The CFPB “Regulation through Enforcement” Paradigm

More than five years after becoming the primary consumer mortgage regulator, the Consumer Financial Protection Bureau's (CFPB's) use of consent decrees and administrative decisions to make changes in the rules-rather than using rulemaking or published guidance-has created uncertainty in the market and undue costs for consumers. MBA urges the CFPB, when implementing new rules or changing the interpretation of existing rules, to adopt clear "rules of the road" through the notice and comment process, written interpretative rules, supervisory guidance and/or compliance bulletins to facilitate regulatory certainty and consistent consumer protections throughout the market.


  • Enforcement actions by the CFPB have raised profound questions about how the Bureau will apply laws that were transferred to it under the Dodd-Frank Act, as well as the process that it will follow in making changes in interpretation.
  • The CFPB has published key consent orders and decisions-including under the Real Estate Settlement Procedures Act (RESPA)-that diverge from prior rules and interpretations of the Department of Housing and Urban Development (HUD) that the industry has relied on for decades. During these years, the industry consulted with counsel and organized their operations to comply in full with HUD as the regulator.
  • The CFPB has on occasion exercised its authority to issue guidance documents. However, they have diminished the value of their guidance by issuing disclaimers that such guidance cannot be relied upon. By refusing to be bound by their own statements, the CFPB increases the potential for confusion amongst the regulated entities.
  • In a landmark case, the CFPB's enforcement action in PHH Corporation v. CFPB was found improper by a three judge panel of the U.S. Court of Appeals for the D.C. Circuit.  Specifically, the Court held that CFPB Director Richard Cordray's decision to increase a $6.4 million fine recommended by an Administrative Law Judge to over $109 million was based on the CFPB's invalid interpretation of RESPA. MBA had filed an amicus brief in support of PHH.
  • The Court also held that even if the interpretation had been valid, the CFPB violated due process since it announced its new interpretation in an enforcement action without prior notice against conduct that could be permissible under applicable RESPA rules. The full Court has now granted review of the panel's PHH ruling and a decision by the full Court is expected in fall 2017.


  • The CFPB's enforcement-first strategy:
    • Exposes lenders to "regulation by enforcement action" and opens up activities not previously believed to be prohibited to potential challenge by the CFPB, state regulators, attorneys general and the plaintiffs' bar.
    • Fails to identify legal conduct beforehand. Rather, it identifies what the CFPB asserts as illegal, leaving the industry and consumers to traverse the mine field of potential conduct that may trigger enforcement.  
    • Is unduly costly, ultimately lessens competition and impacts the availability and affordability of credit for consumers.
    • Causes uncertainty about what is and what is not permissible.
    • Leads some companies to revise business arrangements while others await further guidance, resulting in an inconsistent application of the rules of the road that adversely impacts both industry and consumers.
    • Drives up legal costs. A wide range of companies that arranged their businesses in view of guidance issued by previous regulators also are incurring legal expenses to revisit earlier decisions. These expenses are particularly burdensome for smaller companies and are ultimately borne by consumers.
    • Notably, Dodd-Frank also grants the CFPB discretion to target "unfair, deceptive or abusive acts or practices" (UDAAP). Although the CFPB has not formally defined UDAAPs in a rulemaking, the CFPB has nonetheless issued several decisions penalizing certain practices-after-the-fact-as "abusive."

MBA's Position / Next Steps:

  • MBA recently released CFPB 2.0: Advancing Consumer Protection. The white paper provides recommendations to the Bureau moving forward on how to promote a vibrant, competitive mortgage lending market, while discussing the ongoing dangers of the Bureau's "regulation by enforcement" protocol. MBA strongly urges the CFPB to place priority on adopting a consistent framework for providing authoritative written guidance that facilitates efficient compliance, reduces implementation costs and ensures consistent consumer treatment across the market. CFPB 2.0 outlines that the framework should:
    • Require rulemaking or-where appropriate-written authoritative guidance in accessible form if the CFPB is making a change in prior guidance.
    • Acknowledge that the CFPB is bound by its guidance while private parties may determine other approaches to compliance.
    • Require the CFPB to comprehensively evaluate implementation and ongoing performance under rules and provide authoritative written guidance, amendments to the rule and answers to questions as needed.
    • Prohibit enforcement prior to the issuance of rules or guidance and allow sufficient time for compliance after rules and guidance are issued. 
    • Require publishing notice of changes in guidance and apply those changes prospectively while also providing time for regulated entities to comply.
    • Facilitate industry input on mortgage and other issues while also engaging in constructive dialogue with financial institutions.
  • MBA strongly urges the CFPB to reform its enforcement process to ensure due process.
    • As the panel in PHH discussed, it is implausible that Congress intended to allow administrative actions to be brought decades beyond the relevant statute of limitations.
    • Restrictions on financial institutions over the disclosure of a Bureau CID or NORA run afoul of the First Amendment, as asserted by the American Civil Liberties Union (ACLU).
  • MBA will continue to advocate before policymakers and the courts that enforcement is no substitute for clear rules of the road-which are a far better means of protecting consumers and maximizing competition to lower costs. 
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