Financial Regulatory Reform Will Create New Federal ADR Programs

The sweeping reform legislation signed into law by President Obama on July 21 will establish three new federal alternative dispute resolution programs for financial issues. These new programs are designated by the legislation as Ombudsman Offices -- one for Securities and Exchange Commission concerns and two programs within the new Consumer Financial Protection Bureau. (An early version of the legislation also included an Ombuds program for the Public Company Accounting Oversight Board, but this was not included in the final version.)

The new SEC Ombuds will be named by the head of the Office of the Investor Advocate, who is appointed by the SEC Chair. The Investor Advocate will be responsible for assisting individual investors with issues involving the SEC or other self-regulatory organization such as the New York Stock Exchange. The new Ombuds would serve as a confidential liaison for the same population. The bill does not provide any guidelines for implementing the Ombuds program, so details need to be worked out. The bill does state, however, that the new Ombuds office will not replace or diminish any existing agency Ombuds.

The reform bill also establishes two Ombuds programs in the Consumer Financial Protection Bureau. The first serves as the Agency Ombuds for the Bureau -- essentially a confidential liaison for individuals with problems relating to the activities of the Bureau, resulting from the regulatory activities of the Bureau. The details of this new Ombuds program are undefined.

In addition, there will be a separate Ombuds program to mediate disputes between student borrowers and private lenders. Here again, there are few details, but it is expected that the new Ombuds will resemble the existing Ombuds at the Department of Education which serves students with federal student loan issues. (Open Congress, HR 4173; NY Times Overview.)

Although these new Ombuds programs are welcomed by industry experts, they still need to be defined by the regulatory agencies. How and when this will happen remains to be seen. Unfortunately, there is no indication that any Ombuds professional or any Ombuds professional associations are even participating in the process. On the positive side, the Coalition of Federal Ombudsmen has been an important resource for new Ombuds programs in the federal sector. Hopefully they will fill the need.

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