CFPB to Increase Its Use of Regulatory ‘Guidance’

Credit union trade groups NAFCU and CUNA both wary, citing need for clear distinction between guidance and regulation.

The Consumer Financial Protection Bureau (CFPB) will “dramatically” increase its use of regulatory guidance—a device that in the past has been sharply criticized by financial services trade groups and congressional Republicans.

“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,” the bureau’s director Rohit Chopra outlined in a statement late last week. In that vein, he explained, the agency will begin issuing additional guidance in a variety of areas.

“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,” Chopra said. “While this task is difficult, we believe it is important to move away from the failed approach of the past.”

He further noted complex guidance and rules impede consumer protection and increase compliance costs. “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,” Chopra stated.

He added that clarity and simplicity will promote consistency among government agencies responsible for enforcement of federal consumer law.

CFPB Director Rohit Chopra

The agency also will increase its interpretation of existing law through its advisory opinion program—an effort intended as a way “to quickly provide interpretive rules to industry so that they can better understand the rules of the road.”

The CFPB additionally plans to attempt to promote consistency among financial regulators through the use of consumer financial protection circulars.

“These circulars seek to provide greater clarity to financial institutions by encouraging consistent enforcement among government agencies of laws passed by Congress,” Chopra said.

Background

The use of guidance has been fraught with controversy and in at least one case, backfired on the CFPB.

In 2018, Congress—then controlled by Republicans—utilized the seldom-used Congressional Review Act to nullify indirect auto sales guidance. The documents were issued as guidance, but the Government Accountability Office said the documents should have gone through the public comment process.

In January, 2021, the CFPB issued a final rule codifying a statement on guidance that previously had been adopted by financial regulators.

“A law or regulation has the force and effect of law,” the CFPB stated at the time. “Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the Bureau does not take enforcement actions based on supervisory guidance. Rather, supervisory guidance outlines the Bureau’s supervisory expectations or priorities and articulates the Bureau’s general views regarding appropriate practices for a given subject area.”

Response from Credit Union Groups

Credit union trade groups have said the CFPB and other agencies need to acknowledge that there is a difference between regulations and guidance.

“In particular, we believe it is critical for federal regulators, including the Bureau, to appreciate the significant differences in the appropriate role of regulations and of guidance,” Alexander Monterrubio, senior director of advocacy and counsel for the Credit Union National Association, wrote to the consumer agency when the rule was proposed.

“The CFPB should commit to only issuing guidance as a reference tool and refrain from enforcing guidance as if it has the force of law in the future,” Kaley Schafer, then-senior regulatory affairs counsel at the National Association of Federally-Insured Credit Unions (NAFCU), wrote to the bureau. Schafer has since become NAFCU’s director of regulatory compliance.