[Congressional Record Volume 156, Number 105 (Thursday, July 15, 2010)]
[Extensions of Remarks]
[Pages E1347-E1349]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CONFERENCE REPORT ON H.R. 4173, DODD-FRANK WALL STREET REFORM AND
CONSUMER PROTECTION ACT
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speech of
HON. JOHN CONYERS, JR.
of michigan
in the house of representatives
Wednesday, June 30, 2010
Mr. CONYERS. Mr. Speaker, as the Chairman of the House Judiciary
Committee, and a House conferee on the Dodd-Frank Wall Street Reform
and Consumer Protection Act, I would like to highlight a few provisions
of this legislation of particular jurisdictional importance to our
Committee, and that our Committee was instrumentally involved in
shaping. During the course of Congress's consideration of this
legislation, our Committee carefully examined a range of legal issues
posed, including issues of antitrust law, bankruptcy law, criminal law,
administrative procedure, and judicial proceedings, and held two days
of hearings last fall focusing on antitrust and bankruptcy law in
particular. Below is a summary of some of the more significant of these
issues and how they have been addressed.
Antitrust Law
One major impetus of this bill is to address the problem posed two
years ago by financial institutions that were deemed ``too big to
fail.'' The emergency efforts to deal with those institutions led to
infusions of billions of federal dollars, and federal guarantees of
billions more, putting the Treasury, and our nation, at significant
risk.
But ``too big'' also places our nation at significant risk in another
respect--and that is the risk of harm to competition, when a
marketplace becomes concentrated in the hands of so few competitors
that consumers no longer have meaningful choice, and the healthy
influence of competition on price, quality, and innovation is lost.
It is therefore essential that the antitrust laws, the laws
protecting our economic freedoms against monopolization,
anticompetitive restraints of trade, and undue market concentration,
remain in place. They are needed to ensure that the heightened
regulatory supervision the new law contemplates, as well as our
response to any future financial system emergency, do not inadvertently
lead to an even more concentrated marketplace--with companies that are
even bigger, with more market power, and with less incentive to be
responsive to the consumers they are supposed to serve, and leaving
less opportunity for new entry and innovation.
The final bill contains a number of provisions to ensure that the
antitrust laws remain fully in effect.
Antitrust Savings Clause
First and foremost is the antitrust savings clause in section 6 of
the bill. It is the standard antitrust savings clause found in other
statutes. It applies to the entire Act, and all amendments made by the
Act to other laws. The phrase ``unless otherwise specified'' is added
in reference to four provisions in the bill. In two places--sections
210(a)(1)(G)(ii)(III) and 210(h)(11) of the bill--the standard pre-
merger waiting period under section 7A of the Clayton Act is explicitly
shortened. And in two other places--section 163(b)(5) of the bill, and
the amendment to section 4(k)(6)11(B) of the Bank Holding Company Act
made in section 604(e)(2) of the bill--there are cross-references to
the exception to pre-merger review in section 7A(c)(8) of the Clayton
Act that explicitly make that exception inapplicable.
The phrase ``unless otherwise specified'' refers only to those four
specific provisions that explicitly modify the operation of those
specified provisions of the antitrust laws in specified ways, and is
not a basis for courts to consider whether any other provision in the
bill might be intended as an implicit modification of how the antitrust
laws operate. The savings clause is intended to make clear that it is
not.
For example, in a number of places in the bill, there are provisions
referring to ``Antitrust Considerations'' that various securities and
commodities entities--including derivatives clearing organizations,
swap dealers, major swap participants, swap execution facilities,
clearing agencies, security-based swap dealers, and major security-
based swap participants--are directed to take into account in
formulating their operating rules. There are exceptions to these
directives for situations in which the entity believes pursuing them
itself is inconsistent with its other obligations under the relevant
securities or commodities law. The fact that the entity is excused from
the new directives, however, does not alter the application of the
antitrust laws. Nor does the fact that the entity follows these
directives in its own rulemaking supplant the operation of the
antitrust laws.
In this regard, the rule of construction found in section 541 of the
bill simply reaffirms, perhaps unnecessarily, for Title V of the bill
what the antitrust savings clause already provides for the entire bill
and all amendments made by it. In attempting to elaborate on the effect
of an antitrust savings clause, it does not create a different rule,
but merely reaffirms the general rule.
Moreover, an antitrust savings clause is itself merely a
reinforcement of the well-established principle that, because the
antitrust laws are ``a comprehensive charter of economic liberty aimed
at preserving free and unfettered competition,'' Northern Pac. Ry. Co.
v. U.S., 356 U.S. 1 (1958), ``the Magna Carta of free enterprise,''
Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP,
540 U.S. 398 (2004); United States v. Topco Associates, Inc., 405 U.S.
596, 610 (1972), there is a strong presumption against their normal
operation being superseded by some other statutory scheme. E.g., Ricci
v. Chicago Mercantile Exchange, 409 U.S. 289, 302-303 (1973); Silver v.
New York Exchange, 373 U.S. 341, 357 (1963). Whether the antitrust laws
reach particular conduct depends on whether the other statutory scheme
is ``incompatible with the maintenance of an antitrust action.'' Ricci,
409 U.S. at 302; Silver, 373 U.S. at 358. The antitrust laws are
superseded only ``where there is a plain repugnancy between the
antitrust and regulatory provisions.'' Credit Suisse Securities (USA)
LLC v. Billing, 551 U.S. 264, 272 (2007); Gordon v. New York Stock
Exchange, Inc., 422 U.S. 659, 682 (1975). The antitrust laws are
displaced ``only if necessary to make the [other statutory scheme]
work, and even then only to the minimum extent necessary.'' Ricci, 409
U.S. at 301; Silver, 373 U.S. at 357.
Pre-Merger Antitrust Review
Recognizing that a fully methodical pre-merger antitrust review may
be in tension with the need for quick action to avoid systemic harm,
the bill shortens the ``Hart-Scott-Rodino'' pre-merger waiting periods
under section 7A of the Clayton Act, based on the procedure developed
for reviewing sales of assets during a bankruptcy proceeding. This
procedure expedites the initial review, while permitting the antitrust
enforcement agency to extend the period when more information is needed
to make its assessment. This expedited procedure is included in two
places--in section 210(a)(1)(G)(ii) of the bill, for mergers of a
covered financial company in receivership with another company, and in
section 210(h)(11) of the bill, for mergers or sales of bridge
financial companies.
The House bill had included, at the request of our Committee, a
provision permitting the FDIC receiver to effectuate a merger
immediately, without prior notice to the Attorney General or any pre-
merger waiting period, if the Treasury Secretary determined that
immediate action was necessary to preserve financial stability. This
provision was not included in the Senate bill or the conference report.
While express authority to act immediately is therefore missing, the
Judiciary Committee hopes the antitrust enforcement agencies will work
constructively with the Treasury Department to develop a mechanism for
dispensing with the prior notice requirement and the pre-merger waiting
period, or shortening them appropriately, when warranted by urgency and
the danger posed to stability of the economy, keeping in mind that the
antitrust laws authorizing challenge of anticompetitive mergers and
acquisitions remain fully in force.
In this regard, it should be emphasized that the shortening of the H-
S-R pre-merger antitrust waiting period, and even the possibility of
permitting a merger to be effectuated as close to immediately as can be
arranged, in no way alters the applicability of the other antitrust
laws. If a merger raises significant competitive concerns, it can still
be challenged after the fact under section 7 of the Clayton Act. And
post-merger conduct that raises competitive concerns is fully subject
to the Sherman Act. These laws are not amended by the bill; and
[[Page E1348]]
the antitrust further emphasizes that their operation is not affected
in any way.
Similarly, the House bill had, at the request of our Committee,
applied the expedited pre-merger review process not only to mergers,
but to sales or transfers of financial company assets. While transfers
within the financial company's own internal corporate structure, or to
a temporary bridge company set up by the FDIC, would never trigger the
H-S-R notification and waiting period, and even sales or transfers to
outside third parties would trigger it only if the assets acquired
exceeded $63 million in value, an acquisition of this type is as
likely, if not more so, than a merger with the entire financial
company. Our Committee thought it important that acquisitions of this
type, when they occur, have the expedited process available, as well as
the emergency process allowing acquisitions to be effectuated
immediately.
The Senate bill limited the application of the expedited process to
mergers, however, and the Senate approach was retained in the final
conference report, which limits availability of the expedited review to
mergers described in section 210(a)(1)(G)(i)(I), leaving out transfers
of assets described in section 210(a)(1)(G)(i)(II). To the extent that
subparagraph (G)(i)(II) may be read not only to cover transfers within
the corporate structure or to the temporary bridge financial company,
but also to include transfers to third parties, these transfers, to the
extent they are at thresholds that trigger Hart-Scott-Rodino reporting,
will not be able to take advantage of the expedited waiting period
under section 210(a)(1)(G)(ii). Our Committee urges the antitrust
enforcement agencies to use their existing authority to work
constructively with the FDIC to establish an informal arrangement to
enable these transactions to proceed in an expedited fashion where
consistent with effective antitrust enforcement, keeping in mind,
again, that the antitrust laws authorizing challenge of anticompetitive
mergers and acquisitions remain fully in force.
Bankruptcy Law
One of the bill's centerpieces is a new emergency procedure for
placing a financial institution into FDIC receivership when its
insolvency poses imminent and significant ``systemic risk'' to the
stability of the broader financial system and economy. Congress made a
judgment to craft this procedure outside the Bankruptcy Code, rather
than seek to adopt the Code to the additional needs of dealing
effectively with systemic risk. While generally supportive of this
judgment, our Committee has urged proceeding in keeping with two
important objectives. First, that this new emergency procedure be
authorized only for cases of genuine emergency, where a departure from
the well-established procedures in the Bankruptcy Code is essential to
broader financial and economic stability. And second, that even in the
new emergency procedure, the well-developed bankruptcy principles of
due process and equitable treatment of all affected parties be
incorporated to the fullest extent possible.
Confining the Extraordinary Receivership Procedure to Extraordinary
Circumstances
As to the first objective, the House bill reaffirmed, at our
Committee's request, the ``strong presumption that resolution under the
bankruptcy laws will remain the primary method of resolving financial
companies,'' and that the new FDIC receivership authority ``will only
be used in the most exigent circumstances.'' The substantive essence of
this presumption is reflected in several places in the final bill's new
liquidation provisions.
In particular, section 203(a)(2)(F) requires that, in any
recommendation to the Treasury Secretary that FDIC receivership be
invoked, the FDIC and the Fed explain why a case under the Bankruptcy
Code is not appropriate. Section 203(b)(4) requires that the Secretary
have determined, in consultation with the President, that ``any effect
on the claims or interests of creditors . . . and other market
participants . . . is appropriate, given the impact . . . on financial
stability in the United States.'' And section 203(c)(2) requires the
Secretary to make an immediate report to Congress, within 24 hours, on
specified considerations supporting the FDIC receivership invocation,
including, in subparagraphs (E)-(I), several considerations regarding
the effects of FDIC receivership as compared with bankruptcy procedure.
In addition, section 165(d)(4)(b) specifies that the resolution plans
that large financial holding companies and nonbank financial companies
will be required to submit to the Fed, as part of enhanced prudential
standards, must be sufficient to result in orderly resolution under the
Bankruptcy Code in the event of insolvency. Established bankruptcy
procedure is thus reaffirmed as the preferred route even in the
planning stages.
Our Committee expects these provisions to be cornerstones for
ensuring that this extraordinary procedure will be invoked only when
essential--when bankruptcy procedure is clearly not sufficient in light
of the extreme urgency and overriding systemic risk.
Incorporating Key Bankruptcy Principles in the FDIC Receivership
Process
As to the second objective, the bill incorporates a number of key
bankruptcy protections, first and foremost among them preservation and
priority for specified kinds of claims against the financial company,
and powers for the FDIC receiver to avoid transfers for the benefit of
the United States and other creditors. The bill also incorporates a
number of terms directly from the Bankruptcy Code. While we were not
always successful in explicitly incorporating every useful Bankruptcy
Code concept, many of the most important due process and equitable
treatment considerations are reflected in some fashion.
For example, section 208 of the bill requires dismissal of a covered
financial company's pending bankruptcy case upon appointment of the
FDIC receiver. Subsection (b) provides that any assets that have vested
in another entity automatically vest back in the covered financial
company. We had expressed concern that this would prove not only
unworkable in practice, but could undermine the effectiveness of the
bankruptcy proceeding in preserving assets of the financial company, by
creating uncertainty regarding any purchase of assets even in the
ordinary course of business. Subsection (c) of the final bill clarifies
that any order entered or other relief granted by a bankruptcy court
prior to the date the FDIC receiver is appointed ``shall continue with
the same validity as if an orderly liquidation had not been
commenced.'' Our Committee expects subsection (c) to be construed so
that payments made during the ordinary course of the financial
company's business while it is a debtor in a bankruptcy case will not
be subject to the automatic re-vesting. This is in keeping with other
provisions of the bill, such as section 165, that are intended to
encourage financial companies to be resolved through bankruptcy
wherever possible.
At our Committee's urging, section 210(b) of the bill establishes
priority of payment for various types of unsecured claims against a
covered financial company for which the FDIC has been appointed as
receiver under section 202, modeled on similar protection in the
Bankruptcy Code. Subsection (b)(1)(C) accords third priority--after
payment of the FDIC's administrative expenses as receiver, and any
amounts owed to the United States (unless otherwise agreed to)--to
employees with claims for unpaid wages, salaries, or commissions
(including earned vacation, severance, and sick leave pay) up to a
maximum $11,725 for each employee, earned within 180 days before the
date of the FDIC's appointment as receiver. Also at the Committee's
urging, subsection (b)(1)(D) accords fourth priority for certain
contributions owed to employee benefit plans arising from services
rendered within the same 180-day time frame. These provisions will
ensure that American workers will be accorded the equivalent
protections they have under current bankruptcy law with respect to
payment priority for unpaid wages and employee benefit plan
contributions.
At our Committee's urging, the House bill required the FDIC receiver
to appoint a Consumer Privacy Advisor to assist with ensuring that the
privacy of sensitive consumer information would be appropriately
protected. A similar provision was added to the Bankruptcy Code in
2005, following revelations that Toysmart.com, an Internet retailer of
educational toys had, after filing for bankruptcy, sought to sell its
customer data base, including personal information about children who
used its toys, despite its promise never to sell this information. This
provision was not retained in the final bill; but the FDIC has advised
our Committee that it is absolutely committed to safeguarding any
personally identifiable information it acquires from a covered
financial company for which it serves as receiver.
Practice of Law
The Constitutional freedoms and legal rights we enjoy as Americans
are ultimately protected in our courts, through the advocacy of
attorneys who are licensed to practice before them. In keeping with
these critical responsibilities, the activities of these ``officers of
the court'' are regulated by the States, through government bodies
overseen by the State's highest court, with specialized expertise in
the sometimes complex duties imposed by the code of legal ethics. Among
the myriad activities engaged in as part of the practice of law are
activities to assist consumer clients in resolving serious debt
problems, including but by no means limited to representing them in
bankruptcy proceedings.
Conceptually, the activities Congress intends to give the Bureau
authority to regulate--``the offering or provision of a financial
product or service''--are distinguishable from the practice of law. But
because of the breadth of the authority being given the Bureau,
including the definitions of ``covered person'' and ``financial product
or service,'' and the complexities of the practice of law, there was
concern about potential overlap. And giving the new Bureau authority to
regulate the
[[Page E1349]]
practice of law could materially interfere with and jeopardize
sensitive aspects of the attorney-client relationship, including the
attorney-client privilege and work product protection that enable
clients to obtain sound legal advice from their attorneys on a
protected confidential basis.
It could also undermine the authority of the State supreme courts to
effectively oversee and discipline lawyers. There are carefully
developed ethical codes and disciplinary rules governing all aspects of
the practice of law. Any regulation from a new source would unavoidably
conflict with the existing rules and lines of accountability. And
because one of the foremost, and at times most complex, ethical
obligations is for an attorney to represent the client zealously within
the bounds of the law, there would be a significant likelihood of
attorneys being impeded in meeting their obligations to their clients
and to the legal system they are sworn to protect.
Even if the Bureau's authority could be reliably confined to legal
representation in financial matters, the result would be material harm
to consumer clients of bankruptcy lawyers, consumer lawyers, and real
estate lawyers--the very consumers the Bureau is being created to
protect. But the harm would inevitably be far broader, extending into
unrelated aspects of legal practice.
For those reasons, our Committee was determined to avoid any possible
overlap between the Bureau's authority and the practice of law. At the
same time, our Committee recognized that attorneys can be involved in
activities outside the practice of law, and might even hold out their
law license as a sort of badge of trustworthiness. Although State
supreme courts would have some authority to respond to abuses in even
these outside activities, as reflecting on the attorney's unfitness to
hold a law license (see Model Rule 8.4 of the American Bar Association
Model Rules of Professional Conduct, adopted in virtually all States),
their disciplinary authority is not necessarily as extensive in these
outside areas. The Committee was equally determined that these outside
activities not escape effective regulation simply because the person
engaging in them is an attorney or is working for an attorney.
Congresswoman Maxine Waters, a senior Member of both our Committee and
the Committee on Financial Services, and a House conferee, was
instrumental in helping ensure that the final bill draws this
distinction appropriately and clearly.
Accordingly, our Committee worked to make clear that the new Consumer
Financial Protection Bureau established in the bill is not being given
authority to regulate the practice of law, which is regulated by the
State or States in which the attorney in question is licensed to
practice. At the same time, the Committee worked to clarify that this
protection for the practice of law is not intended to preclude the new
Bureau from regulating other conduct engaged in by individuals who
happen to be attorneys or to be acting under their direction, if the
conduct is not part of the practice of law or incidental to the
practice of law.
Section 1027(e) of the final bill incorporates this protection. It
excludes from Bureau supervisory and enforcement authority all
activities engaged in as part of the practice of law under the laws of
a State in which the attorney in question is licensed to practice law.
To the extent that a paralegal, secretary, investigator, or law student
intern is performing activities under the supervision of an attorney,
and in a manner recognized under the laws of the relevant State as
within the scope of the attorney's practice of law--and only to that
extent--those activities also fall within this protection. As the
commentary to Model Rule 5.3 of the American Bar Association Model
Rules of Professional Conduct, adopted in virtually all States, makes
clear, these legal assistants ``act for the lawyer in rendition of the
lawyer's professional services . . . [and the] lawyer must give such
assistants appropriate instruction and supervision concerning the
ethical aspects of their employment . . . .'' Extending the protection
to cover these legal assistance, under these conditions, is consistent
with ensuring that the protection fully covers the practice of law as
it is conventionally engaged in, while foreclosing any opportunity for
an attorney to shield other commercial activities by engaging in them
through surrogates.
The provision in the final bill includes indicia for determining
whether an activity that constitutes the offering or provision of a
financial product or service within the terms of the bill is part of or
incidental to the practice of law, and therefore excluded from the
Bureau's authority. First and foremost, the activity must be among
those activities considered part of the practice of law by the State
supreme court or other governing body that is regulating the practice
of law in the State in question, or be incidental to those practices.
As further protection against abuse, the activity must be engaged in
exclusively within the scope of the attorney-client relationship; and
the product or service must not be offered by or under direction of the
attorney in question with respect to any consumer who is not receiving
legal advice or services from the attorney in connection with it.
We would hope that this carefully considered statutory provision will
also serve as a model for other federal agencies considering new
regulations that might cover conduct engaged in by attorneys as well as
others, so as to better ensure that important consumer protection
objectives are achieved consistent with safeguarding the ability of our
``officers of the court'' to fulfill their ethical obligations under
our legal system.
It is generally contemplated that the new Bureau will make rules
regarding various aspects of its authority. Any determinations by rule,
or otherwise, regarding what activities constitute the practice of law
should be consistent with the views and practices of the State supreme
court or State bar in question as to what activities it regards as part
of the practice of law and oversees on that basis, giving appropriate
deference to comments received from the State supreme courts and State
bars, supplemented with further guidance as appropriate from the other
indicia set forth in section 1027(e)(2).
Section 1027(e)(3) makes clear that existing federal regulatory
authority over activities of attorneys, either under enumerated
consumer laws as defined in the bill, or transferred to the new Bureau
from existing agencies under subtitle F or H of Title X, the Consumer
Financial Protection Bureau title, is not diminished.
Administrative and Judicial Process
Throughout the bill are provisions authorizing administrative or
judicial enforcement. Our Committee has endeavored, where possible, to
have these provisions written in conformance with the standard modern
formulations found in the Administrative Procedures Act and title 28 of
the United States Code, in lieu of novel formulations, or formulations
modeled on laws enacted in a bygone era, that have the potential to
create unnecessary uncertainty and litigation over interpretation. We
were not always entirely successful in this regard.
Among the changes made at our Committee's urging was revision of the
Consumer Financial Protection Bureau's new investigative authority to
bring it closer into conformity with the Antitrust Civil Process Act,
on which it is modeled; and revisions to the new authority for
nationwide service of subpoenas by the Securities and Exchange
Commission to ensure that the authority will be exercised consistent
with due process.
Our Committee remains concerned about the use of the terms
``privileged'' or ``privileged as an evidentiary matter'' to mean
confidential and protected from discovery. This inartful phraseology,
which was removed from some parts of the bill but not others, could
unintentionally raise questions regarding evidentiary privilege law,
which under the Rules Enabling Act is left to State common law. In
particular, the Committee wishes to emphasize that this bill in no way
authorizes government officials or courts to demand that anyone furnish
information that is protected by legal privilege.
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