The Need for Greater Process Protections for CFPB Guidance

Last Spring CFPB Director Rohit Chopra promised Congress that, under his leadership, the agency would “dramatically increase its issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications.” True to his word, since his testimony the CFPB has issued dozens of guidance documents on a wide range of interpretive questions under Federal consumer financial law.

This guidance takes many forms: Policy Statements; Interpretive Rules; Compliance Bulletins; “Advisory Opinions”; Consumer Financial Protection Circulars; Amicus Briefs; “Supervisory Highlights” publications; and Preemption determinations. Less formal guidance that sheds light on the CFPB’s policy priorities and legal views may be contained in speeches, blog posts, research reports, or other items posted to the CFPB’s website. Despite the variety of format, these guidance documents share three defining features.

First, unlike the process for issuing a “legislative rule,” the CFPB typically provides very few procedural protections to impacted stakeholders before issuing this type of guidance. The agency is not required to publish a notice of proposed rulemaking soliciting comments and is not required to review, consider and respond to any comments it may have received on the topic before finalizing the guidance. As a result, it is not required to consider the impact of any guidance on small institutions under the Regulatory Flexibility Act. In addition, even though many of these guidance documents are technically “rule[s] under the Federal consumer financial law,” the CFPB does not engage in any analysis of “the potential benefits and costs to consumers and covered persons,” including any potential impact on consumers’ access to consumer financial products or services.

Second, precisely because these guidance documents lack the same level of procedural protections as a “legislative rule,” they do not have the same stature under the law. They are not legally binding, and a company cannot be held liable for failing to comply with any of these guidance documents (as opposed to the underlying law being interpreted). Further, although the Bureau’s interpretation of its own regulations may be entitled to deference in certain limited circumstances, interpretive rules generally are not entitled to Chevron deference.

Third, despite this lack of any formal legal effect, these guidance documents can have a significant impact on firms’ conduct. The CFPB supervises a wide swath of the consumer financial services market and has enforcement authority over an even larger share of the market. Although the Bureau’s interpretive guidance may not be “binding” in a formal sense, a company that knowingly opts to not comply with the CFPB’s views assumes the significant risk that the CFPB will learn about it and bring an enforcement action seeking various forms of relief, including civil money penalties of over $1.3 million per violation “for each day during which such violation continues.” The risk of these significant sanctions is often enough to compel institutions to comply with the CFPB’s interpretations, even when there are strong policy and legal grounds to disagree.

Given the significant practical impact CFPB guidance can have, and the often significant policy and legal issues at stake, there are sound reasons for the Bureau to provide more procedural protections (even if arguably not required), including by soliciting stakeholder input and by engaging in more formal consideration of benefits and costs. As the drafters of the APA understood, process typically leads to better policy, and increased stakeholder engagement is likely to lead to increased stakeholder acceptance of the validity of the positions adopted by the agency (and may reduce the likelihood that a new administration simply rescinds much of this guidance). It was encouraging, therefore, that the CFPB sought public comment on its recently issued policy statement on abusive acts or practices. Only time will tell whether the agency seriously considers the feedback and even changes its views, and whether the agency will more broadly and consistently provide procedural protections when issuing guidance in the future.