Magazine article Mortgage Banking

Rulemaking and the CFPB-The Importance of a Good Beginning

Magazine article Mortgage Banking

Rulemaking and the CFPB-The Importance of a Good Beginning

Article excerpt

The beginning is the most important part of any work, especially in the case of a young and tender thing; for that is the time at which the character is being formed and the desired impression more readily taken.

--Plato, The Rlpublh:

From the earliest congressional debates over the Dodd-Frank Wall Street. Reform and Consumer Protection Act, when objections were first raised that the Consumer Financial Protection Bureau (CFPB) was being given too much power, to President Obama's recess appointment in January of its first director, CFPB has been at the epicenter of intense political controversy. While these institutional and legal disputes are important, in many ways they obscure more fundamental issues facing the bureau, not the least of which are questions about how the CFPB might exercise its enormous powers.

An important area of focus is the unique opportunity that CFPB has to forge a new and better approach to rulemaking, and how getting this right could allay many of the concerns of its skeptics and critics.

There is no question that the Dodd-Frank Act grants CFPB extraordinary powers. The word ''unparalleled" is repeatedly used to describe the power of the new regulator, and for good reason. CFPB inherited regulatory responsibility for 18 major consumer financial protection laws, ranging from the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) all the way to the Home Mortgage Disclosure Act (HMDA), Equal Credit Opportunity Act (ECOA) and Fair and Accurate Credit Transactions Act (FACTA).

Additionally, CFPB was granted several extremely broad discretionary powers, not the least of which includes the overarching power to prohibit "unfair, deceptive and abusive acts and practices." All of these powers, combined with far-reaching investigative, research, education and enforcement responsibil ities, have made CFPB into a regulatory Leviathan in the eyes of many in the financial services community. To compound these fears, CFPB has no institutional history or precedent by which to predict future actions.

The immediate response by many concerned about CFPB's reach was to seek institutional checks and balances, most notably through legislative proposals to convert CFPB's governance from a single director to a commission, similar to the structures that have long governed other independent agencies such as the Securities and Exchange Commission (SEC) or the Federal Trade Commission (FTC).

Another sought-after change was to subject CFPB to the congressional appropriations process rather than have it be independently funded through the Federal Reserve and outside such oversight. Admittedly, the Mortgage Bankers Association (MBA) was one of the groups that supported these proposals. For now, however, it is clear that events have overtaken them.

For some, the debate has shifted to concerns about the constitutionality of Richard Cordray's appointment, considering the president may have made the appointment when Congress was in pro forma session. However, notwithstanding the merits of these claims, based on a recently published regulatory agenda, the bureau is moving with dispatch and will soon be churning out a host of new rules. This pivot has profound implications for the mortgage industry presenting both challenges and opportunities.

As CFPB moves into rulemaking mode, a key question is how will it interact with industry and other stakeholders to ensure an efficient process for developing and implementing its new rules? The differing approaches used in recent rulemakings by the Department of Housing and Urban Development (HUD) and the Board of Governors of the Federal Reserve System offer potentially useful lessons.

The HUD model

In 2008, HUD launched its RESPA reform initiative. Prior to issuing its proposal, HUD sought the input of industry and consumer groups through a series of discussion forums. …

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