Pub. 1 2010 Issue 3

www.wvbankers.org 22 The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) represents the most ambitious reform of the laws governing the financial industry and corporate America since the Great Depression. T he Act touches every domestic fi- nancial institution and affects most companies as well. While most of the Act’s provisions are aimed at large financial institutions and public compa- nies, smaller institutions and companies are affected by many of the regulatory changes as well. A full summary and discussion of the Act’s provisions and their impact on the business landscape would fill vol- umes and be premature. Presently, we know enough to make broad assump- tions about the impact of the Act and to point out some of its key provisions, but we are still several years away from seeing all of regulations to be promul- gated under the Act and understanding their direct and indirect effects on businesses and financial institutions. With that in mind, the following is an overview of many of the Act’s most important provisions and a discussion of the effect these provisions may have on domestic businesses. Consumer Financial Protection Provisions of the Act: One of the centerpieces of the Act involves the creation of a new consumer protection agency called the Consumer Financial Protection Bureau (the “CFPB”). The CFPB is an indepen- dent entity housed within the Federal Reserve and is charged with the task of ensuring consumers are protected from “unfair, deceptive, or abusive” acts or practices. To accomplish its mission, the CFPB is granted the authority to promulgate consumer protection rules for banks and nonbank financial firms offering consumers financial services and products. The CFPB also has examination and enforcement authority over banks with greater than $10 billion in assets, all mortgage-related busi- nesses (lenders, mortgage servicers, and mortgage brokers), and large nonbank financial businesses (payday lenders, debt collectors, and consumer report- ing agencies). If the CFPB determines that an institution has violated federal consumer protection laws, the CFPB has the authority to issue a notice to the institution to appear before it and con- test the issuance of a cease and desist order. The CFPB may also pursue civil sanctions against the institution. The Act contains additional provisions affecting institutions engaged in lending and servicing mortgages. For the first time, mortgage originators are required to make a good faith determination that at the time a loan is underwritten, the consumer has a reasonable ability to re- pay. This determination must be based upon documentation of the consumer’s credit history, current obligations, and employment status. The Act carves out a safe harbor for compliance with the “reasonable repayment require- ment” for originators that underwrite loans that meet the requirements of a “qualified mortgage.” Some of these requirements include verifying and documenting the income and financial resources of the borrower and avoiding mortgages where regular payments do not result in an increase in principle. Major Reforms To Affect Companies and Financial Institutions By Susan B. Zaunbrecher and Nathan E. Hagler, Dinsmore & Shohl, LLP