The Consumer Financial Protection Agency Act of 2009 Would Substantially Curtail Federal Preemption

July 9, 2009 at 1:49 am Leave a comment

On June 30, 2009, Congress received from the United States Department of Treasury (“Treasury”) a 152-page piece of proposed legislation titled the “Consumer Financial Protection Agency Act of 2009” (the “Act”).  (A copy of the Act is available here.)  Although most of the Act’s pages discuss to the creation of a new federal agency to regulate consumer financial products, some of its provisions aim to strip national banks and federal thrifts of the protections of federal preemption from state consumer laws.[1]  

The Act defines “state consumer law” as “any law of a State that: (A) accords rights to or protects the rights of its citizens in financial transactions concerning negotiation, sales, solicitation, disclosure, terms and conditions, advice and remedies or (B) prevents counterparties, successors and assigns of financial contracts from engaging in unfair or deceptive acts and practices.”[2] 

The Act then provides that “State consumer laws of general application, including any law relating to unfair or deceptive acts or practices, any consumer fraud law and repossession, foreclosure and collection law, shall apply to any national bank.”[3]  (This section of the Act includes subsidiaries and affiliates within its definition of “national bank.”)  The Act contains a substantially similar provision for federal thrifts.[4]

The Act even declares that state consumer protection laws are not inconsistent with federal law and thus not preempted if they afford consumers greater protection than federal law, making federal consumer protection laws the floor, not the ceiling.[5] 

The Act also addresses recent Supreme Court decisions.  Specifically, the Act would overturn the 2007 Supreme Court decision in Watters v. Wachovia by removing preemption protection from the subsidiaries, affiliates and agents of national banks.[6]  The Act would codify the 2009 Supreme Court decision in Cuomo v. Clearing House Association by expressly authorizing state attorneys general to initiate “action[s] in any court of appropriate jurisdiction” to require federally-chartered institutions to produce records for investigations into violations of State consumer laws and to enforce any applicable federal or State law.[7]  Before filing such an action, however, the Act would require an attorney general to consult with the appropriate federal regulator. 

In a lone bright spot for federally-chartered financial institutions, the Act would not authorize the Consumer Financial Services Protection Agency to impose a national usury cap.[8]


[1] Section 1043 of the Proposed Consumer Financial Protection Agency Act of 2009, (as submitted by Treasury to Congress), beginning on Page 41 of the Act. 

[2] Id.

[3] Id. at p.42. 

[4] The provisions relating to federal thrifts, Sections 1046—48, begin on page 45 at line 18. 

[5] Section 1041(2), page 38.

[6] Section 1045, page 45. 

[7] Sections 1044 and 1047, pages 44 and 47—48, respectively.  

[8] Section 1022(g), page 25.

Entry filed under: Uncategorized.

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