing supervision of non-depository covered
persons (payday lenders, mortgage lenders, debt collectors,
consumer reporting agencies, etc.)
− Prepare for opening outreach offices and taking other
administrative and logistical steps needed to begin operations.
− Combine TILA/RESPA Forms
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What will the Bureau Look Like?
• Bureau’s estimated budget is $550 million
• FTC budget for Fiscal Year 2011- $314 million
• FTC employees- 1207 FTE for 2011
• SEC budget $943 million (FY 2008)
• SEC employees-3,700 FTE
• FTE for Bureau-2250 (est.); currently has hired around 50
− Headquarters in Washington, D.C.
− Regional offices around the US: 7-9
• Likely each one will have a regional director
• Legal staff, examiners and investigators
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Can the Bureau Handle the Task?
• Bureau staffing is 40% smaller than the SEC
• Will take a while for Bureau to staff up fully
• Jurisdiction of the Bureau is much larger than SEC
• SEC oversees 35,000 companies and entities
− 12,000 public companies
− 8,000 mutual funds
− 11,000 investment advisors
− 5,500 broker dealers
• Bureau may end up with jurisdiction over 50,000
institutions
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Bureau Authority To Regulate Payday
Lenders
• Section 1024 authorizes the Bureau to require reports and
conduct examinations of any entity that offers a consumer
a payday loan.
− To assess compliance with Federal consumer laws;
− To obtain information about activities or compliance systems
or procedures
− To detect and assess risks to consumers
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• Bureau shall prescribe rules to facilitate the supervision of
payday lenders
• Bureau has exclusive authority to prescribe rules, issue
guidance, conduct examinations, require reports or issue
exemptions for payday lenders vis a vis other federal
agencies
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Impact of Bureau’s Rules on Payday Lenders
• Payday Industry was successful in getting the “Small
Business Fairness and Regulatory Transparency
Amendment added the Dodd Frank
• Sponsored by Senators Pryor and Snowe, and included as
Section 1100G of the DFA, the amendment makes a
simple change to the Small Business Regulatory
Enforcement Fairness Act of 1996 (“SBREFA”) by adding
the CFPB to the list of agencies (OSHA and the EPA)
subject to its requirements
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What does SBREFA Require
• SBREFA was enacted in 1996 to amend the Federal
Regulatory Flexibility Act or “RFA”.
• SBREFA amended the RFA acknowledging the poor
compliance record of federal agencies in assessing and
mitigating the disproportionate cost of federal regulation on
small businesses
• SBREFA compels the EPA and OSHA, and now the
Bureau to convene small business advocacy review
panels to assess proposed regulations that are expected
to have a significant impact on a substantial number of
small businesses
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What is a small business under the RFA
• For purposes of the SBREFA process, a small business is
defined by reference to a table of types of businesses
promulgated by the SBA
• For financial institutions , the cut off is $175 million in
assets
• For “consumer lenders” the cut off is $7 million in receipts
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How Does the SBREFA Process Work?
• Determination must be made by the Bureau that a
proposed regulation is expected to have a significant
impact on a substantial number of small entities.
• “Significant” and “substantial” are subject to much
interpretation since they are not defined.
• When the Bureau issues a rulemaking proposal, the RFA
requires it to “prepare and make available for public
comment an initial regulatory flexibility analysis” that
describes the impact of the rule on small entities.
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The SBREFA Process
• If the Bureau says it does not, it must provide factual
support for that lack of certification
• That process can be challenged in court to determine the
adequacy of the certification process
• If the Bureau decides that the proposed rule will have a
substantial impact it is required to prepare an initial
regulatory flexibility analysis on the proposal (IRFA)
• The Bureau must also convene a SBREFA panel before
the publication of the proposed rule
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The SBREFA Panel
• Consists of a Bureau representative, someone for OMB,
and the Chief Counsel of the Office of Advocacy of the
SBA
• The panel solicits advice from small entity representatives
to enable the panel to better understand the ramifications
of the proposed rule.
• Panel must convene and complete its report within a 60
day period from the date it is formally convened.
• Panel required to develop and recommend less
burdensome alternatives to a proposal such as phased in
deadlines, reduced obligations, or exemptions for small
businesses.
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Bureau Response to SBREFA Panel
• The Bureau need not take the recommendations of the
Panel, but must offer some explanation for its basis in
adopting or rejecting the suggested alternatives
• This response becomes part of the administrative record
subject to judicial review if challenged
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SBREFA Issues
• Lack of definition of “significant impact” or “substantial
number” of entities affected
• The SBA Advocacy office views these terms as not
absolutes requiring consideration of:
− Size of the business
− Profitability
• Does it eliminate more than 10% of the businesses profits
• Exceed 1% of the gross revenues of the entities involved
• Exceed 5% of the labor costs of entities in the sector
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Bureau is Learning About SBREFA
• SBA Office of Advocacy is hosting a Small Business
Roundtable on November 18th to discuss the SBREFA
Panel process and the CFPB
• Also will discuss the Federal Reserve’s proposed rule on
Regulation Z and its costs on small businesses and what
feasible alternatives may be available
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Whistleblower Protection
• Whistleblower protection (Sec. 1057)
− Cannot terminate or discriminate against any employee that
provides information to the Bureau or law enforcement about
violating a law enforced by the Bureau
− Files complaint with US Dept of Labor-Sec decides matter
− Appeal decision to US Circuit Court
− Can assess all costs and expenses including attorney fees
− Frivolous cases limited to $1,000 penalty
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For more information, visit
www.pepperlaw.com.
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