Today's Trends in Credit Regulation

CFPB Watch for Auto Dealers
By Michael A. Benoit

The Soap Opera Ends . . . Sort Of.

Will he or won’t he? “He” refers to President Obama, and evidently he won’t. Appoint Harvard Law School Professor Elizabeth Warren to head the Consumer Financial Protection Bureau, that is. Skipping over Raj Date, about whom there was some buzz from those speculating about who might get the nod, Obama selected Richard Cordray, formerly attorney general for the state of Ohio, as the first director of the CFPB. Senate Republicans immediately renewed their threat to withhold confirmation of anyone until their demands for restructuring the CFPB are met.

What’s the Score?

Meanwhile, the wheels are turning at the CFPB, which released a 20-page report to Congress examining the differences between credit scores sold to consumers and scores used by lenders to make credit decisions, a study mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The report covers the process of developing scoring models, why different models may produce different scores for the same consumer, how different models are used by creditors in the marketplace, what credit scores are available to consumers for purchase, and ways that differences between the scores provided to creditors and those provided to consumers may disadvantage consumers.


The CFPB and the Judge Advocate Generals of the United States Army, Marine Corps, Navy, Air Force, and Coast Guard announced an agreement on a Joint Statement of Principles to provide stronger protections for servicemembers and their families in connection with consumer financial products and services. The Treasury Department stated that the JAGs and the CFPB will work together to identify potential violations of federal consumer financial laws and establish a single point of contact at the CFPB to allow the Judge Advocate Generals’ Corps to share information on complaints from servicemembers and their families. In addition, the Offices of the Judge Advocate Generals and the CFPB – including its Office of Servicemember Affairs and Enforcement Division – will create a working group with the goal of achieving a coordinated response to unlawful conduct targeting servicemembers and their families.

How Big?

The CFPB announced the release of a Notice and Request for Comment seeking public input on a key element of the agency’s nonbank supervision program — the statutory requirement to define “larger participants” in certain consumer financial markets. The Dodd-Frank Act charged the CFPB with ensuring that both banks and nonbanks comply with federal consumer financial laws. Dodd-Frank authorized the CFPB to examine all sizes of nonbank mortgage companies, payday lenders, and private education lenders. Generally, before the CFPB begins its nonbank supervision program in other markets, Dodd-Frank requires that the CFPB first define by rule who is “a larger participant of a market for other consumer financial products or services.” The CFPB must issue an initial “larger participant” rule no later than July 21, 2012, one year after the designated transfer date. To prepare for this rulemaking, the CFPB issued a Notice and Request for Comment, identifying six markets for potential inclusion in an initial rule: debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing, and related activities; prepaid cards; and debt relief services. The larger participant rule will not impose substantive consumer protection requirements. Instead, the rule will enable the CFPB to begin a supervision program for larger participants in certain markets.

And Maybe We Aren’t Done Yet . . .

On the designated transfer date, July 21, 2011, the House passed a bill to improve the structure and oversight of the CFPB. H.R. 1315, “The Consumer Financial Protection Safety and Soundness Improvement Act of 2011,” passed the House by a vote of 240-173. H.R. 1315 would replace the CFPB’s director with a bipartisan 5-member commission. The bill would also improve the Financial Stability Oversight Council’s review process of CFPB rulemakings by changing the vote to overturn a CFPB rule from two-thirds of the FSOC to a simple majority, providing that the FSOC must set aside a rule if the rule is inconsistent with the safe and sound operations of U.S. financial institutions, and giving the FSOC sufficient time to consider the safety and soundness implications of CFPB rules.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook, LLP. Michael can be reached at 202-327-9705 or by email at

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