Blog: Rethinking the approach to regulations – Consumer Financial Protection Bureau

Markets work best when rules are simple, easy to understand, and easy to enforce. The CFPB is seeking to move away from highly complicated rules that have long been a staple of consumer financial regulation and towards simpler and clearer rules. In addition, the CFPB is dramatically increasing the amount of guidance it is providing to the marketplace, in accordance with the same principles.

Regulators have historically issued overly complicated and tailored rules for the existing regulatory landscape, as opposed to providing basic bright-line guidance and rules that can withstand evolution of the marketplace over time. The CFPB aspires to more clearly communicate the agency’s expectations in simple and straight-forward terms, which will produce more durable guidance and rules, in addition to numerous other benefits. While this task is difficult, we believe it is important to move away from the failed approach of the past.

First, unnecessarily complex guidance and rules impede consumer protection, and instead simply increases compliance costs, which benefits larger market players and their high-priced lawyers. Unnecessary complexity places new entrants and small firms at a disadvantage compared to their larger competitors. The CFPB plans to issue guidance in a manner that strengthens the compliance posture of all market participants, not just those with the most market power or resources. Second, simple bright-lines allow all parties to better understand the law and policy priorities, but also, prevent strategic or intentional “misunderstanding” or plausible deniability that some companies use to ignore the law. Complexity creates unintended loopholes, but it also gives companies the ability to claim there is a loophole with creative lawyering. Where guidance and rules are straight-forward and simple, entities are incentivized to redirect innovation and creativity away from regulatory evasion and towards better serving consumers. Simple bright-lines advantage law-abiding companies and disadvantage law breakers. Third, clarity and simplicity will promote consistency among government agencies responsible for enforcement of federal consumer financial law.

With respect to traditional rulemaking, the CFPB has several priorities. We are heavily focused on implementing longstanding Congressional directives, many of which have gone ignored. These include rulemakings related to consumer access to their financial records, increasing transparency in the small business lending marketplace, and implementing regulations for quality control standards for automated valuation models under Sections 1033, 1071, and 1473(q) of the Dodd-Frank Act. We are also working on prescribing certain regulations relating to Property Assessed Clean Energy financing under Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

In addition, the CFPB is reviewing other authorities authorized by Congress that have gone unused. For example, we are assessing whether to utilize Congressional authority to register certain nonbank financial companies to identify potential scammers and others that repeatedly violate the law.

We are also reviewing a host of rules that the agency inherited from other agencies, including the Federal Reserve Board of Governors and the Federal Trade Commission, as well as other rulemakings the CFPB pursued in its first decade of existence. Many of these rules have now been tested in the marketplace for many years and are in need of a fresh look. These reviews include:

  • Rules originally developed by the Federal Reserve Board of Governors under the Credit CARD Act of 2009, including the enforcement immunity and inflation provisions when imposing penalties on customers.
  • Rules originally developed by the Federal Trade Commission to implement the Fair Credit Reporting Act in an effort to identify potential enhancements and changes in business practices.
  • The CFPB’s 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.

We have also increased transparency and public input through our rulemaking petition process. As of February of this year, the public can submit rulemaking petitions to petitions@cfpb.gov, which will be posted on regulations.gov . This will give the public an opportunity to voice their views by filing comments on any petitions that are submitted.

Lastly, with respect to guidance, the CFPB will increase its interpretation of existing law to the marketplace. The CFPB’s Advisory Opinion program, launched in 2020, is a way to quickly provide interpretive rules to industry so that they can better understand the rules of the road. We are accepting requests for future advisory opinions as well as feedback on any existing advisory opinions through our dedicated email address: advisoryopinion@cfpb.gov.

The CFPB also plans to promote consistency among enforcers through Consumer Financial Protection Circulars. This new form of guidance document is specifically directed to the broad set of government agencies responsible for enforcing federal consumer financial law, including other federal regulators and state and tribal attorneys general and regulators across the country. These circulars seek to provide greater clarity to financial institutions by encouraging consistent enforcement among government agencies of laws passed by Congress. Similar to the Advisory Opinion program, we are seeking input on potential circular topics from regulators, enforcers, and the public at: cfpbcirculars@cfpb.gov.

The CFPB will continue its efforts to clearly communicate the agency’s expectations in simple and straight-forward terms in the months ahead and we welcome the public’s input.

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