Congress today passed the most sweeping financial reform package since the Great Depression. President Obama is expected to sign this bill soon. This legislation will put a check on unbridled Wall Street risk and launch a new era of consumer protection. No corner of the financial services industry is untouched. The Consumer Financial Protection Act (Act) — part of the comprehensive bill — creates a new federal bureau specifically charged with writing and enforcing regulations aimed at tightening lending practices, strengthening consumers’ rights, and creating greater transparency generally in lending and related consumer financial practices. This legislation will significantly and permanently change the legal landscape by giving states far greater authority to pass and enforce state laws impacting national banks.
Key provisions of the Act include the following:
Two additional acts that are part of the financial reform package also relate to consumer lending and should be noted by lenders.
The Improving Access to Mainstream Financial Institutions Act is intended to expand access to safe and affordable bank accounts, credit, and financial information for low-income, minority, and other underserved families by authorizing three new programs:
The Mortgage Reform and Anti-Predator Lending Act sets minimum standards for mortgages by requiring lenders to establish that consumers have a reasonable ability to repay at the time a mortgage is consummated. This act prohibits certain financial incentives to mortgage originators, prohibits prepayment penalties in certain circumstances, and includes protections for renters of foreclosed properties. It also contains many other protections for consumers and provisions designed to control and limit high-cost mortgages.
What All of This Means for Banks and Other Lenders
These new laws and the regulations that will be promulgated under them will result in a new era of regulation and scrutiny for lenders. These laws not only restrict what lenders can do in making loans, they also create powerful agencies with many tools to detect and punish any violations of consumer protection laws.
All lenders would be well-served by ensuring that they have a comprehensive understanding of these new laws and regulations and that they consult legal counsel before embarking on any lending practice that affects consumers.
Michael C. Lueder
Chair, Consumer Financial Services Litigation Practice
Martin J. Bishop
Vice Chair, Consumer Financial Services Litigation Practice
Christi R. Adams
Thomas I. Elkind