CFPB rulemaking was the subject of a new blog post by Director Chopra published last week titled “Rethinking the approach to regulations.”
Director Chopra first discussed the CFPB’s efforts “to move away from highly complicated rules that have long been a staple of consumer financial regulation and towards simpler and clearer rules.” He indicated that the CFPB “is dramatically increasing the amount of guidance it is providing to the marketplace, in accordance with the same principles.”
Commenting that “[u]nnecessary complexity places new entrants and small firms at a disadvantage compared to their larger competitors,” he indicated that the CFPB plans to issue guidance that sets forth “simple bright-lines.” According to Director Chopra, this approach will “prevent strategic or intentional ‘misunderstanding’ or plausible deniability that some companies use to ignore the law.” He asserted that complexity “gives companies the ability to claim there is a loophole with creative lawyering.”
With respect to what he called “traditional rulemaking,” Director Chopra identified as priorities the Section 1033 rulemaking on consumer access to financial information, the Section 1071 rulemaking on data collection and reporting requirements in connection with credit applications made by women- or minority-owned small businesses, and rulemakings regarding quality control standards for automated valuation models and property assessed clean energy financing.
Most notably, he indicated that the CFPB “is reviewing other authorities authorized by Congress that have gone unused.” Specifically, he identified the CFPB’s authority to register certain nonbanks and stated that the CFPB is assessing whether to use that authority “to identify potential scammers and others that repeatedly violate the law.” (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”) In regulatory agendas issued under former Director Cordray, the CFPB had indicated that it was considering whether rules to require registration of certain nonbanks would facilitate supervision.
Director Chopra also discussed the need to for the CFPB to take “a fresh look” at certain long-standing rules. In addition to the CARD Act (Regulation Z) rules establishing safe harbors for credit card late charges, he indicated that the CFPB is reviewing the FTC rules implementing the FCRA (Regulation V) “in an effort to identify potential enhancements and changes in business practices,” and the Regulation Z qualified mortgage rules “to explore ways to spur streamlined modification and refinancing in the mortgage market, as well as assessing aspects of the ‘seasoning’ provisions.”
Finally, he indicated that in addition to using its new “circulars” to encourage consistent enforcement among government agencies, the CFPB would be “increas[ing] its interpretation of existing law to the marketplace” and referenced the CFPB’s advisory opinion program launched in 2020.
We are somewhat dubious about the CFPB taking on this massive project for several reasons. First, to the extent the new approach to rulemaking is intended to apply to CFPB regulations and the regulations that the CFPB inherited from other agencies, Director Chopra has demonstrated a reticence to use new rulemaking as a tool, as opposed to enforcement, supervision, and the issuance of statements. That is because rulemaking is very labor intensive and time-consuming and often leads to lawsuits challenging it, with the payday loan rule serving as a good example.
Second, what Director Chopra has announced is very ambitious. It would amount to a complete overhaul of all CFPB regulations and inherited regulations to convert them from complex, detailed, and prescriptive regulations to short, simple, non-prescriptive regulations with “bright-line” tests. We doubt that the CFPB has nearly the bandwidth or time to undertake such a massive project, one which seems almost certain to engender opposition from the industry. When regulators impose steep penalties for even-technical violations of regulations, regulated entities will want and need prescriptive rules rather than general principles.
We will be watching to see to what extent Director Chopra’s comments are reflected in the CFPB’s Spring 2022 rulemaking agenda which we expect to be released soon.