Reuters reports that Barney Frank has proposed some revisions to H.R. 3126 to address concerns about that legislation that would create the Consumer Financial Protection Agency.  These proposed revisions include eliminating the requirement that "vanilla" products be offered by financial institutions, and clarifying that the CFPA would not have authority to require sellers of financial products to assure that consumers understand the features and risks of the products they are buying. The CFPA instead would focus its efforts on ensuring meaningful and comprehensible disclosures. These are helpful revisions given the nearly unlimited authority that the original legislation seemed to impart.  The proposed revisions also would give the existing regulators a seat on a Consumer Financial Protection Oversight Board that would advise the Director of the CFPA.  This would help the coordination effort with other regulators with potentially conflicting safety and soundness regulatory concerns, and the revision would further create an independent body to which institutions subject to conflicting regulatory demands could appeal for relief.  These revisions are clearly a response to criticisms that bifurcating consumer protection responsibiities from prudential and safety and soundness regulation will create turf wars with the regulated in the middle.  Other proposed revisions would require that the CFPA coordinate its examination activities with respect to an entity with other regulators that have examination authority, and would address CFPA funding fairness issues that have been raised by the banking industry. Finally, the proposed revisions would clarify the standards applied by the CFPA to non-bank financial institutions subject to its jurisdiction.  The good news, I guess, is that the regulation can be no more strict than that applied to banks.

In an important respect the proposed revisions seem quite inadequate, and that is in clarifying the scope of jurisdiction of the CFPA - in other words, who is subject to CFPA jurisdiction (and why)?  The Frank memorandum states an intent that the CFPA would not have authority over non-financial businesses and their billing activities (the corner butcher can now relax), and further lists a number of proposed express exclusions from coverage under H.R. 3216, such as lawyers, accountants, tax preparers, retirement plan providers, realtors, auto dealers, and communications providers. 

Two additional exclusions merit discussion.  The memorandum proposes that consumer reporting agencies would now expressly be excluded and continue to be regulated by the Federal Trade Commission. However, the language in H.R. 3126 that makes entities engaged in credit reporting activities a "covered person" covers not only collection of "consumer report information" but also the collection of "other account information".  Unless this is further pared back when the revised bill is actually drafted, the CFPA apparently will have jurisdiction, as an example, over entities creating and maintaining transactional databases not amounting to consumer reports under the Fair Credit Reporting Act and providing them to third parties for use in behavioral marketing or for other purposes.  In fact, this would not be inconsistent with the transfer to the CFPA of authority under existing privacy laws, such as Gramm-Leach-Bliley.

The other proposed exclusion is for service providers that provide strictly ministerial and support services to financial institutions. This raises many questions, since the definition of a "covered person" subject to CFPA jurisdiction in H.R. 3126 currently includes providers of processing services and products that support consumer financial transactions.  Perhaps the intent of the memorandum was lost in the reporting by Reuters, but it is not clear if that coverage is proposed to be eliminated.  If not, then it would be helpful if the legislation was clearer about what aspects of a third party processor's or product supplier's business will be subject to CFPA jurisdiction.  The Federal Trade Commission has had to postpone effectiveness of its Red Flag Rules several times due to confusion about what businesses are covered under the enabling legislation, so perhaps Congress can be more helpful this time. 

What the Frank memorandum does not address are concerns about the interplay between regulations adopted by the CFPA and activities of the various States (the "preemption" issue) or the broad grant of rule-making powers to the CFPA with no clear requirement that there be express Congressional authority for the rules that are adopted.

I am addressing these questions and others in much more detail in an article I am writing for publication in November in the Banking and Financial Services Policy Report, from Aspen Publishing.