FTC Rescinds Consumer Financial Protection Rules

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

Today, the Federal Trade Commission (FTC) rescinded nine regulations because the agency's rulemaking authority with respect to them has been  transferred to the Consumer Financial Protection Bureau (CFPB). These rules were republished by the CFPB, effective December 30, 2011. The FTC still has authority to bring law enforcement actions to enforce these rules.

The 2010 Dodd-Frank Act transferred to the CFPB most of the FTC’s rulemaking authority under the Fair Credit Reporting Act, as well as rulemaking authority under Sec. 43 of the Federal Deposit Insurance Act and portions of the Fair Credit Reporting Act. The Dodd-Frank Act also transferred rulemaking authority for two regulations recently issued by the FTC for services related to mortgage loans under Sec. 626 of the 2009 Omnibus Appropriations Act.

Fair Credit Reporting Act

In light of the transfer of rulemaking powers, the FTC rescinded under the Fair Credit Reporting Act:

• identity theft definitions (16 CFR 603, now at 12 CFR 1022.3);
• free annual file disclosures rule (16 CFR 610, now at 12 CFR 1022.130);
• prohibition against circumventing treatment as a nationwide consumer reporting agency (16 CFR 611, now at 12 CFR 1022.140);
• duration of active duty alerts (16 CFR 613, now at 12 CFR 1022.121); and
• appropriate proof of identity (16 CFR 614, now at 12 CFR 1022.123).

Under the Under the Fair Credit Reporting Act, the FTC continues to have rulemaking authority for its “Identity Theft Red Flag Rules” (16 CFR 681) and its rules governing “Disposal of Consumer Report Information and Records” (16 CFR 682). The FTC also retains rulemaking authority under Fair Credit Reporting Act with respect to motor vehicle dealers.

Mortgage Rules

The FTC also rescinded two rules on mortgage loan practices: the Mortgage Acts and Practices-Advertising or “MAP-Ad” Rule (16 CFR 321) and the Mortgage Assistance Relief Services or MARS Rule (16 CFR 322).

The MARS rule, which prohibited mortgage relief companies from making false or misleading claims among other things, was issued in November 2010. On at least two occasions-once in 2011 and once in 2012--the FTC has filed court actions for violations of the MARS rule. The MARS rule has been recodified as Mortgage Assistance Relief Services (Regulation O, 12 CFR1015).

The MAP-Ad rule took effect in August 2011. It prohibited misrepresentations regarding terms of mortgage credit products in commercial advertising. To date, the FTC has not brought an action alleging a violation of this rule. The MAP-Ad rule was republished by the CFPB at 12 CFR 1014.

Federal Deposit Insurance Corporation Improvement, Federal Debt Collection Practices Acts

In addition, FTC rules governing disclosure requirements for depository institutions lacking federal deposit insurance under the Federal Deposit Insurance Corporation Improvement Act (16 CFR 320, now 12 CFR 1009) and procedures for state application for exemption from the provisions of the Federal Debt Collection Practices Act (16 CFR 901, now 12 CFR 1006) were rescinded.

Consumer Financial Protection Bureau Proposes Supervision of Debt Collectors, Reporting Agencies

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

A proposed rule from the Consumer Financial Protection Bureau (CFPB)would place debt collectors and consumer reporting agencies that qualify as larger market participants within the bureau’s nonbank supervision program, marking the first time these activities would face federal supervision.

The proposed rule would cover debt collectors with over $10 million in annual receipts from debt collection activities. The CFPB estimates that approximately 175 debt collection firms would be under their supervision, accounting for 63 percent of annual receipts from the debt collection market.

Meanwhile, consumer reporting agencies with over $7 million in annual receipts would be subject to CFPB supervision, representing approximately 30 consumer reporting companies that account for about 94 percent of annual receipts.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” noted CFPB Director Richard Cordray.

The CFPB has until July 21, 2012 to issue an initial rule defining larger market participants that could come under CFPB supervision. The bureau is seeking public input as to which markets to include in the initial rule and which data sources the bureau might use to determine larger participants in nonbank markets.

The CFPB noted that as it adds new markets to monitor it will choose the best criteria for determining market participation, as well as the appropriate thresholds for individual markets.

Cordray to Be Installed as Head of Consumer Financial Protection Bureau

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

President Obama said he will use a recess appointment to install former Ohio attorney general Richard Cordray as head of the Consumer Financial Protection Bureau (CFPB), sidestepping protracted Republican efforts to block the nomination in the Senate. The GOP, however, questioned the legality of the move and indicated that it could be legally challenged.

Speaking at an event in Cleveland, Obama said “when Congress refuses to act and as a result hurts our economy and puts people at risk, I have an obligation as President to do what I can without them.” He added, “I will not stand by while a minority in the Senate puts party ideology ahead of the people they were elected to serve. Not when so much is at stake.”

Nomination Held “Hostage”

If Republicans were to continue to hold Cordray’s nomination “hostage,” the President said, then “more dishonest lenders could take advantage of the most vulnerable among us,” while “the vast majority of financial firms who do the right thing could be undercut by those who don’t.”

Cordray, speaking prior to the announcement, said he would begin work immediately, including expanding the CFPB’s program to non-banks, “an area we haven’t been able to touch up until now.”

“Unprecedented Power Grab”

Meanwhile, House Speaker John Boehner (R, Ohio) called the decision an “extraordinary and entirely unprecedented power grab . . . that defies centuries of practice and the legal advice of his own Justice Department.”

Boehner maintained that the move “goes beyond the President’s authority, and I expect the courts will find the appointment to be illegitimate.”

Senate Minority Leader Mitch McConnell (R, Ky.), said the recess appointment “represents a sharp departure from a long-standing precedent that has limited the President to recess appointments only when the Senate is in a recess of 10 days or longer. Breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

White House Press Secretary Jay Carney said the White House counsel believes that Senate pro forma sessions, used to prevent the President from exercising his constitutional authority, “do not interrupt the recess.”

Asked if the White House was prepared for a legal challenge, Carney said he would not speculate on the matter, noting that “the constitutional authority the President has is very clear.”

Expanded Federal Trade Commission Authority Missing from Financial Reform Bill

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

In coming to a consensus on a broad overhaul of financial regulation, House and Senate lawmakers decided on June 25 to exclude from the reform legislation provisions that would have expanded the authority to the Federal Trade Commission.

The proposed “Dodd-Frank Wall Street Reform and Consumer Protection Act” does not include language, which appeared in the House-approved “Wall Street Reform and Consumer Protection Act,” that would have streamlined FTC rulemaking procedures and enabled the agency to pursue civil penalties in court actions for FTC Act violations. The bill passed by the Senate did not include similar amendments to the FTC Act.

The House proposal would have granted the FTC the authority to promulgate rules using Administrative Procedure Act (APA) “notice and comment” rulemaking procedures. The new APA procedures would have replaced the FTC's current Magnuson-Moss rulemaking procedures, which are far more time-consuming.

In addition, the bill would have made it an unfair or deceptive act or practice to knowingly or recklessly provide substantial assistance to another in violating unfair or deceptive acts or practices prohibitions of the FTC Act.

The reform bill also does not include a provision that would have authorized the FTC to seek civil penalties in federal court actions for violations of Sec. 5 of the FTC Act. Currently, the agency must first present actions seeking civil penalties for violations of Sec. 5 of the FTC Act to the Department of Justice so that it can decide whether to file the suit.

Consumer Financial Protection Bureau

The legislation would establish a new Consumer Financial Protection Bureau. The bureau would be housed within the Federal Reserve and would examine and enforce regulations for banks and credit unions with assets in excess of $10 billion. It would consolidate authority that had been dispersed over a number of federal agencies, including the FTC.

Auto dealers pushed hard to be exempt from bureau oversight. They will remain under the jurisdiction of the FTC.

Text of the Conference report appears here.