The regulations of the CFPB have been the subject of a new blog post by director Chopra released last week under the title “Rethinking the Approach to Regulation”.
Director Chopra first spoke of the CFPB’s efforts “to move away from the very complicated rules that have long been a staple of consumer financial regulation and towards simpler, clearer rules.” He indicated that the CFPB is “significantly increasing the amount of guidance it provides to the market, in accordance with the same principles.”
Commenting that “[u]The necessary complexity puts new entrants and smaller companies at a disadvantage compared to their larger competitors,” he said that the CFPB plans to issue guidance that establishes “simple clear lines.” According to Director Chopra, this approach “will prevent the strategic or intentional ‘misunderstandings’ or plausible deniability that some companies use to ignore the law. He claimed that complexity “gives companies the opportunity to pretend there is a flaw in the creative advocate.”
With respect to what he called “traditional regulation,” Director Chopra identified as priorities the Section 1033 regulation on consumer access to financial information, the Section 1071 regulation on data collection and reporting requirements in relation to credit applications made by women or minorities. small businesses and developing rules regarding quality control standards for automated valuation models and property rated clean energy financing.
Specifically, he indicated that the CFPB “is reviewing other authorities authorized by Congress that have not been used.” Specifically, he identified the CFPB’s power to register certain non-banks and said the CFPB is assessing whether to use this power “to identify potential crooks and others who repeatedly violate the law.” (Per Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules respecting registration requirements applicable to a covered person, other than an insured deposit-taking institution, insured credit union or related.”) In regulatory agendas released under former director Cordray, the CFPB had indicated that it was considering whether rules requiring the registration of certain non-bank institutions would facilitate oversight.
Director Chopra also spoke of the need for the CFPB to take a “fresh look” at some long-standing rules. In addition to the CARD Act rules (Regulation Z) establishing safe harbors for credit card late fees, he indicated that the CFPB is reviewing the FTC rules implementing the FCRA (Regulation Z). V) “for the purpose of identifying potential improvements and changes in business practices. “, and Regulation Z qualified mortgage rules “to explore ways to stimulate streamlined modification and refinancing in the mortgage market, as well as to assess aspects of the “seasoning” provisions.
Finally, he indicated that in addition to using its new “circulars” to encourage consistent application among government agencies, the CFPB would “increasingly[ing] its interpretation of existing market law” and refers to the advisory opinion program launched in 2020.
We are somewhat dubious about the CFPB taking on this massive project for several reasons. First, insofar as the new rule-making approach is intended to apply to CFPB regulations and regulations that the CFPB inherited from other agencies, Director Chopra demonstrated a reluctance to use the new regulations. as a tool, as opposed to enforcement, supervision and reporting. Indeed, rule-making is labor-intensive and time-consuming and often leads to lawsuits, the payday loans rule being a good example.
Second, what director Chopra has announced is very ambitious. This would amount to a complete overhaul of all CFPB regulations and legacy regulations from complex, detailed and prescriptive regulations to short, simple and non-prescriptive regulations with “clear” tests. We doubt the CFPB has nearly the bandwidth or time to undertake such a massive project, which seems almost certain to engender industry opposition. When regulators impose severe penalties for even technical violations of regulations, regulated entities will want and need prescriptive rules rather than general principles.
We’ll be watching to see how well Director Chopra’s comments are reflected in the CFPB’s Spring 2022 Regulatory Agenda, which we expect to publish shortly.