MBA Offers Recommendations to CFPB on Regulatory Flexibility Act

Mike Sorohan

July 16, 2019

The Mortgage Bankers Association, in a July 15 letter to the Consumer Financial Protection Bureau, offered several recommendations on the Bureau's review of its rules under the Regulatory Flexibility Act.

In May, the Bureau announced its intent to review its rules ( CFPB Director Kathy Kraninger said the purpose of the review is to "minimize any significant economic impact of the rules upon a substantial number of small entities, consistent with the stated objectives of applicable statutes." It asked for public comment on each rule undergoing review and to consider specific factors, including the continued need for the rule; the nature of public complaints or comments on the rule; the complexity of the rule; the extent to which the rule overlaps, duplicates or conflicts with federal, state, or other rules; and the time since the rule was evaluated or the degree to which technology, economic conditions or other factors have changed the relevant market.

In the letter, MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills noted over the past decade, the regulatory change experienced by the mortgage lending industry has been "massive in both its breadth and complexity."

"This has not occurred in isolation, but rather transpired during a time of equally rapid technological change," Mills wrote. "Together, these developments have had a significant economic impact on mortgage lenders and servicers. Consequently, it is now necessary for the Bureau to assess whether its rulemaking activities have achieved their statutory objectives in a way that does not unnecessarily burden regulated entities or unduly restrict consumer access to safe and affordable mortgage credit."

MBA said while the proposed 610 review plan appropriately reflects the framework established by Section 610(c) of the RFA, MBA encourages the Bureau to strengthen the policy by adopting the following suggestions:

I. Clarify "significant economic impact" and "substantial number"
Under the proposed policy, the Bureau will review rules that have a "significant economic impact on a substantial number of small entities[.]" Depending on the results of these reviews, the Bureau may act to minimize the rule's impact, possibly by amending or rescinding the rule. Unfortunately, the policy does not explain what constitutes a "significant economic impact" or "substantial number."

MBA said these terms are critical. "They establish the threshold that triggers a 610 review and possible change to a rule. In its current, vague form, the 610 review process becomes entirely discretionary, a result that is contrary to the Bureau's commitment to transparency," MB said. "This lack of clarity would undoubtedly lead to inconsistent results, thereby preventing small businesses from receiving much needed regulatory relief and damaging the Bureau's credibility."

MBA urged the Bureau to resolve this ambiguity by clarifying how it will determine whether a rule causes a significant economic impact on a substantial number of small entities.

II. Assess the impact of rules and interpretive guidance
MBA said the 610 review policy could be strengthened by broadening the scope of review. "Specifically, an effective 610 review process must capture economic impacts from the rule as well as those from Bureau interpretations of the rule," MBA said. "While Bureau interpretations are often welcome and necessary, those structured as guidance documents are not technically ‘rules' but are often just as impactful as the underlying rule itself. It is therefore crucial that both the threshold determination of whether a 610 review is warranted and the subsequent 610 review consider economic impacts stemming from the rule as well as those caused by Bureau interpretations of the rule."

III. Encourage greater public involvement
MBA said the Bureau's 610 review policy could be strengthened by requiring greater transparency at the conclusion of the review. Once a review has been conducted, the proposed policy states the Bureau will "announce the determinations made as to follow-on rulemaking activities[.]"

"It is not clear whether the Bureau will release an explanation for its determination or simply the determination itself," MBA said. "We believe that the Bureau should release its analysis as well as its determination on whether it will alter the rule. Such transparency will facilitate greater public involvement in this important process."

"Adopting these enhancements will help ensure the Bureau's 610 review process achieves its statutory purpose of providing small entities with meaningful relief from unduly burdensome regulations," MBA added.

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