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CFPB 2.0: Advancing Consumer Protection

By MBA Insights Staff
September 19, 2017

Consumer Financial Protection Bureau
Regulatory Policy
Consumer Protection

The Mortgage Bankers Association released a new white paper, CFPB 2.0: Advancing Consumer Protection.

The paper examines the approach of the Consumer Financial Protection Bureau during its first five years of undertaking enforcement actions in key areas--including actions that clearly departed from prior published interpretations--without providing sufficient supervisory guidance to the industry in advance.

The following are excerpts from the paper, prepared for MBA by its Counsel from law firm Covington & Burling LLP, Washington, D.C. The full paper can be downloaded at

Over the past six years, the Consumer Financial Protection Bureau has grown from a small startup to a powerful agency with over 1,600 employees. Over the same period, the economy and our financial and political institutions have also been transformed. Accordingly, it makes sense to take a fresh look at the Bureau and see how it should evolve to reflect these changes as well as its own successes and challenges.

This white paper and its recommendations explain how an updated Bureau--call it CFPB 2.0--could advance consumer protection while promoting a vibrant, competitive mortgage lending market.CFPBNo industry has seen the Bureau in action more frequently or closely than the mortgage industry. The Dodd-Frank Act instructed the Bureau to establish far-reaching mortgage regulations, and those new rules, combined with significant enforcement actions and ongoing supervision, have made MBA deeply familiar with the Bureau.

MBA and its members are committed to compliance, consumer protection and a level playing field for all who offer mortgage and related services to the public. The industry and the Bureau share these goals. The Bureau now has an opportunity to reinvent the way it pursues consumer protection by focusing on guiding financial institutions that seek to comply with the law. This white paper and its recommendations are offered to that important end.

Executive Summary
This white paper begins by describing how the Bureau's origins and organization led the new agency to focus on enforcement as its principal tool for changing industry practices. In its first years, the Bureau's regulatory expertise was largely consumed by the need to meet deadlines on specific rules required under the Dodd-Frank Act, and its supervision program took time to stand up. In its first years, the Bureau spent relatively little time providing guidance to industry on its expectations.

The combination of aggressive enforcement and the absence of regulatory guidance evolved into a regime of "regulation by enforcement." Director Richard Cordray has argued that the Bureau's enforcement regime provides "detailed guidance for compliance officers" and that it "would be 'compliance malpractice' for the industry not to take careful bearings from [consent] orders about how to comply with the law." Unfortunately, the reality is that the Bureau's enforcement program offers only fragmentary glimpses of how the Bureau interprets the laws and regulations it enforces.

This paper explains why authoritative guidance is still needed. Rather than seeking to provide the equivalent of "detailed guidance" through enforcement, the Bureau should simply provide detailed guidance. Such guidance can be provided in a host of forms, including advisory opinions, bulletins, no-action letters, statements of policy and answers to frequently asked questions. In contrast to enforcement orders, such guidance can be proactive, efficient, clear and comprehensive, and can allow for stakeholder input and revision when facts and circumstances warrant.

The Bureau has the authority, under the Administrative Procedures Act, to issue interpretive rules that provide advance notice of how it interprets the laws and regulations entrusted to it. Unfortunately, the Bureau has been too hesitant to use this tool. Although such guidance documents are used throughout the federal government MBA and others have repeatedly been frustrated in their efforts to obtain guidance from the Bureau.

For example, the Bureau's implementation of the TILA-RESPA Integrated Disclosure (TRID) or Know Before You Owe (KBYO) rule did not meet the enormous need for timely, accessible and authoritative guidance to accompany the rule. In addition, the very limited guidance that the Bureau has made available often explains what practices violate the law without providing a path to compliance, and is accompanied by disclaimers that undermine its usefulness.

A new CFPB--CFPB 2.0--can fulfill its consumer protection mission by producing rules and guidance that prevent consumer harm rather than merely punishing harm after it occurs. Such a shift in emphasis recognizes the strides the Bureau and the industry have made over the past six years in creating an environment where supervision and guidance are actively sought by industry to ensure compliance.Recommendations for the Bureau

--Place priority on issuing appropriate guidance to facilitate compliance with federal law. Such guidance can and should take a host of forms, including bulletins, advisory opinions, statements of policy and responses to frequently asked questions.

--Establish guidelines for when and how it will issue and revise rules and guidance. Within a reasonable time, the Bureau should issue a proposed rule for public comment defining each type of rule and guidance the Bureau will provide, the criteria the Bureau will use for selecting each type and the process and timeliness for each.

--Acknowledge that it is bound by its guidance. The Bureau should stand by its interpretations of law, and agree not to hold a person liable for an act or omission that was permissible under the Bureau's guidance.

--Ensure industry input on mortgage and other issues. The Bureau should establish regular industry forums with appropriate representation of independent mortgage bankers, banks, credit unions and community banks. The Bureau should also hold regular meetings with industry and other stakeholder groups to facilitate the Bureau's rulemaking lookbacks.

--Provide timely answers to questions on regulations with authoritative guidance. The Bureau should invite questions from the public within prescribed time limits after the publication of each regulation, and periodically thereafter, and the Bureau should be required to respond publicly, within prescribed time limits, to such questions with authoritative guidance

.--Publish notice of changes in guidance and apply those changes prospectively. The Bureau should not revoke, amend or issue rules or guidance without providing adequate advance notice in the same form as the initial rule or guidance.

--Provide time for regulated entities to comply. Changes in rules and guidance should apply only prospectively unless the Bureau publishes a specific finding that there is an urgent need to dispense with advance notice.

--Ensure due process in its enforcement actions. The Bureau should a) respect statutes of limitations in administrative proceedings; b) establish a [Civil Money Penalty] matrix; c) withdraw its proposal to restrict free speech in connection with [Civil Investigative Demands] and [Notice and Opportunity to Respond and Advise]; d) review its protocols for the issuance of press releases; and e) publish proposed rules or provide a statement of enforcement policy on the circumstances under which it will bring "abusive" cases.Any proposal for improvement of the Bureau must start with an accounting of where it stands and how it got there. Although there are many criticisms of the Bureau's past six years, this white paper will first focus on simply understanding the origins and working of the early years of the Bureau.

Guidance is Needed and the CFPB Has the Authority to Issue It
The Bureau's greatest missed opportunity over the past six years is that is has not done more to prevent harm to consumers by providing advance guidance to the vast majority of financial institutions that want to comply with the law. Such guidance can be legally offered in a host of ways and settings. Informal guidance provided as part of the supervisory process can efficiently address institution-specific issues. Guidance documents, including advisory opinions, bulletins, no-action letters, statements of policy and answers to frequently asked questions can apply widely and guide an entire industry, as well as provide the necessary details for businesses that must translate the law into operational policies and procedures. Notice-and-comment rulemaking or official commentary is essential when the Bureau seeks to articulate new standards, fill in the interstices in existing laws of level the playing field by ensuring that all competitors meet certain minimum standards.

CFPB 2.0: Moving Forward
A new emphasis on guidance would help fulfill the Bureau's mission. Consumer protection is best accomplished by preventing harm--not by catching and punishing harm after it has occurred. That is why Congress gave the Bureau a full toolbox and not just a hammer.

MBA and its members are committed to compliance, consumer protection and to a level playing field for all who offer mortgages and related services to consumers. The Bureau is now at a crossroads and has an opportunity to rethink the way it pursues consumer protection. This White Paper and the recommendations contained in it are meant to help the Bureau with this process. MBA looks forward to working with the Bureau on this important effort.

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