New Consumer Protection Agency, FTC Powers Approved by House Committee

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The House Energy and Commerce Committee yesterday approved legislation creating a new Consumer Financial Protection Commission, streamlining FTC rulemaking procedures, and broadening the FTC's authority to seek relief in court.

The committee reported favorably the proposed “Consumer Financial Protection Agency Act of 2009” (H.R. 3126), as amended, by a vote of 33 to 19.

This was the second House panel to approve the bill. The House Financial Services Committee reported favorably on the measure on October 22.

The legislation calls for a new Consumer Financial Protection Agency with broad rulemaking authority to prohibit unfair, deceptive, and abusive acts and practices with respect to financial products and services, among other responsibilities. The new agency would take over some of the consumer protection functions of the federal banking agencies and the FTC.

Effect on FTC Jurisdiction

The proposed legislation states that it preserves the FTC's authority under the FTC Act. However, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Truth in Lending Act, and certain provisions of the Gramm-Leach-Bliley Act would come within the jurisdiction of the new Consumer Financial Protection Agency.

The Energy and Commerce Committee amended the legislation to strengthen the FTC's authority where it has shared jurisdiction with the new agency. Where there is shared jurisdiction, the version of the legislation approved by the House Financial Services Committee required the FTC to provide 30 days' notice to the Consumer Financial Protection Agency of its intention to file an enforcement action and the new agency would have the right to intervene.

The House Energy and Commerce Committee-approved version would eliminate the “waiting period” imposed on the FTC. Under the Energy and Commerce Committee-approved version, the FTC would merely be required to provide notice upon initiating an enforcement action.

The Energy and Commerce Committee-approved version would also impose a reciprocal notification requirement, such that the new agency would be required to notify the FTC of its enforcement actions, and the FTC would have a right to intervene.

A provision that would have substituted the director of the new agency for the FTC as a party to any pending actions after the creation of the new agency was stricken from the Energy and Commerce Committee version of the measure.

The Energy and Commerce Committee approved an amendment that would establish the new agency as a five-member independent commission, similar to the FTC, instead of having the agency headed by a single director. There would also be no automatic transfer of staff from the FTC to the new agency as originally proposed.

FTC Rulemaking Procedures

H.R. 3126 would streamline FTC rulemaking authority. It would grant the agency the authority to promulgate rules using Administrative Procedure Act (APA) “notice and comment” rulemaking procedures. The new APA procedures would replace the FTC’s current Magnuson-Moss rulemaking procedures, which are far more time-consuming.

Civil Penalty Authority

Energy and Commerce Committee Chairman Henry Waxman (California) introduced “an amendment to further strengthen the FTC’s litigation authority.” The amendment, which was approved in a 19 to 17 vote, would add language to the Consumer Financial Protection Agency Act authorizing the FTC to seek civil penalties in federal court actions for violations of Sec. 5 of the FTC Act.

Currently, the FTC can file an action in federal court to obtain injunctive relief and it can seek civil penalties for violations of its existing consent decrees. However, the agency must first present actions seeking civil penalties for violations of Sec. 5 of the FTC Act to the Department of Justice, which decides whether to file the suit.

Ranking Republican Member Joe Barton (Texas) unsuccessfully opposed the amendment, saying that it was wise to keep the Department of Justice in the process as a check on the FTC.

FTC Reaction

FTC Chairman Jon Leibowitz issued a statement, lauding the Committee’s passage of the bill.

“Americans are still experiencing a period of extreme financial distress, and the modest new authority given to our agency will help ensure that we have the tools necessary to fight fraud and go after those who perpetrate it,” the statement said. “We commend the House Energy and Commerce Committee, and especially Chairman Waxman, for their visionary work on behalf of consumers.”