S. 3217, the "Restoring American Financial Stability Act"

April 28, 2010

The Honorable Chris Dodd
Chairman
Committee on Banking, Housing, and Urban Affairs
United States Senate
Washington, DC 20510

The Honorable Richard Shelby
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
Washington, DC 20510

Dear Chairman Dodd and Ranking Member Shelby:

We are writing on behalf of the hundreds of thousands of non-financial services businesses across the country that would be subject to expensive new burdens – in the form of new regulations, new examination and supervisory requirements, and a whole new, duplicative federal regulator – under the provisions of S. 3217, the "Restoring American Financial Stability Act," which would establish a new Consumer Financial Protection Bureau (CFPB).

Supporters justify the creation of the CFPB by citing failures within the banking regulatory agencies with respect to certain financial services companies.

The reality of the legislation's scope is far broader than this rhetorical picture, however. Nothing in the Senate Banking Committee bill limits the new agency's authority to financial services companies. To the contrary, the bill's broad definition of "consumer financial product or service" and "service provider" sweeps in numerous ordinary businesses – businesses that already are (and would continue to be) subject to regulation by the Federal Trade Commission under its broad consumer protection authority as well as regulation under numerous other Federal and State consumer protection laws.

Here are just a few examples of the broad reach of the legislation:

• Dentists and physicians who allow patients to pay for costly treatments in more than four installments.
• Retailers and merchants that impose finance charges or allow customers to pay in more than four installments.¹
• Churches and other nonprofit institutions that provide financial education and similar assistance in financial matters
• Lawyers
• Technology companies that provide data processing and storage services or that provide software that allows consumers to manage their financial affairs
• Advertising agencies and print and electronic media
• Auto dealers
• Wholesaler-distributors and other suppliers of goods or services to businesses fall within the broad definition of offering or providing consumer financial products or services
• A company that provides background checks for volunteer organizations or the federal government
• Issuers of stored value cards, including colleges or universities that issue such cards to students participating in meal plans

The new regulations and new enforcement authority given to the CFPB would be in addition to the FTC's broad, existing authority under the Federal Trade Commission Act. So non-financial companies would be subject to two duplicative federal regulatory schemes, as well as new enforcement authority to be exercised by state attorneys general, as well as continued regulation under state law.

The legislation's burdens on non-financial companies would not end there. All businesses – even those that do not fall within the broad definitions just discussed – would be subject to the new agency's regulations and could be forced to provide periodic reports to the new agency. The new federal agency, as well as state attorneys general and other state regulators, have authority to sue "any person" for conduct claimed in hindsight to be "unfair, deceptive, or abusive" – even if the conduct did not violate any CFPB regulation defining those vague terms. States apparently could engage private lawyers to bring these lawsuits on a contingent fee basis, and the bill would allow claims for class-action type damages and potentially millions of dollars in other types of payments, as well as injunctive relief.

To the extent that there are gaps in federal regulatory authority over banks or bank-like companies or banking regulators devoted insufficient attention to enforcement of existing laws, Congress should act. Congress already has enacted legislation addressing mortgages and credit cards. Additional measures may well be appropriate if other gaps remain.

But this legislation would impose new regulatory burdens on hundreds of thousands of ordinary non-financial services businesses that are not "Wall Street" or "big banks," and that potentially would include many thousands of small businesses.

The companies that would be subject to these extraordinarily broad provisions had nothing to do with the financial crisis and they should not be subjected to costly new regulatory burdens. These new burdens would have the potential to obstruct economic recovery by forcing companies to divert funds away from productive uses, such as hiring new employees, and into figuring out how to comply with onerous new regulatory burdens. These companies should be permitted to use their resources to expand their businesses, not to hire lawyers to explain how to comply with a duplicative, complicated new federal regulatory regime, or to try to figure out how to get an exemption from those rules or to fight unjustified "enforcement" actions filed by private lawyers working on a contingent-fee basis.

If a new agency is to be created, it should be focused on the purported problem – and its rulemaking, supervisory and examination, information requesting, and enforcement authority should be restricted to the financial services businesses that supposedly caused the problem. Other businesses will remain subject to the jurisdiction of the FTC, which should retain its broad, existing authority to enforce existing Federal consumer protection laws against non-financial services businesses.

The undersigned organizations urge the Senate to address these concerns during consideration of S. 3217.

Sincerely,

American Escrow Association
Associated Builders & Contractors, Inc.
Consumer Data Industry Association
Consumer Electronics Association
Direct Marketing Association
Electronic Security Association
Electronic Transactions Association
Financial Services Institute
Independent Electrical Contractors, Inc.
International Franchise Association
National Association of Professional Background Screeners
National Association of Wholesaler-Distributors
National Federation of Independent Business
NetChoice
Society of American Florists
The National Business Coalition on E-Commerce and Privacy
The National Ready Mixed Concrete Association
U.S. Chamber of Commerce

Cc: The Members of the United States Senate

¹ The bill's "exclusion" for retailers is illusory, because it only excludes them if they do not engage in any of the conduct that triggers coverage in the first place. Because many merchants and retailers extend credit, which is defined as a "consumer financial product or service," all such merchants and retailers are subject to coverage under the bill. The bill contains similar circular exemptions for lawyers and real estate brokers.