TheCorporateCounsel.net

March 17, 2011

A Dodd-Frank Start-Up: The CFPB

In testimony yesterday before the House Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services, Special Advisor to the Treasury Secretary for the Consumer Financial Protection Bureau Elizabeth Warren provided an overview of the progress to date in establishing the Consumer Financial Protection Bureau, the goals of the CFPB and its approach to regulating consumer financial products, such as mortgages and credit cards.

On the CFPB’s overall approach, Warren indicated that the new bureau will not be principally focused on creating a raft of new regulations governing consumer financial products. Rather, it appears that the bureau will be taking (at least for now) more targeted steps toward increasing transparency and reducing paperwork for mortgages and credit cards, all towards increasing consumer understanding of these financial products. Warren also described the financial education efforts of the CFPB and a consumer response center that will receive consumer complaints. The CFPB has a direct supervisory role with respect to non-bank financial companies that provide consumer financial products and services, and is ramping up supervision and enforcement efforts.

It appears that the CFPB has now put in place most of its leadership team, bringing in people with diverse professional backgrounds. In true start-up mode, the CFPB consolidated its offices last fall after working out of a variety of locations, and is planning a new office across the street from the White House complex that will feature public spaces where consumer information and financial education materials can be displayed.

While the CFPB will at some point be a significant new regulatory force to be reckoned with, it appears that much effort has been done to make the bureau more palatable to the financial services industry, without necessarily watering down the mission. As budget battles rage on, we shall see whether it will ultimately get the resources to move from Dodd-Frank start-up to a full-blown regulator.

A Disclosure Challenge: What to Say About the Economy Now?

An area of disclosure that presented some challenges during 10-K season this year – and that will continue to present challenges in upcoming reports – is what exactly to say in risk factors and MD&A about the state of the economy. As a result of the financial crisis and recession, over the past few years many issuers have included very robust risk factors and MD&A disclosure about the state of the economy and credit markets, and the impact (or potential impact) that these developments had on business and financing activities. Strong performance across many sectors in the latter half of 2010, thawing credit conditions and increasingly robust capital markets, as well as an acknowledged end to the recession, all contributed to significantly increased optimism by the time 10-Ks for calendar year-end issuers rolled around.

However, on the disclosure front, that optimism has been tempered to a great degree, with many issuers acknowledging the end of the recession and improving conditions for financing, but hedging that disclosure with significant warnings that the economic improvements may not continue (and that the recession might be back), as well continued uncertainty about the state of lending and capital market conditions. This disclosure approach will no doubt continue throughout the year, even if business and financing conditions continue to improve.

One area that issuers must continue to be mindful of is the consistency of the discussion of trends (such as for the economy and financing) on earnings calls and in earnings releases as compared to what ultimately gets disclosed in the 10-K and the 10-Q. The Staff continues to ask about the consistency of information presented in the course of its filing reviews, in an attempt to steer 10-Ks and 10-Qs away from being merely “compliance” documents.

Conduct of the Annual Meeting

We have posted the transcript for our recent webcast: “Conduct of the Annual Meeting.”

– Dave Lynn