The 2,000 page Dodd-Frank Wall Street Reform and Consumer Protection Act is ready for its final test: a full vote by the House and Senate. The New York Times wrote on Friday (June 25, 2010):
The deal between House and Senate negotiators, sealed just before sunrise on Friday, imposes new rules on some of the riskiest business practices and exotic investment instruments. It also levies hefty fees on the financial services industry, essentially forcing big banks and hedge funds to pay the projected $20 billion, five-year cost of the new oversight that they will face. And it empowers regulators to liquidate failing financial companies, fundamentally altering the balance between government and industry.
The sponsors of the legislation expect that Congress will approve the legislation this week and that President Obama will sign it by the Fourth of July.
The financial reform bill expands the federal government's role in the enforcement and oversight of consumer protection laws and consumer lenders. The lynchpin of the bill is the creation of a Consumer Financial Protection Bureau (CFPB) with significant regulatory authority. The CFPB will be part of the Federal Reserve, and led by a director appointed by the President and confirmed by the Senate. Other key elements of the CFPB include:
- Examination and enforcement authority. The CFPB would have authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators), payday lenders, and student lenders as well as other large non-bank financial companies, such as debt collectors and consumer reporting agencies. Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints by the appropriate regulator.
- Consolidation of consumer protection enforcement. The CFPB would coordinate consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission.
- Lending discrimination. The CFPB would oversee the enforcement of federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for individuals and communities, including the Fair Housing Act and Equal Credit Opportunity Act.
- Consumer Hotline. The CFPB would run a national consumer complaint hotline establishing a toll-free number to report problems with financial products and services.
- Coordination with bank regulations. The CFPB would coordinate with other regulators when examining banks to prevent undue regulatory burden.
The bill also includes provisions that significantly impact residential mortgage lending, including underwriting considerations and disclosure requirements:
- Lenders would be required to provide additional disclosures to consumers on mortgages, including disclosure of the maximum a borrower could potentially pay on a variable rate mortgage.
- Lenders would be required to consider a borrower's "ability to repay" a mortgage during the underwriting process.
- Lenders could not pay brokers "yield spread premiums" or other financial incentives for certain loan types.
- Pre-payment penalty terms would be prohibited.
- The bill includes enhanced penalties for mortgage lenders and brokers who violate certain consumer protection laws, including penalties up to the equivalent of three-years of interest payments and damages, plus attorney’s fees.
- The bill expands consumer protections for certain high cost mortgages, going beyond the current requirements in HOEPA.
