ARM Group Moves Fight to Senate After House Approves Sweeping Regulatory Change

Financial reform legislation passed the U.S. House of Representatives late last week. So opponents of the sweeping rule changes – including ACA International, the U.S. Chamber of Commerce and current federal regulators -- are taking their fight to the Senate.

“The House vote was not unexpected,” said Adam Peterman, director of federal government affairs for ACA International. “We knew that this was like most issues, it would come down to a policy perspective.”

The measure, called The Wall Street Reform and Consumer Protection Act (H.R. 4173), passed the full House on a 223-202 vote. No Republicans voted for the bill, while some moderate Democrats voted against it as well. The Senate could have similar divisions, according to Peterman. The Senate has not yet marked up the proposals for consideration, and is unlikely to do so in 2009.

“The legislation is onerous to the industry,” Peterman added. “It puts too much on a single regulator [the proposed Consumer Protection Financial Agency].” The CFPA will most likely be the new regulator of the accounts receivable management industry and the Fair Debt Collection Practices Act (FDCPA).

A better solution, according to Peterman, is one similar to the failed amendment Rep. Walt Minnick, Democrat from Idaho, proposed in the House that would replace the CFPA with a Consumer Financial Protection Council of federal and state regulators from 12 existing agencies. This would continue to provide balance in the regulatory environment, according to Peterman.

ACA has expressed concern over several provisions of the proposed Senate legislation:

Enhanced Backstop Authority for FTC: The CFPA legislation provides what has been termed “backstop authority” for the existing regulators.  If the existing federal regulator (FTC) has noticed an outstanding issue that it believes needs to be addressed, it may petition the CFPA to do so.  If after 30 days, the CFPA has not responded appropriately, the FTC can take action itself.   

Restrictions on Compensation: The proposed legislation would restrict compensation of covered persons, which would include collectors. While the CFPA is prohibited from capping the total dollar amount of compensation, the proposed legislation empowers the CFPA to prescribe rules governing employers’ compensation practices regardless of the wide array of businesses in the vast number of jurisdictions the CFPA would regulate.  

Fees: The proposed legislation mandates the CFPA director assess fees to pay for the new agency.  ACA believes this additional financial burden should be taken from general Treasury revenue, similar to most federal regulatory bodies.

Penalties and fines: Congress grants the CFPA what ACA considers to be excessively high caps for civil penalties in the legislation.  The base penalty cap for violations is $5,000 per day.  Willful and intentional violations carry a fine of up to $1 million per violation per day.  

Injunctive Relief: The legislative language provides injunctive relief to the proposed agency through cease and desist orders.  According to ACA, such authority could place severe burdens on businesses prior to a judicial determination of actual wrongdoing.

Federal Preemption: One of the primary goals determined during ACA International’s most recent strategic planning meeting was to seek federal preemption of state law in order to dramatically reduce frivolous lawsuits through uniform compliance requirements.  Federal preemption represents a significant hurdle to this goal.

Statute of Limitations: The legislation would allow the CFPA to bring an action under the law up to three years after the date a violation is discovered. According to ACA, this “discovery rule” creates a hardship for businesses without offering a reasonable benefit to consumers.

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