CFPB Enforcement Concerns

Four 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 potentially 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 issuance of official, written interpretative rules, supervisory guidance and/or compliance bulletins to facilitate regulatory certainty and consistent consumer protections throughout the market.

Overview:

  • 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 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.
  • The CFPB's approach recently was found improper in court. The District of Columbia Circuit Court of Appeals' decision in PHH Corporation v. CFPB held that CFPB Director 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. 
  • The Court held further 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. 

Impact:

  • 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.
    • Is unduly costly, ultimately lessens competition, and impacts the availability and affordability of credit for consumers.
    • Causes debilitating uncertainty about what is and what is not permissible.
    • Causes 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 actions. 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 as "abusive."

MBA's Position / Next Steps:

  • MBA will continue to advocate that enforcement is no substitute for clear rules of the road, now citing the PHH Corporation v. CFPB decision both with respect to the CFPB's approach to RESPA and other statutes it enforces. MBA will present these views to decision makers including, as in PHH, to Courts.
  • MBA strongly urges the CFPB to establish and abide by a consistent framework for providing industry with authoritative written guidance that facilitates efficient compliance, reduces implementation costs, and ensures consistent consumer treatment across the market. That framework should:
    • For existing rules, require rulemaking or, where appropriate, written guidance (prospectively applied) if the CFPB is making a change in prior rules or guidance (whether formal or informal).
    • For significant new rules, require the CFPB to comprehensively evaluate implementation and dedicate resources to providing written guidance or amendments to the rule to address post-rule contingencies, unintended consequences, or other infirmities in the rule.
  • Clear rules arrived at judiciously are a far better means of protecting consumers and maximizing competition to lower costs. The steps identified above would significantly improve industry regulation and enforcement to protect consumers.

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