In a June 17 blog post, Consumer Financial Protection Bureau (CFPB or Bureau) Director Rohit Chopra announced that the CFPB intends to “move away from highly complicated rules” in favor of “simpler and clearer rules.” As part of this effort, the CFPB will be “dramatically increasing the amount of guidance it is providing to the marketplace” and that it aspires such guidance to be simple and straight forward.
Director Chopra explains that complex rules, regulations, and guidance increase compliance costs, create loopholes, and disadvantage smaller companies competing with larger market players with market power or resources. The post also provides insight into Director Chopra’s perception of market participants. He notes that legal complexity creates the opportunity for companies to evade regulatory compliance and ignore the law by plausible deniability, strategic or intentional “misunderstandings,” and creative lawyering.
Director Chopra stated that the Bureau is specifically reviewing three rules in this vein:
- Rules related to the Credit CARD Act of 2009;
- Regulation V, interpreting the Fair Credit Reporting Act; and
- The CFPB’s Qualified Mortgage Rules.
We found this announcement curious. Throughout its existence, the Bureau has eschewed bright-line rules, instead preferring to use its UDAAP authority to announce new standards of conduct not contained in any specific statute or rule. We believe it is unlikely that the director is signaling a departure from the Bureau’s approach to “regulation by consent order,” even though his statements would facially seem to suggest as such. Second, we doubt that subjects as complex as the CARD Act, Regulation V, and the QM rule can be significantly simplified and streamlined. Not only are the underlying statutes complex to begin with, the manner in which these statutes should be applied to a wide variety of market conditions and the need to balance competing priorities and situations led to the rules’ current complexity. The same is true of the Section 1071 rulemaking in which the Bureau is currently engaged — that rulemaking release was approximately 900 pages long because of the inherent complexity of the subject matter and because of the Bureau’s desire to cover a wide variety of scenarios that could affect reporting related to small business loans.
Simple, bright-line rules would be welcomed by the industry, but the prospect of such rules emerging seems fairly unlikely in our view.