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SNR Denton on The Consumer Financial Protection Agency Act of 2009

As part of its comprehensive plan for financial regulatory reform, the Obama Administration has proposed the creation of a new federal regulator, the Consumer Financial Protection Agency (CFPA). In this Emerging Issues Analysis, Stephen F.J. Ornstein, Matthew S. Yoon, and John P. Holahan of SNR Denton examine the CFPA as currently drafted and analyze the effect it will have on the residential mortgage market. They write:
I. The CFPA and Its Regulatory Coverage

     The Act provides that all consumer financial protection functions of the Board of Governors of the Federal Reserve ("FRB"), the Office of Comptroller of the Currency ("OCC"), the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC"), the Federal Trade Commission ("FTC"), and the National Credit Union Administration ("NCUA"), be transferred to the CFPA. The date of transfer of these regulatory functions must be no sooner than 6 months and no later than 18 months after the date of passage of the Act.

     The Act establishes the CFPA as an independent agency in the executive branch to be headquartered in Washington D.C., and charges it with regulating the provision of consumer financial products and services.
IV. Enforcement Powers of the CFPA

A. Specific Enforcement Authority

     The Act gives specific authority for the CFPA to undertake actions to prevent covered persons from engaging in unfair, deceptive or abusive acts or practices under federal law in connection with any transaction with a consumer for a financial product or service. The Act also gives the CFPA authority to regulated consumer disclosures associated with financial product or service, and the sale and advertisement of products or services. The agency is also charged with creating requirements for standard consumer financial products, such as plain vanilla products without alternative terms (i.e., standard fixed-rate mortgages without prepayment penalties). Further, the CFPA is given the ability to regulate individuals who deal directly with consumers (i.e., loan originators or brokers), and to ensure consumers are not harmed by their business and compensation practices.
     The CFPA will likely re-write many of the federal consumer laws via promulgation of new regulations that will pose compliance challenges for all entities operating in the residential mortgage market. All parties, both depository and nondepository, will need to get comfortable with the CFPA and facilitate contacts at the new agency in order to ensure that they understand the new wave of regulation that is on the horizon. Finally, the Act is also certain to increase litigation in the mortgage lending arena for all parties, which should continue to keep an already illiquid and tight credit market operating in an extremely conservative manner.
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