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Bill would force CFPB to provide better guidance

Two Congressman have taken up the mortgage industry’s call to force the Consumer Financial Protection Bureau (CFPB) to give better guidance to businesses who must comply with its rules.

Rep. Sean Duffy, R-Wisconsin, and Ed Perlmutter, D-Colorado, last week in the House Financial Services Committee introduced H.R. 5534, or the “Give Useful Information to Define Effective Compliance Act,” a bill that been sought for a year by the Mortgage Bankers Association (MBA).

consumprotectThe bill would require the CFPB director to issue legally binding guidance. MBA and other industry groups have long complained that the bureau has left companies to interpret civil judgments and consent orders when companies are punished for wrongdoing, and that the bureau only has published informal advice in select cases. The CFPB’s informal guidance also has never been legally binding on the agency.

"We believe this legislation can help us get beyond the broken process of 'regulation by enforcement,’” said MBA President David Stevens, in a statement last week. “The best way to protect consumers is to provide clear interpretations of the rules, provide regulated entities fair notice of changes, and give them time to comply."

The bureau would be required within one year to publish in the Federal Register a rule that spells out a new framework for issuing guidance.This would define what methods the bureau would use, time frames, and the process through which companies can ask for advice.

The CFPB also would be required to establish guidelines that determine the size of any civil monetary penalties issued by the bureau. Companies would be given safe-harbor legal protections under the guidance.

In this case, “guidance” is defined as any “written interpretive or legislative rule, interim final rule, bulletins, statement of policy, letters, examination manuals, frequently asked question, or other document issued by the bureau regarding compliance.” Advice is not defined as a “complaint, consent order, judgment, or decision.” 

The framework would be implemented within 18 months after the bill’s passage.

“Most of the things in this bill, CFPB leadership could do on their own," said Benjamin Olson, a partner with Buckley Sandler, a Washington, D.C. law firm that advised MBA on the bill. "However, a legislative requirement creates some permanency that transcends changes in the administration and changes in leadership. So, there is value there.”

Olson said that the provision that shelters companies from legal liability when relying on the guidance of the Bureau requires a legislative change.

“That provision goes beyond what a Bureau director could do on their own,” Olson said. “It provides a lot of value to the industry, knowing if they follow the Bureau’s guidance, the company will be protected.” 

Scott Olson, executive director of the Community Home Lenders Association (CHLA), told Scotsman Guide News on Monday that his nonbank members were skeptical of the bill’s chances in Congress this year. CHLA believes the industry has a better chance of achieving these goals through internal policy changes under the bureau’s new acting director, Mick Mulvaney.

“CHLA believes the more direct approach, and the one most likely to succeed, is to simply have CFPB change both their guidance and their enforcement policies,” Olson said.

A spokeswoman for the National Consumer Law Center, a consumer advocacy group, said Monday it was reviewing the implications of the bill. 


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