Consumer Law & Policy Blog

House Passes Financial Reform, 237-192

Brian Beutler has the details at Talking Points Memo:

By a vote of 237-192, the House of Representatives this afternoon voted to pass final legislation dramatically changing the rules that govern the financial industry. Nineteen Democrats joined 173 Republicans in opposing the legislation, which, in addition to limiting the risky practices that lead to the 2008 collapse, will create a new federal agency dedicated to protecting consumers from predatory financial products, and bring to a close the Troubled Asset Relief Plan -- the bailout program created by the Congress in the midst of the financial crisis. Three Republicans voted for the bill, and four members (two Democrats, two Republicans) did not vote. The Senate is set to take up identical legislation shortly after they return from next week's Independence Day recess.

The NY Times story is here.

Forced Arbitration and the Kagan Hearings

by Deepak Gupta

 The forced arbitration of claims arising out of statutory protections for consumers and employees has become a hot topic at the Kagan hearings. The parade of comments by Senators started even before the hearings began, with a written statement by Senator Leahy criticizing the Supreme Court's 5-4 decision in Rent-a-Center v. Jackson, and similar remarks on the Senator floor by Senator Franken (video of which we've already posted here). The topic was raised again in Senator Whitehouse's opening statement on Monday and in an extended colloquy between Franken and Kagan this morning.

In his statement, Leahy called the Rent-a-Center decision "a blow to our nation’s civil rights laws and the protections that American workers have long enjoyed under those laws." He noted that "more than one hundred million Americans work under binding mandatory arbitration agreements" and that "most Americans are not even aware that they have waived their constitutional right to a jury trial when they accept a job to provide for their families."

Congress worked for years on a bipartisan basis to pass laws to protect workers from race discrimination, gender discrimination and age discrimination.  . . . Rent-a-Center is unfortunately just the latest in a line of divisive and devastating Supreme Court decisions where five justices have, in effect, gutted those statutory protections. ... Congress should now take a closer look at the way in which binding mandatory arbitration is creating a legal underground where American workers are left without protection. 

There is no rule of law in arbitration. There are no juries or independent judges in the arbitration industry. There is no appellate review. There is no transparency. And as a result of today’s divisive ruling, there will likely be no justice for millions of American workers and their families.  The courthouse doors have simply been closed to them.  Today’s opinion also gives big business a disincentive to treat their employees fairly and will no doubt lead to virtually all companies requiring their employees to sign one-sided arbitration agreements as a condition of employment.

Senator Whitehouse's opening statement at the Kagan hearings struck a similar chord:

Unfortunately, the conservative wing of the current Supreme Court has departed from [the Court's] great institutional traditions. Precedents, whether of old or recent vintage, have been discarded at a startling rate. Statutes passed by Congress have been tossed aside with little hesitation, and constitutional questions of enormous import have been taken up hastily and needlessly. Only last week, the Rent-A-Center decision concluded that an employee who challenges as unconscionable an arbitration demand must have that challenge decided by the arbitrator. And the Citizens United decision -- yet another 5-4 decision -- created a constitutional right for corporations to spend unlimited money in American elections, opening our democratic system to a massive new threat of corruption and corporate control. There is an unmistakable pattern. For all the talk of umpires and balls and strikes at the Supreme Court, the strike zone for corporations gets better every day.

Finally, Senator Franken this morning used the hearings as an opportunity to sharply critique not only the recent Rent-a-Center decision, but also the Court's 2001 decision in Circuit City v. Adams, which rewrote the Federal Arbitration Act to include most employee claims.  The relevant portion of the transcript form this morning's hearings is available after the jump.

Times Report on Yesterday's CFPA/B Conference

Here.  Looks like the auto dealers will be excluded from the bill and the agency will be housed within the Fed.  But the FTC is to have an easier time regulating car dealers (and perhaps promulgating regulations generally?).  The article also implies that the CFPB's decisions will not be subject to overruling by bank regulators.  If you have a more complete report, please post it or a link in the comments.

House Conferees' Offer on CFPB Bill

by Jeff Sovern

Barney Frank has just announced the House Conferees' offer on the CFPB. As might be expected, there's good news and bad news for consumers in this offer.  Good news includes that the CFPB will have authority over payday lenders and a greater supervisory role over smaller lenders than the Senate bill had provided; the OCC won't be able to preempt state laws unless there is a comparable federal law; and the FTC will be able to issue new regulations more easily; Bad news includes that the CFPB will be a bureau housed in the Fed, rather than a standalone entity and it won't have authority over auto dealers; I don't know enough about the politics to know how likely it is that the final version will resemble the offer. Excerpts from the Committee statement follow:

Recede to Senate on provisions relating to the structure of the Consumer Financial Protection Bureau (Bureau).

·                  Amend Senate provision funding the Bureau with funds from the Federal Reserve System. Add House provision providing for authorization of appropriations of the Bureau for 2010-2015 (House Bill § 4111(c), page 869, line 23 through page 870, line 11).

The Mortgage Reform and Anti-Predatory Lending Act

by Jeff Sovern

Buried deeply within the House financial reform bill--beginning at page 1472--is the Mortgage Reform and Anti-Predatory Lending Act.  This bill has no precise analog in the Senate bill, though some of its provisions are echoed in the Senate CFPB bill (in my slides, I didn't discuss this bill, except to the extent that the Senate bill included the same or similar provisions).  I haven't seen much about the MRAPLA in the media or, for that matter, the blogosphere, but, based on a quick look, some of its provisions seem very important.  For example, § 9002 requires mortgage originators to "diligently work to present the consumer with a range of residential loan products for which the consumer likely qualifies and are appropriate to the consumer's existing circumstances;" to disclose to consumers the "comparative costs and benefits" of each loan discussed by the originator; and to tell the consumer if the originator is "acting as an agent for the consumer."  Section 9106 prohibits arbitration clauses.  The MRAPLA also includes a subtitle on high-cost mortgages.  I'm not sure what will become of these provisions, but I hope some of the MRAPLA makes it into the final bill.  If someone has studied the MRAPLA and has summarized its provisions, I hope you will post the summary in the comments below or email them to me.

Comparing the Senate and House CFPA/B Bills

by Jeff Sovern

Last week at the University of Houston's Teaching Consumer Law Conference (presided over by fellow-blogger Richard Alderman) I spoke about the House and Senate Consumer Financial Protection Agency (or Bureau) bills and their differences and similarities.  I had hoped to find some time this week to blog about that, but it hasn't happened yet.  In the meantime, the California State Bar Association asked to post my slides on their website (there are 58 of them), so I thought it might be helpful if I made the slides available on this blog as well.  I'm hoping you can get to them by clicking on the following link: Download Houston 2010 Conference. 

The Senate CFPA Bill, as Amended on the Floor . . .

. . .  can be found here.

Senate Passes Wall Street Reform, 59-39; Auto Dealer Exemption and Volcker Rule Both Fail; Independent CFPA Likely

by Deepak Gupta

By a vote of 59-39 tonight, the Senate passed sweeping legislation to tighten the rules governing the U.S. financial system. President Obama, speaking from the Rose Garden, called the reforms the “strongest consumer protections in history.”

Only four Republicans -- Scott Brown, Chuck Grassley, Susan Collins, and Olympia Snowe -- joined with all but two Democrats in voting for the legislation. (Maria Cantwell and Russ Feingold opposed the bill for not being more aggressive in reforming Wall Street). Robert Byrd and Arlen Specter didn't vote. Brian Beutler at Talking Points Memo offers this report; the New York Times coverage is here.  And for those who haven't been following the legislation, the Washington Post this handy chart with the highlights.

What happened to the auto-dealer exemption (the Brownback amendment) and the restrictions on proprietary trading (the Merkley-Levin amendment a.k.a. Volcker Rule)?  As we mentioned earlier today, their fates were tied:  As the Senate neared a final vote, Senator Brownback withdrew his auto dealer exemption. Because the two amendments were linked, that had the effect of killing the Merkley-Levin amendment.  (Update: As Rob Bramson notes in the comments, the Post reports that this was the result of a last-minute deal: "There would be no vote on Brownback's amendment, and hence no vote on the Levin and Merkley's provision, either. But the Senate would plan to hold a procedural vote Monday to instruct members of the House-Senate conference to consider exempting auto dealers in the final measure."  So the fight over the auto-dealer exemption may not be over.)

Several major differences between the House and Senate bills -- including whether there will be a truly independent Consumer Financial Protection Agency or whether it will be a mere bureau housed at the Fed -- will need to be worked out in conference. Politico quotes Barney Frank's prediction that the independent agency will win out: “The Fed feels it’s like, you know, having your ex-wife’s brother living in the house after you got a divorce,” Frank said of the Federal Reserve’s reluctance to house the agency, which was done to win Sen. Bob Corker’s (R-Tenn.) vote. But since Corker did not support the bill, “you’ll have an independent CFPA,” Frank said.

CFPA Debate in the Senate Hits the Final Stretch

by Deepak Gupta

A little over an hour ago, the Senate agreed to end debate over the financial reform bill within the next 30 hours. The vote to invoke cloture was 60 to 40, with GOP New Englanders Olympia Snowe, Scott Brown, and Susan Collins joining nearly all Democrats.  (Maria Cantwell and Russ Feingold voted no, based on their objection to the lack of strong language on derivatives.)

The Senate is now debating two important amendments:

• Sam Brownback's amendment to create an exemption from the Consumer Financial Protection Bureau's jurisdiction for car dealers that originate or broker loans to consumers.  The Defense Department recently came out against an exemption for auto lenders, given the significant impact that abusive auto-lending practices have on members of the military. Auto dealers made a major push for the exemption today.

• Jeff Merkley and Carl Levin's amendment to restrict proprietary trading at banks and other major financial institutions--designed to end Goldman-Sachs-style conflicts of interest. (The amendment is similar to the so-called "Volcker Rule" proposed by former Fed chair Paul Volcker.)

For reasons of parliamentary procedure and political compromise, the amendments' fates may be linked.  Senators who want to rein in risky trading by big investment firms may be forced to swallow the bitter pill of the Brownback exemption--or vice versa.  The White House strongly supports the former and strongly opposes the latter.

Another disturbing development: Scott Brown's cloture vote was likely gained at the cost of some important consumer protections.  Before he voted yes, he was insisting on getting exemptions from for big insurers and mutual fund companies in Massachusetts. “The key thing that we’ve been working on for three weeks — that directly affects MassMutual, Liberty Mutual, Fidelity — it’s not in there,’’ Brown said before the vote, adding that he would support the bill if those changes were made.

CNN.Com Piece: Let States Set Consumer Protections

Here.  The essay opposes attempts to amend the Consumer Financial Protection Bureau bill now on the Senate floor to preempt state consumer protection laws and enforcement actions