[House Report 110-472]
[From the U.S. Government Publishing Office]



110th Congress                                            Rept. 110-472
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

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    TO INCLUDE ALL BANKING AGENCIES WITHIN THE EXISTING REGULATORY 
   AUTHORITY UNDER THE FEDERAL TRADE COMMISSION ACT WITH RESPECT TO 
            DEPOSITORY INSTITUTIONS, AND FOR OTHER PURPOSES

                                _______
                                

                December 5, 2007.--Ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 3526]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3526) to include all banking agencies within the 
existing regulatory authority under the Federal Trade 
Commission Act with respect to depository institutions, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     4
Committee Votes..................................................     4
Committee Oversight Findings.....................................     4
Performance Goals and Objectives.................................     4
New Budget Authority, Entitlement Authority, and Tax Expenditures     4
Committee Cost Estimate..........................................     5
Congressional Budget Office Estimate.............................     5
Federal Mandates Statement.......................................     6
Advisory Committee Statement.....................................     6
Constitutional Authority Statement...............................     6
Applicability to Legislative Branch..............................     6
Earmark Identification...........................................     6
Section-by-Section Analysis of the Legislation...................     6
Changes in Existing Law Made by the Bill, as Reported............     7

                          Purpose and Summary

    H.R. 3526, a bill ``To include all banking agencies within 
the existing regulatory authority under the Federal Trade 
Commission Act with respect to depository institutions,'' is 
intended to provide financial consumers with additional 
regulatory protections against unfair and deceptive trade 
practices by expanding the range of financial regulators with 
the authority to promulgate regulations identifying and 
restricting such practices under the Federal Trade Commission 
Act (``FTC Act''). H.R. 3526 expands the range of regulators 
with promulgation authority (currently the Board of Governors 
of the Federal Reserve, the Office of Thrift Supervision (as 
successor to the Federal Home Loan Bank Board), and the 
National Credit Union Administration) to include the other 
federal bank regulators, namely the Federal Deposit Insurance 
Corporation and the Office of the Comptroller of the Currency. 
The legislation also states that regulations promulgated under 
the relevant section of the FTC Act shall be prescribed 
``jointly by such agencies to the extent practicable.''

                  Background and Need for Legislation

    The Federal Trade Commission Act gives the Federal Trade 
Commission the authority to write regulations and take other 
actions against unfair and deceptive acts and practices in 
commerce. However, Section 18(f)(1) of that Act provides an 
exception for federally-regulated financial institutions, 
giving the authority to write rules identifying and preventing 
unfair and deceptive acts and practices for banks, savings and 
loans and Federal credit unions to the Board of Governors of 
the Federal Reserve, the Federal Home Loan Bank Board 
(superseded by the Office of Thrift Supervision), and the 
National Credit Union Administration, respectively.
    Since this authority was granted in the 1970s, the three 
named agencies have used it very sparingly. Despite a statutory 
requirement (Section 18(f)(1) of the Act) that they ``shall 
prescribe regulations'' identifying and preventing such acts 
and practices, the agencies have issued only a handful of 
rules, generally only acting following formal rulemakings by 
the Federal Trade Commission. For example, in 1985 the agencies 
issued equivalents of the FTC's Credit Practices Rule following 
the FTC's action in 1984. There has been no major rulemaking 
under this authority since, however. While the statute requires 
the three banking agencies to act when the FTC does, their 
authority (and mandate) to issue rules of their own is not 
dependent upon FTC action.
    This lack of clear rules has led to an absence of consumer 
protections across a broad range of financial products and 
services. Consumer advocates have identified many financial 
practices--in areas ranging from checking account overdraft 
fees to ``universal default'' credit card interest rate 
increases--that can disadvantage consumers, yet few of these 
have been addressed by an open, transparent regulatory process. 
Regulators have claimed that their private examination 
procedures and enforcement actions are designed to address many 
unfair and deceptive practices, but neither the Committee nor 
the public has the ability to evaluate the effectiveness of 
these processes--they are by nature closed to public scrutiny. 
In addition, such non-public enforcement, unlike a standard 
rulemaking, provides no guidance either to other institutions 
or to consumers about which practices are unfair or deceptive.
    In a July 25, 2007 Financial Services Committee hearing, 
consumer witnesses argued that consumers and financial 
institutions alike would benefit substantially from 
transparent, clear rules and enforcement. In a June 13, 2007 
hearing, the Comptroller of the Currency and the Chairman of 
the FDIC, two agencies that have taken independent enforcement 
actions against unfair and deceptive practices but do not have 
rulewriting authority under the FTC Act, recommended that the 
Committee make these changes. FDIC Chairman Sheila Bair's 
testimony stated:

          In order to further strengthen the use of the FTC 
        Act's rulemaking provisions, the FDIC recommends that 
        Congress consider granting Section 5 rulemaking 
        authority to all federal banking regulators. By 
        limiting FTC rulemaking authority to the FRB, OTS and 
        NCUA, current law excludes participation by the primary 
        federal supervisors of about 7,000 banks. Including the 
        perspectives of the supervisor of some of the nation's 
        largest banks and the perspectives of the supervisor of 
        the largest number of banks, as well as the deposit 
        insurer, would provide valuable input and expertise to 
        the rulemaking process. As a practical matter, these 
        rulemakings would be done on an interagency basis and 
        would benefit from the input of all interested parties.

    Comptroller John Dugan's testimony stated:

          * * * [T]he OCC would support the extension of FTC 
        Act rulemaking authority to all of the federal banking 
        agencies, so that we could, as necessary, write joint 
        rules that define unfair or deceptive practices and 
        establish requirements that are designed to prevent 
        such acts or practices. Such authority would be helpful 
        to establish across-the-board rules to prohibit 
        especially egregious practices.

                                Hearings

    The Committee on Financial Services held a hearing on June 
13, 2007, entitled ``Improving Federal Consumer Protection in 
Financial Services''. The following witnesses testified:
         The Honorable Randall S. Kroszner, Governor, 
        Federal Reserve Board
         The Honorable John C. Dugan, Comptroller of 
        the Currency, Office of the Comptroller of the Currency
         The Honorable Sheila C. Bair, Chairman, 
        Federal Deposit Insurance Corporation
           The Honorable Deborah Platt Majoras, 
        Chairman, Federal Trade Commission
           Mr. Scott M. Polakoff, Deputy Director and 
        Chief Operating Officer, Office of Thrift Supervision
           The Honorable Tom Miller, Attorney General, 
        State of Iowa
           Mr. Steven L. Antonakes, Commissioner of 
        Banks, Commonwealth of Massachusetts, on behalf of the 
        Conference of State Bank Supervisors
    The Committee on Financial Services held a hearing on July 
25, 2007 entitled ``Improving Federal Consumer Protection in 
Financial Services-Consumer and Industry Perspectives''. The 
following witnesses testified:
           Mr. Travis Plunkett, Legislative Director, 
        Consumer Federation of America
           Mr. Raul Gonzalez, Legislative Director, 
        National Council of La Raza
           Mr. George Gaberlavage, Director, Policy 
        Research & Development, Consumer and State Affairs, 
        Public Policy Institute, AARP
           Mr. Arthur Johnson, Vice President, American 
        Bankers Association, Chairman and Chief Executive 
        Officer of United Bank of Michigan
           Mr. Jim Sivon, Partner, Barnett, Sivon & 
        Natter PC

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 18, 2007, and ordered H.R. 3526, to include all 
banking agencies within the existing regulatory authority under 
the Federal Trade Commission Act with respect to depository 
institutions, and for other purposes, favorably reported to the 
House by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken in conjunction with the consideration 
of this legislation. A motion by Mr. Frank to order the bill 
reported to the House with a favorable recommendation was 
agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 3526 is intended to provide financial consumers with 
additional regulatory protections against unfair and deceptive 
trade practices by expanding the range of financial regulators 
with the authority to promulgate regulations identifying and 
restricting such practices under the Federal Trade Commission 
Act (``FTC Act'').

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                                   October 3, 2007.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3526, a bill to 
include all banking agencies within the existing regulatory 
authority under the Federal Trade Commission Act with respect 
to depository institutions, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
Gramp.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

H.R. 3526--A bill to include all banking agencies within the existing 
        regulatory authority under the Federal Trade Commission Act 
        with respect to depository institutions, and for other purposes

    H.R. 3526 would increase the number of federal agencies 
authorized to issue regulations regarding unfair and deceptive 
financial practices under the Federal Trade Commission Act. 
Enacting this bill would allow the Federal Deposit Insurance 
Corporation (FDIC) and the Office of the Comptroller of the 
Currency (OCC) to issue such rules for institutions under their 
jurisdiction. Under current law, such rules may only be issued 
by the Board of Governors of the Federal Reserve, the National 
Credit Union Administration, and the Federal Home Loan Bank 
Board.
    Based on information from the affected agencies, CBO 
expects that developing and implementing regulations would 
result in direct spending of less than $500,000 a year. Any 
additional direct spending by the OCC would be offset by income 
from annual fees. Similarly, the FDIC would recover any added 
costs when it adjusts the insurance premiums paid by insured 
depository institutions. Thus, CBO estimates that enacting this 
bill would have no significant impact on net direct spending 
and would have no effect on revenues.
    H.R. 3526 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not directly affect the budgets of state, local, or 
tribal governments.
    The CBO staff contact for this estimate is Kathleen Gramp. 
This estimate was approved by Theresa A. Gullo, Deputy 
Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
man- dates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 3526 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation

    Section 1(a)(1) of the bill alters the authority to 
promulgate unfair and deceptive practices rules for federally 
regulated financial institutions under FTC Act. Existing 
authority is granted to the Federal Reserve, the OTS 
(succeeding the Federal Home Loan Bank Board) and the NCUA. 
Under the legislation, each ``federal banking agency'' and the 
NCUA will have the FTC Act authority and mandate to write rules 
to identify and prevent unfair and deceptive practices ``with 
respect to depository institutions'' they oversee.
    Section 1(a)(2) states that regulations under this section 
shall be prescribed ``jointly by such agencies to the extent 
practicable.'' The Committee intends that regulations 
promulgated pursuant to this section shall be promulgated 
jointly through the Federal Financial Institutions Examination 
Council to the extent practicable.
    Section 2 of the bill makes technical and conforming 
amendments to the Federal Trade Commission Act to effect the 
purposes of the legislation.
    Nothing in this legislation is intended to affect the scope 
of the authority granted to the financial regulators under the 
FTC Act, nor is the bill intended to affect in any way the 
authority of the FTC. Nothing in the legislation is intended to 
affect the applicability of state unfair and deceptive 
practices laws to federally chartered institutions.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     -FEDERAL TRADE COMMISSION ACT


-

           *       *       *       *       *       *       *
  Sec. 18. (a) * * *

           *       *       *       *       *       *       *

  (f)(1) In order to prevent unfair or deceptive acts or 
practices in or affecting commerce (including acts or practices 
which are unfair or deceptive to consumers) by [banks or 
savings and loan institutions described in paragraph (3), each 
agency specified in paragraph (2) or (3)] depository 
institutions, the Federal banking agencies and the National 
Credit Union Administration Board of this subsection shall 
establish a separate division of consumer affairs which shall 
receive and take appropriate action upon complaints with 
respect to such acts or practices by banks or savings and loan 
institutions described in paragraph (3), subject to its 
jurisdiction. [The Board of Governors of the Federal Reserve 
System (with respect to banks) and the Federal Home Loan Bank 
Board (with respect to savings and loan institutions described 
in paragraph (3))] Each Federal banking agency (with respect to 
depository institutions) and the National Credit Union 
Administration Board (with respect to Federal credit unions 
described in paragraph (4)) shall prescribe regulations, which 
shall be prescribed jointly by such agencies to the extent 
practicable, to carry out the purposes of this section, 
including regulations defining with specificity such unfair or 
deceptive acts or practices, and containing requirements 
prescribed for the purpose of preventing such acts or 
practices. Whenever the Commission prescribes a rule under 
subsection (a)(1)(B) of this section, then within 60 days after 
such rule takes effect [each such Board] each such banking 
agency and the National Credit Union Administration Board shall 
promulgate substantially similar regulations prohibiting acts 
or practices of [banks or savings and loan institutions 
described in paragraph (3)] depository institutions, or Federal 
credit unions described in paragraph (4), as the case may be, 
which are substantially similar to those prohibited by rules of 
the Commission and which impose substantially similar 
requirements, unless (A) any such Board finds that such acts or 
practices of [banks or savings and loan institutions described 
in paragraph (3)] depository institutions, as the case may be, 
are not unfair or deceptive, or (B) the Board of Governors of 
the Federal Reserve System finds that implementation of similar 
regulations [with respect to banks, savings and loan 
institutions] with respect to depository institutions or 
Federal credit unions would seriously conflict with essential 
monetary and payments systems policies of such Board, and 
publishes any such finding and the reasons therefor, in the 
Federal Register. For purposes of this subsection, the terms 
``Federal banking agency'' and ``depository institution'' have 
the same meaning as in section 3 of the Federal Deposit 
Insurance Act.

           *       *       *       *       *       *       *

  (3) Compliance with regulations prescribed under this 
subsection shall be enforced under section 8 of the Federal 
Deposit Insurance Act with respect to savings associations as 
defined in section 3 of the Federal Deposit Insurance Act by 
the Director of the Office of Thrift Supervision.
  (4) Compliance with regulations prescribed under this 
subsection shall be enforced with respect to Federal credit 
unions under sections 120 and 206 of the Federal Credit Union 
Act (12 U.S.C. 1766 and 1786) by the National Credit Union 
Administration.

           *       *       *       *       *       *       *

  (6) The authority of [the Board of Governors of the Federal 
Reserve System] any Federal banking agency or the National 
Credit Union Administration Board to issue regulations under 
this subsection does not impair the authority of any other 
agency designated in this subsection to make rules respecting 
its own procedures in enforcing compliance with regulations 
prescribed under this subsection.

           *       *       *       *       *       *       *


                                  
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