On May 13, the Consumer Financial Protection Bureau announced its plans for periodically reviewing the regulations it oversees, in accordance with the Regulatory Flexibility Act (“RFA”). In a second statement issued the same date, the CFPB announced it would begin the process with a review of the Overdraft Rule, which amended Regulation E implementing the Electronic Funds Transfer Act. The CFPB invites public comment on both its RFA review plan as well as its review of the Overdraft Rule. During the summer of 2019, the CFPB plans to publish a list of the rules to be reviewed in 2020.
A copy of the CFPB’s first statement, titled Plan for the Review of Bureau Rules for Purposes of the Regulatory Flexibility Act, can be found here, and a copy of its second statement, titled Overdraft Rule Review Pursuant to the Regulatory Flexibility Act, can be found here.
The CFPB’s Plan Under the RFA
Section 610 of the RFA requires federal agencies to review, within ten years of publication of a final rule, those rules issued or overseen by the agency which have a significant economic impact on a substantial number of small entities. The statute tasks agencies with reviewing the rules to minimize any significant impact on small entities and requires agencies to consider the following factors:
(1) the continued need for the rule;
(2) the nature of complaints or comments received from the public concerning the rule;
(3) the complexity of the rule;
(4) the extent to which the rule overlaps, duplicates, or conflicts with other Federal rules, and, to the extent feasible, with state and local governmental rules; and
(5) the length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.
The CFPB plans to begin its RFA reviews nine years after publication of a final rule and will first assess whether a rule has a “significant economic impact on a substantial number of small entities,” thereby subjecting the rule to an RFA review. Next, the CFPB will publish a notice regarding the rule to be reviewed and invite public comment on the rule. The CFPB plans to review “information on hand, relevant literature, and information submitted by the public in response to the Bureau’s request for comment.” The CFPB will complete each review within ten years of the publication of the final rule and will subsequently announce its determinations as to further “rulemaking activities in the Unified Agenda of Federal Regulatory and Deregulatory Actions or through other appropriate methods.”
The CFPB explained that its RFA review plan is separate from, and in addition to, its other regulatory reviews, including: (1) its March 2018 Request for Information seeking public comment on its inherited and adopted regulations, as well as whether it should conduct further rulemaking; (2) its assessments pursuant to Section 1022(d) of the Dodd-Frank Act, assessing consumer financial rules adopted by the CFPB within five years of the rule’s effective date; and (3) its review of inherited regulations as part of the semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions.
Pursuant to its review of consumer financial rules, the CFPB published three assessment reports on remittance transfers, mortgage servicing, and ability to pay and qualified mortgage standards. The CFPB expects to begin its review under the Unified Agenda of Federal Regulatory and Deregulatory Actions with a review of Subparts B and G of Regulation Z, implementing the Truth in Lending Act, to “ensur[e] that outdated, unnecessary, or unduly burdensome regulations are . . . identified and addressed.”
Review of the Overdraft Rule
The CFPB is beginning its RFA review process with an evaluation of the Overdraft rule, which was initially published by the Board of Governors of the Federal Reserve System in November of 2009 and restated in 2011 when the CFPB assumed responsibility for rule making under the Electronic Funds Transfer Act.
The current Overdraft rule is set forth in Subpart A of the CFPB’s Regulation E, 12 C.F.R. 1005, and requires consumers to consent affirmatively in order for a financial institution to pay ATM or debt card overdraft transactions and prior to a consumer being charged a fee in connection with the payment of such overdrafts. The Rule requires institutions to use a model disclosure and consent form “substantially similar” to its Model Form A-9.
Since the Overdraft Rule was implemented, the CFPB has noted changes to overdraft practices by financial institutions, including: “(i) changes in the order in which different categories of transactions are posted; (ii) limits on the number of overdraft fees that some financial institutions may charge in a single business day; and (iii) ‘cushions’ which preclude assessing overdraft fees on de minimis amounts.” However, the CFPB notes that it “does not have reason to believe that these changes are attributable to the [Overdraft] Rule.”
The CFPB invites public comment on the Overdraft Rule, specifically on the following topics:
(1) The nature and extent of the economic impacts of the Rule as a whole and its major components on small entities, including impacts of the reporting, recordkeeping, and other compliance requirements of the Overdraft Rule, as well as benefits of the Rule;
(2) Whether and how the Bureau by rule could reduce the costs of the Overdraft Rule on small entities, consistent with the stated objectives of the EFTA and the Overdraft Rule; and
(3) Any other information relevant to the factors that the Bureau considers in completing a Section 610 review under the Regulatory Flexibility Act, as described above.
Comments must be received within 45 days of publication in the Federal Register.
Troutman Sanders is monitoring these developments and continuously reports on emerging regulatory issues as part of its Consumer Financial Services Law Monitor blog.