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Competition and Confusion on Capitol Hill

An imbroglio is brewing on Capitol Hill that will directly impact the financial services industry and spill over into just about every company that directs marketing to consumers, particularly in the digital space. It’s got all the intrigue Washington is known for, and is something corporate counsel need to watch.

Somewhat buried in the Dodd-Frank legislation that revamped regulatory oversight and controls over the financial services industry is a mandate directed to the new Consumer Financial Protection Bureau (still without a director) and the Fed’s stalwart for consumer protection—the Federal Trade Commission—to reach a memorandum of understanding (MOU) on how the two agencies plan to share jurisdiction over unfair and deceptive acts and practices, the bread and butter of the Federal Trade Commission Act. Adding more fascination to whatever coordinated efforts the two federal agencies agree upon is that the CFPB also has jurisdiction over so-called “abusive acts and practices,” something the FTC does not enjoy.

This presents a misalignment that will be difficult to address. Clearly, in dividing the regulatory riches, the FTC can’t get what the CFPB has, but the CFPB can regulate everything the FTC has under its umbrella, at least with respect to financial services. In addition, Dodd-Frank transferred to the CFPB the FTC’s authority with regard to some areas where the FTC had longstanding regulatory control, e.g., interpretive guidance under the Fair Credit Reporting Act.

Interesting politics. While the CFPB has reportedly entered into an MOU with the FTC and other agencies regarding fair lending issues, it has yet to do so under the broader consumer protection standards.

On November 30, however, the CFPB issued a request for public suggestions on how it should streamline regulations protecting consumers with regard to credit cards, ATMs, and other financial transactions. The notice stated, “The bureau believes there may be opportunities to streamline the inherited regulations by updating, modifying or eliminating outdated, unduly burdensome or unnecessary provisions. . .” in rules previously enforced by a number of other federal agencies that are now in the CFPB’s bailiwick—apparently including some “outdated, unduly burdensome or unnecessary provisions” previously under the FTC’s watchful eyes.

So much for a ringing endorsement of the FTC’s past work.

The announcement also cites the CFPB’s key concern over consumer privacy rights, including adopting a rule that all financial services providers must annually send consumers copies of the provider’s privacy policies, even if they have not changed. If the CFPB adopts such a rule, won’t that become “best practices” that non-financial service providers are best advised to adopt? And all that at the expense of killing more trees or wasting more megabytes for something we all know in our hearts consumers never really read (just like all the disclosures consumers already get from banks with their monthly credit card bills).

Thank you, but I’d prefer the old outdated rules.

When the two agencies do sit down and hammer something out—and have no doubt that they eventually will—the real fun begins. Both agencies are beholden to the House Appropriations Committee for operating costs. The FTC has a somewhat strained relationship with the committee. Obviously, the CFPB, the new fair-haired kid on the block, has no history or axes to grind. Of course, the FTC will deny any such disadvantage, but you know it’s there. And with all the pressure to reduce government spending, one cannot help but wonder if through appropriation maneuvering the FTC may be cut out of consumer protection in the financial services industry completely.

And that would be a typically bone-headed move by Congress. As Lydia Parnes, then-director of the FTC’s Bureau of Consumer Protection, testified at 2008 hearings before the House Committee on Appropriations, Subcommittee on Financial Services and General Government, the FTC has been at the game of consumer protection in financial services for decades and protects “consumers at every stage of the consumer credit life cycle, from the advertising and marketing of financial products to debt collection and debt relief.”

Granted, while the FTC has never had jurisdiction over banks, thrifts, federal credit unions, and non-bank financial companies, the federal agencies that did have jurisdiction (until the CFPB came to be) followed the FTC’s lead and were generally consistent with the FTC’s views on false or deceptive acts and practices. If the FTC’s purse strings are throttled, the novice CFPB will be without that ongoing guidance. On the other hand, if abusive practices are to be regulated (and hopefully some day defined), the CFPB needs the dough. So even with an MOU, appropriations dollars may well decide which agency does what.

Doug Wood, We Expert

Reprinted from Corporate Counsel, http://www.law.com/jsp/cc/index.jsp

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