CBA: Establishing Clear & Transparent Rules Of The Road At The CFPB Will Help Protect All Consumers And Create Better Functioning Markets

October 21, 2021
Billy Rielly

Following the official swearing-in of Rohit Chopra as the third permanent Director of the Consumer Financial Protection Bureau (CFPB) last week, the Consumer Bankers Association today released “The Case For Regulation Through Rulemaking & Guidance,” a new white paper advocating for the Bureau to utilize rulemaking and informal written guidance in lieu of enforcement when creating new guidelines or interpretations of existing regulatory standards.

In the past, the CFPB has executed its supervisory authority through a process known as “regulation by enforcement,” whereby it announces new regulatory standards after an instance of perceived consumer harm is identified. As the white paper states, consumers are not well-served when financial institutions of all types operate without any real knowledge of the “rules of the road” until an enforcement action is taken:

“Punishing an entity for conduct based on an agency’s interpretation of the law not previously communicated to industry is not in the best interest of the consumer because it creates barriers to financial services, limits consumer choice, and creates market disparities between entities subject to standards set through enforcement action and those governed by supervisory pronouncements. Consumers benefit from an open, transparent process when markets are regulated through reliance on well-founded rules that are debated, examined, and their impact carefully considered before being applied to the marketplace.”

The CFPB was established specifically to protect consumers and promote a fair, transparent and competitive marketplace. Recognizing the Bureau has the important responsibility to bring enforcement actions against entities engaging in unlawful behavior in the market, the white paper goes on to say:

“No reasonable person would argue that a regulator should not use such power to protect consumers against rule breaking industry members. […] But enforcement is an ineffective, imprecise, and slow method for the Bureau to announce new standards and expectations to industry.”

Instead, the paper contends, the CFPB should adhere to rulemaking and informal written guidance when considering new or updated regulatory standards. This approach not only yields regulatory equity and stakeholder input, but benefits consumers directly through increased market competition:

“The CFPB’s expectations and their general applicability across markets are more clearly communicated through rulemaking. When all industry participants have a clear understanding of applicable legal and regulatory expectations, they are all better able to comply, which in turn strengthens protections for all consumers, not just those doing business with the target of an enforcement action.”

To read “The Case For Regulation Through Rulemaking & Guidance” in its entirety, click HERE.

Background

CFPB Director Rohit Chopra acknowledges the value of a transparent approach to financial service regulation and supervision. At his confirmation hearing in early March before the Senate Banking Committee, Mr. Chopra stated:

“I also will commit that the CFPB and every federal agency should be focused on fixing harms, making it clear to market participants what's expected of them. Ultimately that is what creates a vibrant market and that is something that the CFPB must do, adhering to all of the procedures Congress has laid out and I am absolutely committed to.”

Following Director Chopra’s nomination to lead the CFPB, Hunt outlined four core principles necessary for the Bureau to achieve the shared goals of protecting consumers equally across all financial institutions and putting an end to the political pendulum swing.

Those principles are:

  • Ensuring Bureau actions preserve consumer access to credit;
  • Developing long-term, consistent consumer financial protection laws;
  • Implementing a clear, transparent rulemaking process with input from all participants; and
  • Creating a level playing field across all financial services institutions.

To read Hunt’s statement following Director Chopra’s Senate confirmation in September, click HERE.

To read Hunt’s statement recognizing the 10th anniversary of the CFPB and outlining CBA’s advocacy for reform at the Bureau over the last decade, click HERE.