MBA Urges CFPB to Conduct ‘Comprehensive Review' of Key Rules

Mike Sorohan msorohan@mba.org

June 27, 2018

The Mortgage Bankers Association urged the Consumer Financial Protection Bureau to identify regulatory requirements that should be "refreshed" and to provide clarity to key rules whose interpretations have been clouded by the Bureau's "rulemaking by enforcement" practice.

"The industry has undergone significant changes in the decades since these rules were first conceived," wrote MBA Senior Vice President for Public Policy and Industry Relations Steve O'Connor. "Recent advances in technology have only quickened the pace of change. The Bureau must ensure its regulations and regulatory guidance reflect these changes. In the past, the Bureau billed itself as a 21st century agency. In accordance with its mandate, the Bureau should endeavor to create 21st century rules."

The MBA letter is the latest in a series of responses to CFPB Requests for Information on its regulations and rulemaking authorities. This particular letter comes in response to a Bureau RFI asking for feedback on its inherited regulations and inherited rulemaking authority.

The letter urged the Bureau to conduct a comprehensive review to identify regulatory requirements that should be refreshed to reflect technological advances in the mortgage market. In particular, comments urge clarity on RESPA Section 8, an area in which MBA said the Bureau's past practice of "rulemaking by enforcement" created great uncertainty. The letter's other specific recommendations covered several areas including: the Equal Credit Opportunity Act, Mortgage Loan Originator Transitional Authority and the Truth in Lending Act.

"MBA appreciates the statements by Acting Director [Mick] Mulvaney that the Bureau will end its past practice of using public enforcement actions to announce novel interpretations of its statutes and regulations--or ‘regulation by enforcement,'" MBA said. "For example, the Bureau's attempt to apply its reinterpretation of Section 8 of the Real Estate Settlement Procedures Act through enforcement led to a protracted legal battle in which the United States Court of Appeals for the District of Columbia concluded that the Bureau's retroactive application of its reinterpretation violated the constitutional due process rights of regulated entities."

MBA stressed the "regulation by enforcement" strategy is both unsuccessful and inconsistent with the Bureau's statutory mandate to ensure that "markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation."

"When a competitive and heavily regulated industry does not have clear lines defining permissible and impermissible conduct, the resulting confusion can lead to a market in which participants compete based on their willingness to accept compliance risk rather than on their ability to provide consumers with the best products and services," MBA said. "The Bureau's interests--and those of the consumers it is empowered to protect--would be much better served by significantly expanding the canon of official interpretations."

MBA said this form of contemporaneous guidance is often found in the preamble section of the final rule. It includes statements detailing the background and purpose of the regulation which provide valuable insight on the rule's application. "Official interpretations should be subjected to the public notice and comment rulemaking process," the letter said. "The rulemaking process is orderly and informed by stakeholders representing the viewpoints of both industry and consumers. When concluded, the results set forth requirements applicable to all regulated entities. Those seeking to comply with the rules can look to the regulatory history of the rules for additional guidance."

The letter also noted the Bureau also has authority to provide guidance on its rules through advisory opinions, bulletins, statements of policy, written answers to frequently asked questions, and other means where appropriate. "Significant changes and revisions should be open for public comment to allow stakeholder input to ensure the Bureau's guidance comports with the realities experienced by consumers and industry participants," MBA said. "The Bureau should use this authority following the promulgation of regulations to provide additional direction on acceptable, but not exclusive, methods of compliance."

MBA cautioned, however, that it is "not enough" to stop applying new interpretations to past practices without adequate warning. "The Bureau has an affirmative obligation to regularly re-examine its regulations to ensure industry has clear standards for complying with consumer protection laws," the letter said. "This is particularly important for inherited rules."

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