Live Blogging at the Dodd-Frank Symposium: Understanding the Structure and Role of the Consumer Financial Protection Bureau

By By Mike Perez, J.D. Candidate Class of 2012 | Posted on

Gail Hillebrand of the Consumer Union just delivered a clear and concise explanation of the statutory structure of the newly created Consumer Financial Protection Bureau. Ms. Hillebrand discussed the types of products, services, and providers within the purview of CFPB jurisdiction. She also explained the new powers and obligations of the agency, its role in supervision of certain financial institutions, and how its existence will affect the distribution of power among existing federal agencies. Of particular interest in this new statutory structure, is the ability of states to have a much greater role in consumer protection regulation.

View Ms. Hillebrand’s slide show here.

Live Blogging at the Dodd-Frank Symposium: The Power of Disclosure

By By Mike Perez, J.D. Candidate Class of 2012 | Posted on

Thomas Brown of O’Melveny & Meyers just spoke about the interest of consumers and financial institutions on the new Consumer Financial Protection Bureau’s ability to regulate the disclosure of financial products to customers. Mr. Brown argues that such power would allow the CFPB to reshape the landscape of the industry. Mr. Brown spoke on the new “fully, accurately, and effectively disclosed” standard, a standard that is quite different than “not false and misleading.” Mr. Brown also brought to the fore three pertinent questions regarding this new disclosure standard:

1) Who must be permitted to understand?
2) What defines the universe of things that must be understood?
3) What does “permit to understand” mean?

To view Mr. Brown’s working paper click here.

Live Blogging at the Dodd-Frank Symposium: Dodd-Frank’s New Ability to Pay Provision

By By Mike Perez, J.D. Candidate Class of 2012 | Posted on

Professor John Pottow of the University of Michigan School of Law, just addressed Dodd-Frank’s newly created duty of lenders to assess and assure a borrowers ability to pay.  As Professor Pottow pointed out, such a concept is not wholly new to legal thought; however, Dodd-Frank’s wholesale import of the standard is a radical change to U.S. consumer law. Professor Pottow reviewed the geneology of the law as well as comparing it to similar concepts in other areas of domestic law and similar foreign laws. In addition, Professor Pottow also parsed the language of the new ability to pay statute and discussed worries regarding how this new duty will be interpreted.

To view Professor Pottow’s full working paper click here.

Live Blogging at the Dodd-Frank Symposium: The Uncertain Future of of Bank Regulation Under Dodd-Frank’s “Abusive” Standard

By By Mike Perez, J.D. Candidate Class of 2012 | Posted on

John D. Wright, of Wells Fargo & Company, just finished giving his thoughts about the Dodd-Frank Act’s new “abusive” standard. Section 1031 of the Dodd-Frank Act vests the newly created Bureau of Consumer Financial Protection with the authority to take enforcement action against banks and other covered entities from engaging in unfair, deceptive or abusive practices. Mr. Wright highlighted § 1031(d), which defines the abusive standard, claiming that the standard introduces “radically new concepts regarding the customer’s understanding of banking products, the customer’s suitability for a banking product, and the bank’s duty to act in the interests of the consumer.”

Mr. Wright pointed out that a lack of clarity in the statute’s language and guidance from regulators makes for muddy waters for large banks future interactions with customers. First, the wording of § 1031(d)(2)(A) seems to require banks to determine each customer’s “financial literacy” to a previously unknown degree. Furthermore, banks will require further clarification as to whether the standard the Bureau will apply is that of a reasonable consumer or a particular consumer. Second, § 1031(d)(2)(B) may require that a bank determine whether a particular customer is suitable for a financial product, regardless of whether there was clear and conspicuous disclosure of product terms, even if the customer understands it. Finally, § 1031(d)(2)(C) may create a legal duty to act in their customers best interest, beyond their normal trust or investment advisory settings.

For more, please view Mr. Wright’s paper here.

Live Blogging at the Dodd-Frank Symposium: Recognizing the Costs of New Regulations on VC Funds

By Peter Benesch, J.D. Class of 2013 | Posted on

(click here to see the full abstract of Mr. Eric Finseth’s presentation at the Symposium) While Silicon Valley tech companies and VC firms did not have any clear hand in contributing to the recent financial crisis, several new regulations may nonetheless present new burdens on their industry. While exemptions were written throughout most of the Dodd Frank act to prevent VC firms from the obligations imposed on other financial institutions, some “collateral damage” has unfortunately manifested itself (in preventing relatively small companies from financing themselves through the “friends and family” channel).

Live Blogging at the Dodd-Frank Symposium: the Inhibitory Effect on Important Capital Flows of Regulations such as Dodd-Frank

By Peter Benesch, J.D. Class of 2013 | Posted on

(click here to see the full abstract of Mrs. Mary Dent’s presentation at the Symposium) Many individuals in D.C. focus on the importance of growth and innovation to fuel the continued growth of the national economy. Despite this rhetoric, legal regulation have historically (inadvertently) hampered the flow of capital into high growth industries through legislation that fails to recognize its effects on these industries. Regulations implemented in response to dramatic events in the economy have been a source of these inhibitory regulations, and Dodd-Frank is no exception. Mrs. Dent presents three policy recommendations that would correct these regulatory inefficiencies and facilitate the flow of capital necessary to fuel the high growth industries that underlie the future of the U.S. economy.

Live Blogging at the Dodd-Frank Symposium: Systemic Risks, as well as Benefits, of Money Market Funds

By Peter Benesch, J.D. Class of 2013 | Posted on

(click here to see the full abstract of Mr. Mark Perlow’s presentation at the Symposium) The financial crisis demonstrated clearly that money market funds present certain systemic risks when they “break the buck.” Before the crisis there were already a number of regulations in place for money market funds, on matters such the ratings of investments that money market funds can invest in, disclosure of investments, and net asset value per share ratios (among others). In response to the financial crisis, new regulations have been passed or are being proposed to mitigate the risks of runs on these funds in the future. Mr. Perlow notes that money market funds provide a socially useful alternative to the banking system (particularly for certain, essential financing purposes and maturity transformation in the market) which may warrant caution in future regulation.

Live Blogging at the Dodd-Frank Symposium: the Effects of Credit Derivatives and Leverage in Facilitating Asset Bubbles

By Peter Benesch, J.D. Class of 2013 | Posted on

(click here to see the full abstract of Mr. Erik Gerding’s presentation at the Symposium) Hedging provides financial institutions with an important tool for spreading risk and consequently provides greater liquidity for the market (at least in certain asset classes). However, the money multiplier effect that results from chains of credit default swaps, when combined with the use of leverage, can create conditions that facilitate asset bubbles. Recognizing these conditions is essential to properly identifying and correcting and smoothing out future “boom-and-bust” cycles in the financial markets.

Live Blogging at the Dodd-Frank Symposium: Tracking Securitized Residential Mortgages

By James Nguyen, J.D. Class of 2013 | Posted on

Nancy Wallace from the Haas School of Business followed her fellow Haas colleague with a talk on the evolution of residential mortgage recording and tracking and the legal implications of MERS.

Some Key Highlights:

  • Residential Mortgage Recording and Tracking has Diverged: while so-called “Shoebox” technology continue to be used to record and track property interest transfers (property sales) at county-level recording offices, the MERS system has supplanted the old technology and now comprises over 60% of the recording/tracking market.
  • Chain of Title and Chain of Mortgage (Promissory Note) Separated Under MERS: the MERS system has detached the dual-recording/tracking of both property title and mortgage, which has significant complications for determining property ownership and mortgage liability.
  • Transfer Language in Pooling-Servicing Agreement (PSA): the property transfer language MERS-tracked PSAs use stock MERS language that some courts have not given full recognition.
  • Why does this matter: participants in the market for mortgage-backed securities may suffer significant financial losses if the validity of MERS transfers cannot be upheld.

A complete description of the presentation can be found here.

Live Blogging from the Dodd-Frank Symposium: Bank Regulation and Mortgage Market Reform

By James Nguyen, J.D. Class of 2013 | Posted on

We’re blogging live from today’s Dodd-Frank Symposium!

Dwight Jaffee from the Haas School of Business kicked off the first set of Securitization and Governance panel presentations with a talk on Bank Regulation and Mortgage Market Reform.Key Highlights from the presentation:

  • Moral Hazard in Securitization is wrong: Jaffee says that the hoopla over securitization causing the mortgage bubble and financial crisis is misplaced and the 5% risk-retention requirement will do nothing but restrict fundamental value of securitization, which is to spread out and segment risks.
  • The private market can fully replace the GSEs: Jaffee thinks the proposals to wind down the GSE are generally a good thing and believes that the private market is more than capable of meeting the credit demand the GSEs currently now provide.  Citing Europe, which Jaffee says has similar rates of homeownership as the U.S., Jaffee says that the GSEs have had minimal if any impact on spurring additional homeownership.
  • Mortgage Contracts will Default to Safe, Low Risk Terms: Jaffee argues that in the absence of GSEs in housing market, the lack of conforming loan standards would nonetheless push borrowers toward the safest, least risky loan terms (i.e., the market would correct itself and move away from costly terms like prepayment penalties.

For a full read of Dwight Jaffee’s ideas, see his working paper on mortgage market reform.