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This is the latest in a series of columns from attorneys at O’Melveny & Myers LLP, examining the intersections of the political and legal worlds in the run-up to Election Day 2012. A year and a half after becoming law, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 continues to generate consternation, even as some of its provisions are being rethought and revised. What should in-house counsel expect going forward? For starters, Dodd-Frank is here to stay. Efforts in Congress to repeal all or much of Dodd-Frank have not gained significant traction, and agencies continue to finalize regulations mandated by the act. Nonetheless, a combination of legislative changes and litigation aimed at challenging provisions of Dodd-Frank—and the rules it has promulgated—promises to leave behind a law that, in parts, is quite different from its original form. These changes will have significant implications for how Dodd-Frank affects industry. Though the potential modifications to Dodd-Frank are numerous, we focus on two areas that highlight the importance of both the legislative and litigation elements of the modification process: (1) the structure and operation of the Consumer Financial Protection Bureau, created by Title X of Dodd-Frank; and (2) the promulgation of final rules by the Securities and Exchange Commission regarding “proxy access” and the Commodity Futures Trading Commission regarding position limits on certain derivatives contracts, both pursuant to authority provided to the commissions by Dodd-Frank (Sections 971 and 737, respectively). In establishing the CFPB, Congress created a truly unprecedented agency. The CFPB is charged with regulating consumer finance and enforcing consumer financial laws. Its reach covers at least 18 existing laws and extends well beyond banks to anyone who provides consumer financial services. Even as Congress was granting the CFPB extraordinary new responsibilities, it insulated the CFPB from many of the checks and balances that typically keep agencies accountable to other organs of government. For example, the President cannot remove the director of the CFPB at will; Congress has divested itself of the power to control the CFPB’s funding; and the Federal Reserve Board, which houses and funds the agency, cannot exercise meaningful oversight. Since enacting Dodd-Frank, legislators have reconsidered the CFPB’s structure, resulting in bipartisian support for legislation to form a commission—rather than appoint a single director—to head the CFPB and to strengthen review of CFPB regulations.1 This is not an isolated legislative effort. Following President Obama’s controversial recess appointment of Richard Cordray as CFPB director in January, many believe that a challenge to the appointment, and to the CFPB’s structure, is forthcoming.2 A change to the structure of the CFPB cannot help but affect the way it regulates and supervises industry participants. A second example of forthcoming modifications to Dodd-Frank comes not from changes to its statutory provisions but from challenges to the rules it mandates. Dodd-Frank legislates largely by granting discretion to agencies to prescribe rules (in the form of approximately 400 such rulemakings). So, as important as its 2,319 pages are, the subsequent reams of regulations are arguably more so. Consequently, industry participants have sought to influence Dodd-Frank’s effects through participation in the rulemaking processes and by challenging rules that are insufficiently supported. This process began with a challenge to the SEC’s “proxy access” rules. Multiple statutes require the SEC to conduct cost-benefit analysis of its rules.3 On July 21, 2011, the D.C. Circuit Court vacated the SEC’s final rule, saying the commission acted arbitrarily and capriciously because it “inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.”4 The SEC did not appeal. A more recent example of a cost-benefit challenge involves the CFTC’s final rule on position limits.5 As with the SEC, Section 15(a) of the Commodity Exchange Act requires the CFTC to conduct a cost-benefit analysis of its rules.6 The CFTC ratified its position limits rule by a contentious 3-2 vote, with one of the commissioners who voted in favor of the rule stating that “no one has presented this agency with any reliable economic analysis to support either the contention that excessive speculation is affecting the market we regulate or that position limits will prevent the excessive speculation.”7 More such challenges are imminent, although they are more likely to be aimed at rules promulgated by the SEC and CFTC than by bank regulators, because any statutory cost-benefit review requirements imposed on the banking agencies are weaker in nature8 and are not observed regularly in practice. These cost-benefit challenges represent another significant influence on Dodd-Frank’s future, indirectly through its regulatory offspring. We believe the future of Dodd-Frank is one of incremental change rather than broad repeal, but the future continues to unfold. Accordingly, counsel must remain attuned to these developments and their potential implications for their business, despite Dodd-Frank fatigue. Heather Traeger is a partner and Bimal Patel is an associate in O’Melveny’s Washington, D.C., office. Both are members of the firm’s financial services practice.

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