Congress Passes Sweeping Financial Reform Legislation

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In a vote of 60 to 39-just enough votes to escape a Senate filibuster--the U.S. Senate passed the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act on July 15. The massive piece of legislation will become law with the president's signature, and introduce sweeping changes to the mortgage and financial services industries.

The House passed the legislation way back on June 30 and had been waiting for the Senate to muster the votes to pass the measure that was a massive response to the national financial crisis that thrust the nation into deep recession. The new law has 15 different titles that cover everything from creating a Financial Stability Oversight Council for monitoring systemic risk, to establishing a new Federal Insurance Office, to creating a new Consumer Financial Protection Bureau (CFPB) inside the Federal Reserve, to instituting mortgage reforms and anti-predatory-lending measures (Title 14).

The law also imposes new requirements and oversight over credit-rating agencies by creating an Office of Credit Ratings at the Security and Exchange Commission (SEC). The SEC would be given the authority to deregister a rating agency for providing bad ratings over time. And investors could bring private rights of action against rating agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source, according to a House Committee on Financial Services summary describing the legislation.

According to a CNNMoney analysis, the legislation orders government officials to conduct some 68 studies on a wide range of topics. In an analysis of the conference report done by Sonnenschein Nath & Rosenthal, New York, one of those studies is called for in Title 10 and requires the Treasury Department to do a study on the feasibility and desirability of ending the conservatorships of Fannie Mae and Freddie Mac, as well as on the future of the housing finance system.

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The new Consumer Financial Protection Bureau would have the authority to examine and enforce regulations on banks and credit unions with greater than $10 billion in assets, all mortgage-related businesses (such as lenders, servicers and mortgage brokers), and large non-bank financial companies (such as large payday lenders, debt collectors and consumer-reporting agencies). The Sonnenschein firm's commentary on the legislation noted that certain types of firms won exemptions from the bureau's oversight authority. These included real estate brokers, auto dealers, manufactured-home retailers and modular-home retailers.

The CFPB's director will be appointed by the president and confirmed by the Senate for a five-year term, so President Obama's pick will be around for quite some time. The bureau will house various offices and divisions, including a research unit to monitor the consumer financial products and services market, a unit to collect and track complaints, an Office of Fair Lending and Equal Opportunity, an Office of Financial Education, an Office of Service Members Affairs and an Office of Financial Protection for Older Americans, according to an analysis of the law by the Philadelphia-based Ballard Spahr LLP law firm's consumer financial services group.

The CFPB' s enforcement authority includes "the power to impose civil money penalties, ranging from $5,000 per day for garden-variety violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing violations," according to Ballard Spahr.

The rulemaking authority for most consumer financial protection statutes

(i.e., the Truth in Lending Act [TILA], the Equal Credit Opportunity Act [ECOA] and the Real Estate Settlement Procedures Act [RESPA]) will be transferred to the CFPB. In addition to being able to impose civil money penalties, the CFPB can issue cease-and-desist orders to restrain activity or require affirmative action, according to the Ballard Spahr analysis of the new law. …