On January 4, 2011, the Consumer Financial Protection Bureau (CFPB) implementation team, currently housed in the U.S. Department of the Treasury, signed a Memorandum of Understanding (MOU) with the Conference of State Bank Supervisors (CSBS) to establish a framework for coordination of the supervision and regulation of providers of consumer financial products and services.

Covered providers include non-depository mortgage lenders, mortgage servicers, private student lenders, and payday lenders. It is unclear whether the MOU applies to state-chartered depository institutions because they are not mentioned specifically in the MOU, the press release issued by the Treasury.

Specifically, the MOU provides that the parties to the MOU will work together to:

  • Promote consistent examination procedures
  • Coordinate supervisory activities
  • Promote efficient information sharing
  • Enforce federal and state consumer protection laws
  • Minimize the regulatory burden on providers of consumer financial services and products

The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB wide-ranging authority to set and enforce rules on mortgages, credit cards, payday lending, and other consumer financial products and services. Elizabeth Warren, the special adviser to the Secretary of the Treasury charged with setting up the CFPB during the interim period before its full implementation in July 2011, stated that the MOU would allow regulators “to bring thousands of financial service providers out of the shadows and to begin the process of ensuring that all lenders comply with the same basic rules.” 

It does not appear that state attorneys general will become parties to the MOU. However, Ms. Warren recently stated in an interview, quoted by the Bloomberg news service, that “state attorneys general are natural partners for the consumer agency.” In an apparent reference to the Office of the Comptroller of the Currency, she added: “There are regulators in Washington that used to prevent state attorneys general from protecting consumers.”

Dodd-Frank confirmed that state attorneys general can bring lawsuits against national banks and federal savings institutions but denied them new authority to investigate these entities. Whether Ms. Warren’s remarks signal that the CFPB intends to end run investigatory limitation remains to be seen. Certainly, Ms. Warren contemplates a close relationship between the CFPB and state attorneys general. On December 15, 2010, the Treasury announced the selection of current Ohio Attorney General Richard Cordray to lead the CFPB’s enforcement team.

For now, the primary concern for national banks and federal thrifts needs to be the significant curtailment of federal preemption scheduled to take effect on July 21, 2011. Federally chartered entities (and operating subsidiaries of such entities) will certainly find themselves defending attorney general lawsuits unless they act now to prepare for this sea change in federal preemption. Ballard Spahr is assisting numerous national bank and federal thrift clients in identifying the state laws to which they and their operating subsidiaries will become subject on July 21, 2011.

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; or Beth Moskow-Schnoll, 302.252.4447 or moskowb@ballardspahr.com




Copyright © 2011 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.