I have just submitted an article analyzing in detail the latest version of the legislation in the House (H.R. 3126) that would create the Consumer Financial Protection Agency, to be published in the November edition of the Banking and Financial Services Policy Report by Aspen Publishers.  A copy of the article will be available on my website (www.bwplawyer.com) when it is published.  However, the House Committee on Financial Services will begin mark-up on Wednesday of H.R. 3126, so now is the time to point out a couple of flaws in the bill I hope are fixed during the mark-up.  I am not advocating for or against creation of the CFPA, just expecting Congress to make the effort to draft legislation that does not lead to unnecessary confusion and bad policy. 

My first complaint about the bill is that it is nearly impossible to read and determine definitively who is a "covered person" subject to the rule-making and enforcement authorities of the CFPA.  I attempt to parse the definition of "covered person" in my article, but after hours of trying to make sense of the various inter-linked definitions in the bill can only claim to have a plausible interpretation.  It appears to me that the entities that are going to have the most trouble figuring out where they fall under the bill will be transaction processors, data communication providers, and value-added processing intermediaries. However, the CFPA is also given the express power to determine that activities and entities that do not strictly fall within the definition of covered person are nonetheless subject to its jurisdiction, so perhaps the rest of the definitions are actually irrelevant.  Sorry, but this seems rather arbitrary and, frankly, lazy lawmaking. 

There are very few restrictions in the bill on the power of the CFPA to engage in rule-making, and it appears to have the power to go beyond the scope of the enabling statutes adopted by Congress that the CFPA will have authority to interpret and enforce. 
if this is not the intent of Congress now is the time to clarify. 

Perhaps irony is overrated, but contrast the authority granted to states in the bill to adopt more protective legislation than any scheme adopted by the CFPA against the broad and otherwise nearly unrestricted powers that would be granted by Congress to the CFPA.  This is the "preemption" issue that is the subject of intense lobbying, for and against, reported in the press.  The preemption rules in the bill will be applicable only to rules adopted by the CFPA not based on currently existing consumer financial protection legislation such as the Truth in Lending Act, the Electronic Funds Transfer Act, the Fair Credit Reporting Act and other statutes responsibility for which is transferred to the CFPA in the bill.  Most of these existing statutory schemes have their own preemption rules and the bill expressly does not supersede them.  In the Truth and Lending Act and the Fair Credit Reporting Act there are certain aspects that the states can alter with more protective legislation, but the states are totally preempted by and cannot alter other aspects. In the latter cases either Congress or the regulatory agency responsible for adopting rules to enforce the statutes determined that the benefits of nationwide standards were more important than allowing states to alter the rules to make them more protective.  In future rule-making the CFPA will not have the ability to make a similar determination since the ability of the states to adopt more protective legislation is absolute in the bill.  This seems to be short-sighted at best, and it would seem better to give the CFPA the right to preempt state legislation if it determines that to do so would best achieve the goal of effective consumer financial protection.  In its current form the preemption provision in the bill reflects a federalism victory by the states, but federalism is a two way street for good reasons, and the bill's preemption provisions are bad public policy.