Alert October 27, 2009

House Financial Services Committee Passes the Consumer Financial Protection Act of 2009

The House Financial Services Committee approved by a 39-29 vote the Consumer Financial Protection Agency Act of 2009 (the “CFPA Act”), which consolidates federal consumer protection for financial matters in a new federal agency, the Consumer Financial Protection Agency (“CFPA”).  For our previous coverage of the CFPA Act, please see the October 20, 2009 Alert and the August 4, 2009 Alert

The House Financial Services Committee approved several amendments before voting on the entire bill.  These included a significant amendment offered by Reps. Mel Watt and Dennis Moore (the “Watt-Moore Amendment”) that would make national banks and federally chartered savings associations subject to a broad range of state consumer protection and financial services laws.  The Watt-Moore Amendment would, in all but a few cases, make “state consumer financial laws” applicable to national banks and thrifts, as well as their subsidiaries and affiliates.  The Watt-Moore Amendment codifies the standard in Barnett Bank v. Nelson, 517 U.S. 25 (1996).  This standard permits a federal banking agency to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with a federally‑chartered bank or thrift’s exercise of a power “explicitly” granted by Congress.  The finding must be done by regulation or order on a case-by-case basis.  The federal banking agencies would also be required to consult with CFPA to determine that consumers will still be protected under federal law if the state law is preempted.  The Watt-Moore Amendment would allow judges reviewing preemption decisions to defer to the OCC on its interpretation of the National Bank Act or other federal laws.  However, judges could not defer to the OCC on a specific claim by the OCC that a particular state law is preempted. 

The final version of the CFPA Act passed by the House Financial Services Committee also grants far more expansive powers to the Director of the CFPA than contained in the original draft of the bill.  For example, the Director of the CFPA would have the power to exempt any entity regulated by the CFPA and any financial product or service from a consumer law or regulation.