After months of lobbying, discussion, amendment and general puffery the House adopted yesterday H.R. 4173 which, among other things,  would create the Consumer Financial Protection Agency.  Although most of the press reports recently have focused on amendments to the CFPA provisions that restore much of the favored regulatory treatment received by federally-chartered institutions under federal preemption principles, the rest of the CFPA provisions reported out of the House Financial Services Subcommittee and adopted Friday by the full House survived more or less intact.  In an article published in Aspen Publishers Banking and Financial Policy Report in November I analyzed the House Financial Services Subcommittee version.  A copy of the publication with my article can be downloaded from my website at www.bwplawyer.com.  Some of the analysis will necessarily be moot due to amendments during the legislative grind, but the article is still a useful overview of the CFPA.

The discussion in the article of the preemption issues will of course be somewhat out of date, given the amendments to those provisions adopted by the House  The preemption amendments proposed by Representive Melissa Bean of Illinois and included in the final legislation give the national bank and federally-chartered savings institution regulators the power to preempt state consumer protection laws from application to their charges if the law is discriminatory or it "prevents, significantly interferes with, impairs, or hampers the ability of [a federally-chartered institution] to engage in the business of banking".  However, the federal regulator must justify any preemption decisions with findings on the record, including a finding that there exists an adequate federal consumer protection standard applicable to federally-chartered institutions, and a majority of the states can require the federal regulator to initiate a rule-making to consider toughening any federal standard.  These requirements prevent the recurrence of the  federal regulators' current preemption rules, which simply dismiss the application of any state consumer protection regulation against federally-chartered institutions with a peremptory wave of the hand. 

There are a couple of other amendments of interest to some Web 2.0 business models I will mention.  Person-to person lending operators will be subject to CFPA jurisdiction.  Private organizations offering educational loans will be required to be certified first by the educational institutions, but it is not clear whether this applies to person to person educational loan models as well. 

The Senate is considering its own version of legislation creating a CFPA, and it has been reported that opposition is stronger in that body.  A vote in the Senate could be as late as May of next year, so we can look forward to possibly 5-6 months of legislative grinding before we know the fate of the CFPA in the Senate, with even more time for reconciliation if the Senate adoptes a version that differs significantly from the House version. 

In the spirit of holiday season charity I have to acknowledge the committment and endurance of our legislators in pursuing their duties.  It is my observation that no business negotiation, however difficult and complex, can match the tedium and aggravation of the legislative process.  My favorite moment during the markup of the legislation in the House FInancial Services Subcommittee was when Barney Frank observed late in the evening, after listening to an apology by a Representive for mis-citing the source of a biblical homily in a previous soliloquy, that the book of the Bible he was most interested in at that moment was Exodus.