On June 30, 2009, the Obama administration sent proposed legislation to Congress to create a Consumer Financial Protection Agency and implement its plan to overhaul the nation's consumer protection regime. The legislation largely tracks the proposal contained in the administration's white paper on financial regulatory reform issued less than two weeks earlier. (Click here to read Ballard Spahr's June 25, 2009, alert on the proposal.) "Highlights" of the bill include the following:

  • The bill would create the Consumer Financial Protection Agency as an independent agency in the executive branch. Four of the Agency's initial five members would be appointed by President Obama and the fifth board member would be the Director of the National Bank Supervisor. The bill does not require any balance on the Agency Board between Democrats and Republicans.

  • National banks and federal thrifts would no longer have the benefit of federal preemption of "any consumer protection provision in state consumer laws of general application." The bill does not expressly repeal federal banking laws that national banks and other FDIC insured institutions have used to "export" interest charges nationwide, giving rise to hope in some quarters, pending any further clarification, that preemption of state usury laws remains intact.

  • In its current form, the bill withholds from the Agency authority to set nationwide usury caps. Of course, this could change in the legislative process.

  • Apparently, the bill would reverse the U.S. Supreme Court's Watters decision and remove federal preemption of state law for subsidiaries of federally-chartered institutions.

  • The legislation is expected to move quickly in the House and could be passed out of the House Financial Services Committee by the end of this month.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documentation of new consumer financial services products, its significant experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com

Ballard remains at the forefront in guiding clients dealing with the Administration's efforts to address the financial crisis. For prior alerts from our Economic Stabilization and Recovery Initiative, please click here.


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