U.S. Treasury Secretary Timothy F. Geithner has set July 21, 2011, as the "designated transfer date" or "DTD" – the effective date for many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including new restrictions on federal preemption of state laws affecting national banks and federal thrift institutions. Also, in a related development, Elizabeth Warren has been named Assistant to the President and Special Advisor to the Secretary of the Treasury on the Bureau, a move strongly opposed by providers of consumer financial products and services.

National banks and federal thrifts need to act promptly to respond to the new preemption regime under the Dodd-Frank Act. They should review existing regulatory interpretations and court decisions to see if they can continue to be relied upon, as well as review all state laws that could potentially apply to a bank's or thrift's operations and to those of operating subsidiaries in the absence of any preemption.

Secretary Geithner can extend the DTD for up to six additional months, to January 21, 2012, by explaining to Congress, in writing, why an extension is necessary and what steps will be taken to effect an orderly and timely implementation of Title X by the extended DTD.  However, there is no assurance that the DTD will be extended beyond July 21, 2011.

The key provisions of Title X that will become effective on the DTD include the following:

  • Authorizing the Bureau to issue regulations prohibiting unfair, deceptive, or abusive acts or practices and requiring new disclosures

  • Giving the Bureau enforcement authority, including the power to conduct investigations, conduct hearings, commence civil actions, and impose civil money penalties in court and administrative actions, ranging from $5,000 per day for garden-variety violations of federal consumer financial laws to $25,000 per day for reckless violations and $1million per day for knowing violations

  • Transferring the rule-writing authority of various federal agencies under nearly all consumer financial protection laws to the Bureau, together with personnel of such agencies 

  • Dramatically changing the rules regarding federal preemption of state law by effectively invalidating the existing preemption regulations of the Office of the Comptroller of the Currency and the Office of Thrift Supervision to the extent they apply to "state consumer financial laws"

Secretary Geithner's designation of the DTD also establishes the date by which regulators charged with promulgating rules under Title XIV, relating to residential mortgage loans, must act to avoid having the provisions of Title XIV become effective on their own without implementing regulations. Regulations implementing Title XIV must be prescribed in final form on or before January 21, 2013, and take effect within 12 months of the date on which they are prescribed.  As to any section of Title XIV for which regulations have not been prescribed in final form by January 21, 2013, that section becomes effective on its own on January 21, 2013.

Last week, the White House announced Ms. Warren's appointments as Assistant to the President and Special Advisor to the Secretary of the Treasury on the Bureau. President Obama said she "will help oversee all aspects of the Bureau's creation, from staff recruitment to designing policy initiatives to future decisions about the agency." The appointments are controversial because of the strong industry and business opposition and the perception that the appointments are being used to circumvent the Senate approval required for the Director of the Bureau.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its 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 group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair 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.

To help clients understand and comply with the Dodd-Frank Act, Ballard Spahr has formed the Financial Institutions Reform Task Force. The task force tracks developments under this historic legislation and provides clients with information, guidance, and other legal services relating to the Dodd-Frank Act.


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