WASHINGTON (Legal Newsline) - The U.S. Chamber Institute for Legal Reform says it has concerns with provisions regarding state attorneys general in a federal attempt to reform how the financial industry is regulated.
ILR President Lisa Rickard said Tuesday that a transparency mechanism is needed for contingent fee contracts entered into by state attorneys general and the private firms they could hire to pursue lawsuits authorized by the proposed Consumer Financial Protection Act.
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"Businesses already struggling to survive and retain jobs in this challenging economic environment should not face a barrage of 50 different new state regulators, all with the ability to hire private plaintiffs' lawyers to bring litigation," Rickard said.
"Transparency in the hiring of contingency fee private attorneys will help ensure that, at the least, there are not improper campaign contributions given in exchange for contingency fee lawsuit contracts."
H.R. 3126, introduced by U.S. Rep Barney Frank, D-Mass., would establish the Consumer Financial Protection Agency. Twenty-two state attorneys general have thrown their support behind President Barack Obama's plan for reform
Part of the Obama administration's plan for financial regulation reform calls for the creation of a Financial Consumer Coordinating Council that will "establish mechanisms for state attorneys general, consumer advocates and others to make recommendations to the Council on issues to be considered or gaps to be filled."
Obama's proposal noted that state attorneys general are currently left to "fill the gap" where mortgage companies not owned by banks fall.
Rickard said the U.S. Chamber has a number of concerns about the CFPA, and that Congress should adopt legislation mirroring federal rules regarding the hiring of outside counsel on a contingency fee. President George Bush banned the practice during his time in office.
"Congress should adopt legislation that would mirror the current private attorney retention rules applicable to federal agencies by barring state or local government use of contingency fee arrangements to enforce the CFPA," Rickard said.
"At minimum, we believe any financial protection bill must, at the very least, include safeguards that would bring transparency to contingency fee relationships between state attorneys general and the plaintiffs' bar - a critical step to safeguard against the growing problem of 'pay-to-play' abuses when private plaintiffs' firms who are awarded these lucrative contracts are also contributing to the state officials' campaigns.
"Without a transparency mechanism, these 'pay-to-play' abuses will proliferate under this legislation with more plaintiffs' lawyers jockeying for a market share of this new litigation field."
Twenty-one Democratic and one Republican (Hawaii's Mark Bennett) wrote Frank and three other members of Congress in August to show their support for Obama's plan to adopt the CFPA.
"The current financial crisis, caused in part by irresponsible subprime lending and inadequate oversight, has demonstrated the need for comprehensive and effective consumer protection and enforcement at the federal level," the letter says.
"We believe an independent federal agency combined with joint enforcement by state officials is the best option for meaningful consumer protection in this area."
The attorneys general who signed their names to the letter are: Arizona's Terry Goddard, California's Jerry Brown, Connecticut's Richard Blumenthal, Bennett, Illinois' Lisa Madigan, Iowa's Tom Miller, Louisiana's Buddy Caldwell, Maine's Janet Mills, Massachusetts' Martha Coakley, Minnesota's Lori Swanson, Minnesota's Jim Hood, Missouri's Chris Koster, Montana's Steve Bullock, Nevada's Catherine Cortez Masto, New Jersey's Anne Milgram, New Mexico's Gary King, North Carolina's Roy Cooper, Ohio's Richard Cordray, Oklahoma's Drew Edmondson, Oregon's John Kroger, Tennessee's Robert Cooper, Vermont's William Sorrell and West Virginia's Darrell McGraw.
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