Banking Law Prof Blog

Bankruptcy and Free Speech for Attorneys

Does the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 contain an unconstitutional provision that would prohibit an attorney from telling a client that he or she can legally incur additional debt (for example to pay for emergency medical care OR to refinance a mortgage at a lower interest rate OR to purchase a car needed for work) when the client is contemplating bankruptcy? 

The provision in question is designed to prohibit bankruptcy lawyers from counseling clients to defraud creditors by advising clients to take on additional debt immediately prior to filing bankruptcy.  But the language may be overbroad, infringing on free speech rights of the attorney and inhibiting lawful and candid advice.  The Eighth Circuit Court of Appeals held the provision violates Consitutional free speech rights under the First Amendment. 

The U.S. Supreme Court heard oral arguments this week in Milavetz v. U.S.

Link to U.S. Supreme Court case summary:  http://www.supremecourtus.gov/qp/08-01119qp.pdf

LInk to Washington Post article:  http://www.washingtonpost.com/wp-dyn/content/article/2009/12/01/AR2009120103948.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter

(ag) December 2, 2009, in Banking, Consumer Protection, Supreme Court

CFPA in the Dodd Version of Financial Reform

A New York Times analysis of the regulatory reform measure introduced by Senator Chris Dodd concludes that it gives new energy to the likelihood of an independent Consumer Financial Protection Agency.  Of course, a committee markup, controversial Senate vote, and harmonization with the House bill present significant opportunities for "death by a thousand cuts," to quote Elizabeth Warren.

Link:  http://bucks.blogs.nytimes.com/2009/11/10/the-status-of-the-consumer-financial-protection-agency/ 

(ag) Nov. 13, 2009, in Financial Regulatory Reform/Consumer Protection

Support for the CFPA

More than 80 law professors support the proposed new Consumer Financial Protection Agency.  Financial industry trade associations oppose it.  Will Congress have the backbone to pass this consumer legislation?

Link to Editorial:  http://www.huffingtonpost.com/norman-i-silber/news-flash-lenders-prefer_b_342341.html

(ag) Nov. 3, 2009, in Consumer Protection

CFPA Bill Moves Forward

Here's what CSBS says about the progress of a bill to create a new Consumer Financial Protection Agency: 

"The House Energy and Commerce Committee on Thursday passed legislation (H.R. 3126) to create the new Consumer Financial Protection Agency, which was passed earlier by the House Financial Services Committee.

The committee adopted a key change that would replace the single executive for the agency with a five-member commission with staggered terms. The change drew immediate condemnation from House Financial Services Chairman Barney Frank (D-Mass.), who said a single executive is needed for the agency to take prompt and efficient action to protect consumers. House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) expressed concern that the House Financial Services Committee added too many exemptions and exclusions to the bill. While not amending the bill, Waxman said he might seek changes in the future to ensure that the new agency has the right to regulate and take enforcement actions against merchants and retailers, auto dealers and others.

 The bill now moves to the House for consideration."

(ag) Nov. 2, 2009, in Consumer Protection

CFPA Bill Out of Committee - Preemption Provisions

The House Financial Services Committee concluded its markup of H.R. 3126 which will create a new Consumer Financial Protection Agency (CFPA).   The favorable committee vote was 39-29,  A summary of the preemption provisions of the bill follows:

Subtitle D – Preservation of State Law

National Bank / Federal Thrift Preemption
This legislation will reinstate the preemption standard in Barnett Bank of Marion County, N.A. v. Nelson, permitting the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with the exercise of powers granted to a federally regulated bank or thrift.  Preemption determinations must once again be made by notice and comment regulation or on a case-by-case basis, and with consultation  with CFPA to ensure that consumers will be protected under federal law if the state law is preempted.

Operating Subisidiaries
The bill reverses Watters v. Wachovia, in which the Supreme Court exempted operating subsidiaries of national banks and federal thrifts (which generally are state incorporated entities) from state consumer protection laws. H.R. 3126 will require state-chartered business entities to comply with state laws.

Enforcement by State Regulators
The bill codifies Cuomo v. Clearinghouse with explicit provision that state attorneys general and other appropriate state regulators are not prevented from enforcing state laws against national banks and federal thrifts. The bill also authorizes state attorneys general to enforce CFPA regulations, after consultation with the CFPA.

Link to full bill summary:  http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/FinancialRegulatoryReform/CFPA_Summary_of_HR_3126.pdf

LInk to CSBS summary:  http://www.csbs.org/Content/NavigationMenu/PublicRelations/CSBSExaminer/Examiner.htm

(ag) Oct. 24, 2009, in Congress, Consumer Protection, Federal Preemption.

Consumer Credit, Debt and Bankruptcy

Consumer Credit, Debt and Bankruptcy:  Comparative and International Perspectives

Edited by Johanna Niemi, Iain Ramsay and William C Whitford

The following is an abstract of an intriguing book of essays: 

"After a long period of prosperity and steady economic growth, the world's leading economies are now in crisis, and although there will be debate about its origins, the scale and seriousness of the crisis is in no doubt. There is also no doubt that excessive amounts of consumer credit, allied to a weak understanding of how globalised credit markets might react to a crisis, have played a significant part. This book, which is primarily about credit, debt and the trouble they have led to, is written by authors who have specialised in researching into over-indebtedness, that is, situations in which an individual's debt burden has become overwhelming.  For these authors the plight of individuals is a primary concern, but the wider issue is how credit is used and how it changes societies.  

The essays in this volume, addressing topics which are fundamental to our understanding of the current crisis, range widely across the whole sector of consumer finance, including mortgages, 'credit-binges', the regulation of consumer lending, insolvency, repayment plans, debt counselling and much more besides. The conclusions drawn from the book are equally wide-ranging, but above all the lesson learned from these essays is that the financialisation of contemporary life ensures that issues of the appropriate role of credit remain of critical importance in society."

(ag) Oct. 21, 2009, in Economy, Consumer Protection 

CFPA Update

More than 80 law professors have signed onto the letter to Congress supporting the Obama administration proposal to create an independent Consumer Financial Protection Agency (CFPA).  House Financial Services Chairman Barney Frank placed the letter into the record of hearings last week.

Link to letter:  http://law.hofstra.edu/pdf/Media/consumer-law%209-28-09.pdf

Professor Elizabeth Warren says that reasons to support an independent CFPA can be summed up in five words:  "The credit market is broken."  Professor Warren makes it clear that the broken credit market contributed to the current financial crisis, is helping to perpetuate the crisis, and will cause future crises unless we fix it!

LInk:  http://www.youtube.com/watch?v=lYd08e5Cjvs

(ag) Oct. 9, 2009, in Consumer Protection, Financial Regulatory Reform

CFPA - Will it be a toothless tiger?

Consumer groups are disappointed in the House Financial Services Committee's plans to weaken the proposed Consumer Financial Protection Agency in response to powerful industry wishes.  A recent article from the consumer perspective refers to the new version of CFPA as "watered down," "less powerful," and "declawed."

Link to story:  http://consumerist.com/5367103/consumer-financial-protection-agency-gets-watered-down

(ag) Sept. 7, 2008, in Consumer Protection, Financial regulatory reform

Consumer Financial Protection Agency Legislation

Here's what the Conference of State Bank Supervisors (CSBS) reports today about the Consumer Financial Protection Agency (CFPA) debates on the Hill: 

"Chairman Frank Revises Consumer Protection Bill
 
Prior to Wednesday's hearing to gather additional viewpoints on the proposed Consumer Financial Protection Agency (CFPA), House Financial Services Committee Chairman Barney Frank (D-Mass.) released revised draft legislation (H.R. 3126) reflecting a number of changes in response to concerns raised by industry and consumer groups.

CSBS has analyzed the revised bill, noting provisions of interest to state bank regulators. The revised legislation changes the structure of the agency from a five person board to a single director, advised by an oversight board to include the Fed, FDIC, national bank supervisor, NCUA, FTC, HUD, and state representation by the chair of the FFIEC State Liaison Committee.

In  his revised bill, Chairman Frank inserted specific exemptions for certain types of non-financial firms such as retailers, accountants, tax preparation services, real estate brokers and agents, etc.

He also added registration requirements for nonbanks that provide consumer financial products.

The revised bill also changes funding requirements from appropriations and fees and other assessments to having the Federal Reserve transfer 10 percent of total expenses and sets up separate funds within Treasury to cover CFPA expenses for banks vs. nonbanks.

He also set up a dispute resolution mechanism and removed the original requirement that mandated financial institutions providers to offer "plain vanilla" products.

The revised bill maintains the original version's elimination of federal preemption of state consumer protection laws and allows states to go beyond federal standards.

CSBS's support of the measure is contingent on these provisions (elimination of federal preemption and preservation of the "floor not ceiling" provisions) and maintaining a significant role for state regulators in terms of coordination and consultation in rulemaking and examinations.  Additionally, CSBS supports examination by the prudential regulator.  Chairman Frank has indicated he plans to mark up the bill the week of October 12. "

Link to CSBS Examiner:  http://www.csbs.org/Content/NavigationMenu/PublicRelations/CSBSExaminer/Examiner.htm

(ag) Oct. 2, 2009, in Consumer Protection, Financial Regulatory Reform, Federal Preemption
 

Consumer and Banking Law Professors Support Consumer Financial Protection Agency

On September 30, 2009, the House Financial Services Committee, chaired by Representative Barney Frank, will hold hearings on H. 3126, titled “the Consumer Financial Protection Act” which would create an independent Consumer Financial Protection Agency.

Today more than seventy law scholars who teach in fields related to consumer law and banking law have signed a detailed Statement of Support demonstrating their strong views about the importance of this legislation.

I am one of the signatories to this letter urging Congress to put some teeth into consumer financial protection.

Link to Press Release:  http://law.hofstra.edu/NewsAndEvents/PressReleases/pressreleases_20090928_consumer.html

(ag) Sept. 29, 2009, in Consumer Protection/Financial Regulatory Reform

New North Carolina Legislation to Protect Consumers from Foreclosure

On September 9, 2009, North Carolina Governor Bev Pedue signed into law The Consumer Protection Act of 2009.  The Clerk of the Court presiding over a foreclosure hearing may continue the hearing for 60 days to allow the borrowers and the lender to work together to avoid foreclosure.

The new law also contains protection from certain types of unfair debt collection.  Debt buyers must now prove their right to collect the debt.  This is to prevent unscrupulous persons from buying old debt and aggressively suing to collect debts that may have been paid or discharged.

Link:  http://www.governor.state.nc.us/NewsItems/PressReleaseDetail.aspx?newsItemID=611

(ag) Sept. 14, 2009, in Consumer Protection

Overdraft Fees on Debit Cards

Consumers are irate about huge overdraft fees on small purchases.  Banks claim they need the revenue.  Center for Responsible Lending says these fees hit hardest those who can least afford them.  The New York Times has a story today.

LInk:  http://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debit.html?_r=1&pagewanted=print

(ag) Sept. 9, 2009, in Consumer Protection

Eighth Circuit Recognizes Limits on Federal Preemption

The U.S. Court of Appeals for the Eighth Circuit recently ruled that national bank assignees or purchasers of mortgages are not completely shielded from state law violation claims by a blanket claim of federal preemption.  The case is Thomas v. U.S. Bank. 

Plaintiff/Appellants are Missiouri homeowners who received "high loan-to-value" second mortgages (reflecting total debt of 125% of the value of their homes) from FirstPlus Bank, a federally insured state-chartered bank which has since failed.  Their mortgages were purchased or assumed by other banks, including some national banks.

Plaintiffs claim that the loans violated state law, specifically the Missouri Second Mortgage Loans Act (MSMLA) which limits the type and amount of closing costs and fees that can be imposed on residential second mortgages secured by MissourI real estate.

The national banks removed the case to federal court and successfully moved for dismissal of the case, contending that state law claims were completely preempted by the Depository Institutions Deregulation and Monetary Control Act (DIDA). 

On appeal, the Eighth Circuit reversed and remanded to state court for trial.  The Eighth Circuit opinion distinguished preemption under the National Bank Act (NBA) and the limited scope of preemption provided by the plain language of DIDA.  NBA would have applied if national banks had originated the loans.  DIDA applies to loans originated by statte-chartered banks.

State law claims in this case are not preempted because state law usury limits are higher than the ceiling provided under federal law -- even though these claims are for non-refundable broker's fees that exceeded MSMLA limits and for closing costs and fees that exceeded the fees actually charged by third-party providers where the originator FirstPlus retained the difference.

The state law remedy -- forfeiture of interest and twice the interest paid -- is not preempted here -- if the state law claims can be established at trial.

Link:  http://www.aba.com/aba/documents/GeneralCounsel/BankingDocket/ThomasvUSBankNational.pdf

(ag) Sept. 5, 2009, in Federal Preemption, Lending Issues, Consumer Protection, Predatory Lending, Dual Banking

Consumer Information about Credit Cards and Mortgages

FDIC's Consumer News highlights information for the public about recent changes to credit card rules, prohibitions against abusive lending practices, and revised consumer disclosures.

Link:  http://www.fdic.gov/news/news/press/2009/pr09158.html

(ag) Aug. 31, 2009, in Consumer Protection

Texas Tech Banking School

The Rawls College of Business at Texas Tech University sponsors a Banking School every summer.  I spoke this afternoon at the 36th Annual Texas Tech Banking School on "Legal Issues for Bankers".  We've had an almost unprecedented number of changes in consumer protection laws and regulations during the past year.  Bank compliance officers have my heartfelt condolences.

Link to my powerpoint slides:  Download Texas Tech Banking School 2009

(ag) Aug. 11, 2009, in Consumer Protection

New Exam Procedures for Consumer Protection Laws & Regs

The OCC announced today that it has issued a new electronic version of "Other Protection Laws and Regulations" -- part of the Comptroller's Handbook for examiners.  When advising banks, it's always good to know what the examiners will be looking for.

Link:  http://www.occ.treas.gov/ftp/bulletin/2009-27.html

(ag) Aug. 10, 2009, in Consumer Protection, OCC

New Credit Card Rules Effective August 20, 2009

FDIC FIL-44-2009 (Aug. 6, 2009) reviews the Regulation Z (Truth in Lending Act) Open End Credit changes resulting from The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act). 

The Federal Reserve Board has published Interim Final Rules and reminds credit card issuers and consumers that Reg Z Changes will be implemented in three phases.

1.  Effective August 20, 2009, for all open end credit accounts, including credit cards and home equity lines of credit accessed by a credit card, statements must be mailed or delivered at least 21 days before the payment date.

2.  Effective August 20, 2009, credit card issuers must give 45 days notice and a right to cancel the card before increasing the interest rate or imposing other adverse changes in terms.

Other changes will become effective Jan. 22, 2010, and Aug. 22, 2010.  Bank compliance officers should be getting ready for all changes.

Link to FDIC Financial Institutions Letter:  http://www.fdic.gov/news/news/financial/2009/fil09044.html#body

Link to FRB Interim Final Rule:  http://www.federalreserve.gov/newsevents/press/bcreg/20090715a.htm

and http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090715a1.pdf

(ag) Aub. 9, 2009.

Wake Up and Smell the Roses -- or Whatever -- at OCC!

I continue to be appalled but not surprised that Comptroller John Dugan can still argue against state consumer protections because the costs "will be ultimately be borne by consumers."  As if consumers are not bearing the costs of the OCC's shameless history of focusing only on standardization for national banks, preemption of state law regardless of purpose, and maximization of short-term bank profit whatever the long-run consequences! 

This agency is part of the problem we are living with today.  The current administration and Congress need to take this agency and its senior staff to the woodshed.  What will it take for them to recognize that all banking agencies must refocus and that consumer protections cannot continue to be disregarded?  A national banking crisis?  Oh, we have that -- well then, what????   It is clear that without a good housecleaning, this agency will not "get it."  There is no reason -- other than short-term greed -- why national banks cannot comply with reasonable state consumer protection laws.  There is also no reason -- other than arrogance and agency capture -- why the national banking supervisor cannot cooperate with state regulators to assure consumer protections.  

Link to OCC Statement about "Regulatory Reform as long as the OCC gets to keep doing exactly what it has been doing":  http://occ.treas.gov/ftp/release/2009-88.htm

(ag) July 28, 2009, in Consumer Protection, Economy, OCC, Dual Banking System, Financial Regulatory Reform

State Officials Testify About Obama Plan and State Consumer Protection

The House Financial Services Committee held its first hearing on President Obama's Plan for the Restructuring of the American Financial Regulatory System. 

As expected, the proposed independent Consumer Financial Protection Agency is garnering attention -- pro and con.  Testimony from State officials supports the President's plan to restore balance to the Dual Banking System that represents a cornerstone of the U.S. financial system by rolling back some inappropriately aggressive attempts to exclude national banks and their affiliates from the reach of state consumer protection laws. 

The House Financial Services Committee website carries a webcast of the hearing and the Conference of State Bank Supervisors (CSBS) reported on the hearing in its weekly bulletin, quoting Massachusetts Secretary of the Commonwealth William Galvin as saying that,  "Investors and consumers have been harmed when the states have been preempted from protecting their interests. . . .States remain the regulators that are closest to the investing public, and they have demonstrated they can respond quickly and effectively to help investors.” He also discussed the good track record states have in coordinating their regulatory efforts with federal examination and enforcement.    

Link to Hearing:  http://www.house.gov/apps/list/hearing/financialsvcs_dem/fullhr_061109.shtml

(ag) June 26, 2009, in Consumer Protection/Dual Banking

FTC , the Financial Crisis, and Consumer Protection

Lest you think that the Federal Trade Commission has no opinion on the current economic crisis and its effect on consumer protection, check out recent Congressional testimony:

•  May 6 – On “Foreclosure Rescue and Loan Modification Scams”
• March 31 – On “Leveraging FTC Resources to Protect Consumers of Financial Services and Promote Competition”
• March 5 – On Consumer Protection in the Used and Subprime Car Market”
• February 26 – On “Consumer Protection and the Credit Crisis”

Link:  http://www.ftc.gov/os/testimony/111hearings.shtm

(ag) May 18, 2009 In “Consumer Protection”