Federal regulators are hard at work implementing the Dodd-Frank Act, last year's colossal overhaul of the U.S. financial system. As a result, a number of industries are preparing for fundamental changes in the way they conduct their businesses. Perhaps most striking is Dodd-Frank's intended transformation of consumer financial services regulation. In creating a powerful new Bureau of Consumer Financial Protection, empowering state attorneys general, and scaling back on the predictability and security of federal preemption, Dodd-Frank poses a myriad of challenges to corporate counsel. Weil, Gotshal & Manges is relying on its vast experience in past consumer protection legislation to counsel and litigate in this sector.
Long before there was Dodd-Frank, the first federal law foray into consumer financial services was the Consumer Credit Protection Act of 1968. That enactment launched the Truth in Lending Act, regulating the disclosure of the terms and conditions incident to the extension of consumer credit. What is perhaps lesser known is that the 1968 legislation also established a National Commission on Consumer Finance to study the consumer credit industry and render a report and policy recommendations. Weil's reputation in the area of state consumer finance regulation and litigation representing the industry's modern pioneers earned the firm's then-managing partner Ira Millstein a nomination by the President of the United States to serve, and later chair, the Commission.
The Commission finished its work in 1972, issuing a report several volumes in length. In a letter of transmission from Chairman Millstein to President Nixon and Congress, the Commission believed that the public could be best served by "a truly competitive consumer credit market," with adequate disclosure of relevant facts to an informed consuming public, together with legislation and regulation to eliminate excessesThe report also recommended significant additions to the protection of consumers in the fields of creditor remedies and collection practices, expanded administrative authority over all classes of creditors and the elimination of restrictive barriers to entry in consumer credit markets.
The findings of the Commission, supported by voluminous studies conducted by economists, sociologists, members of academic institutions and others, led to the enactment of various other federal consumer protection statutes such as the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act and the Fair Debt Collection Act. Again a number of Weil attorneys participated in the drafting process of these statutes and the subsequent rulemakings to ensure that the views of industry clients were balanced with consumer protection interests. Led by Carl Lobell, who chaired New York State and American Bar Association committees devoted to consumer credit, Weil attorneys also played a significant role in defending against the flood of class action litigation throughout the county that unfortunately followed in the wake of these federal laws and their state counterparts.
Although never enacted, one recommendation of the National Commission on Consumer Finance was the establishment of a Consumer Protection Agency with a unit to be known as the Bureau of Consumer Credit. The proposed bureau was to have the statutory authority to issue rules and regulations and supervise all examinations and enforcement functions under the Consumer Credit Protection Act. The Dodd-Frank Act parallels in many respects the recommendations of the National Commission on Consumer Finance. Dodd-Frank establishes a Bureau of Consumer Financial Protection (CFPB) to propose, enforce and supervise consumer protections called for by abuses in the market not adequately dealt with in the past, as well as those which have emerged more recently.
The CFPB appears to be a force to be reckoned with when it becomes effective this year. It is autonomous and, despite its exclusive focus on consumer financial services, it will be supported by an annual budget dwarfing that of the Federal Trade Commission, for example. In the CFPB, a host of non-bank participants in the consumer financial services market for the first time will have a federal regulator with direct supervisory authority over them.
Weil lawyers believe that much can be learned from the past. "We think the CFPB should approach its broad responsibilities in the same spirit as the National Commission on Consumer Finance, and we will urge it to do so," said partner Walt Zalenski. "Few can doubt, for example, that the government needs to fully understand the relationship between consumer credit markets, consumer behavior, and the preexisting regulatory regime, on the one hand, and the subprime meltdown on the other. Millstein agrees: "A thorough study of the issues, in the manner of the National Commission, is the first step in preventing recurrences."
Ira Millstein is a Senior Partner in the international law firm Weil, Gotshal & Manges LLP, where, in addition to practicing in the areas of government regulation and antitrust law, he has counseled numerous boards on issues of corporate governance, including the boards of General Motors, Westinghouse, Bethlehem Steel, WellChoice (fka Empire Blue Cross), the California Public Employees Retirement System (CalPERS), Tyco International, the Walt Disney Company, the New York State Metropolitan Transportation Authority, the Ford Foundation, The Nature Conservancy and Planned Parenthood Federation of America, among others. Carl Lobell formerly co-chaired the firm's Litigation practice. He has been a partner at the firm since 1970, having begun his legal career in the Antitrust Division of the Department of Justice.Walter E. Zalenski is a partner in the New York office where for more than 20 years he has practiced in the area of consumer financial services and banking law.