The Obama Administration in July published draft legislation that would establish a Consumer Financial Protection Agency (CFPA) to regulate a wide variety of financial products and services that are provided to a consumer primarily for personal, family, or household purposes.
The draft legislation specifically would not apply to SEC-regulated brokerdealers, investment advisers, or investment companies. (And there is a comparable exclusion for CFTCregulated entities.) However, this exclusion applies only to the extent that the SEC/CFTC-regulated entity is acting “in a registered capacity,” and it is very unclear what “in a registered capacity” means for this purpose.
For example, the draft legislation would cover many products and services that are not central to the business of most broker-dealers, such as:
- issuing and servicing, consumer loans, and credit cards;
- money transfer, check guarantee, and bill payment services;
- debt counseling and credit repair;
- credit insurance, life insurance, and mortgage insurance; and
- tax preparation.
If an SEC-regulated broker-dealer were to conduct any of these activities, could it be deemed to be doing so “in a registered capacity” and thus escape regulation by the CFPA? Would the answer be different for services that are more central to the business of broker-dealers? For example, the CFPA also would generally regulate the provision of financial advisory services, including educational courses and instruction materials on individual financial management matters, and tax planning services, unless such services were rendered by the brokerdealer in its registered capacity.
If the draft legislation were enacted in its current form, potentially difficult jurisdictional questions of this type would abound. These questions would be of considerable importance because the regulatory scheme administered by the CFPA could potentially be highly substantive and thorough.