Could Senator Dodd’s Consumer Protection Bureau Regulate Dentists?

A spat has broken out over an advertisement by the Chamber of Commerce that states that under Senator Chris Dodd’s financial reform legislation, the new Bureau of Consumer Protection would have the authority to regulate dentists.  Senator Dodd and the Obama Administration say that is not true.

The issue arises because dentists often permit patients to finance orthodontic work by making payments over time in several installments to defray the cost.

On Senate floor last week, Dodd said: “If your orthodontist or doctor or dentist lets you pay your bill over a series of months, they’re not covered.”

The statute is exceedingly unclear on this point but the dentists have good reason to be afraid.

The issue is raised by section 1027 of Dodd’s legislation.  Under sec. 1027(a)(1) the CFPB cannot regulate any seller of a non-financial good or service “except to the extent that such person is engaged in offering or providing any consumer financial product or service.”  Section 1027(a)(2)(A) then provides an exception to the CFPB’s power to regulate the issuance of financial products in this context: “Except as provided [below], the Bureau may not [regulate] with respect toa  merchant, retailer or seller of nonfinancial goods who (i) extends credit directly to a consumer, in a case in which the good or service being provided is not itself a consumer financial product or service…, exclusively for the purpose of enable that consumer to purchase such nonfinancial good or service directly from the merchant, retailer, or seller.”

This provision provides a general exception to the Bureau’s power to regulate all consumer credit because the financing is ancillary to the provision of the goods and services.

But there is an exception to that exception–section 1027(a)(2) (B)(iii): “Subparagraph (A) does not apply to any credit transaction… other than as described in subparagraph (C)… (iii) in which the merchant, retailer, or seller of nonfinancial goods or services regularly extends credit and the credit is (I) subject ot a finance charge; or (II) payable by written agreement in more than 4 installments.”

This is the provision that the dentists point to as creating a headache, because the “4 installment” provision applies regardless of whether the credit is being provided ancillary to the sale of goods.

But presumably what Senator Dodd has in mind in the exception to the exception to the exception in section 1027(a)(2)(C)), which provides that “Notwithstanding subparagraph (B), the Bureau may not exercise any… authority under this title with respect to a merchant, retailer, or seller of nonfinancial goods or services that is not engaged significantly in offering or providing consumer financial products or services.” (emphasis added)

So what the issue apparently comes down to is whether the dentists are engaged “significantly” in the offering of consumer financial products or services.  As far as I can tell, the term “significantly” is not defined anywhere in the statute itself.  One could imagine all kinds of potential definitions: total dollars of credit (regardless of size), percentage of revenues from credit sales, percentage of sales on credit, number or percentage of customers who use credit, etc.

Certainly though I don’t see how Senator Dodd can categorically say that dentists are excluded.  Moreover, if the exception for dentists is so broadly interpreted to provide a safe harbor, then it seems like it opens a gigantic loophole for any retailer, including department stores, that run their own credit card operations or the like.  Consider Target, which just recently announced that it is dropping is Visa branded Target card to focus only on its proprietary “red card.” How would these provisions apply here?  Well, Target issues credit on its store-brand card only ancillary to a consumer making a purchase at Target.  So functionally it is just like the dentist and the same analysis applies.  And even if Target doesn’t make installment sales it does charge a finance charge for use of its card.

Could Target argue that it is not “significantly” engaged in offering consumer financial products?  Now it seems clear that the intent Senator Dodd’s legislation would be to reach Target’s credit card operation.  Could it?  Well, it depends on what test is used for “significantly.”  Presumably Target processes a lot of dollars but its Target card may be a relatively small amount of the sales it makes and even less of that is revolved from month to month.  What about a local mom-and-pop furniture store or lumber store that makes sales on credit?  They may have relatively small total dollar value but a large percentage of their sales and customers financing through their stores.  Would they be safe from the CFPB’s reach?

At least one Democrat fears that the Bureau could reach the dentists:

Rep. Nydia Velázquez (D-N.Y.), chairwoman of the House Small Business Committee, told Dodd it was “more than likely” that small healthcare practices, including dentists and physicians, would fall under the scope of the new regulator. She noted a recent Federal Trade Commission (FTC) decision that dental and law practices were considered creditors as an example of regulators crafting broad interpretations.

One suspects that the statute specifically eschews any real limiting definition in order to preserve the authority of the Bureau to define its jurisdiction in an ad hoc manner as it goes along.  I think that dentists and other small businesses would be foolish to accept Senator Dodd’s assertion that the scope of the Bureau’s jurisdiction would not extend to them.  The exception to the exception to the exception that Senator Dodd seems to be relying on seems like a very weak reed indeed.

Update: I should have added that the statutory language specifically exempts accountants, tax preparers, lawyers, and a few other professions from its reach, which under the exlusio unius would tend to further suggest that dentists and other health care providers would not be excluded.