On December 5, 2011, the Bureau of Consumer Financial Protection ("CFPB") published in the Federal Register a notice and request for comment ("Notice") soliciting suggestions from the public for streamlining the consumer financial protection regulations that it inherited from other federal regulators under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("DFA" or "Dodd- Frank Act").1 The initiative offers an important opportunity for both the new agency and entities subject to these rules to update the regulatory framework in order to both better protect consumers as well as eliminate unnecessary compliance obligations as consumer products and the systems for delivering these products evolve. In issuing the Notice, the CFPB cautioned that its regulatory review process will proceed in stages as it will not be feasible for either the CFPB or the public to review or revise all of the inherited regulations at the same time.

Comments on the Notice are due March 5, 2012, but commenters will have until April 3, 2012, to respond to other comments submitted on the Notice.

This Stay Current presents an overview of the CFPB's goals in initiating the rules review process, the considerations and potential approaches that could be undertaken by the CFPB during the review process, and the specific issues raised for comment in the Notice.

Background

Title X of the Dodd-Frank Act establishes the CFPB to "regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws."2 Among other things, the Dodd-Frank Act transfers to the CFPB rulewriting authority for consumer financial protection laws that had previously been fragmented among seven different Federal financial regulators.3 The CFPB published a list of rules for which it would assume rulewriting authority in the Federal Register on July 21, 2011.4

Listed among the objectives for the CFPB in the Dodd-Frank Act is the purpose of ensuring that, with respect to consumer financial products and services, "outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens."5 With that objective in mind, the CFPB has initiated the process of reviewing its transferred authorities through the issuance of the Notice and solicitation of public comment to see whether there may be opportunities to streamline regulations and reduce regulatory burden by updating, modifying, or eliminating provisions it identifies as "outdated, unduly burdensome or unnecessary." As described by Raj Date, the Special Advisor to the Secretary for the Treasury for the CFPB, during Congressional testimony, the Notice is intended to "invite public input to identify specific rules that should be priority candidates for review, to provide a fact base to help the Bureau evaluate the costs, benefits, and impacts of those rules, and to suggest alternatives that may achieve the goals of the underlying statute at a lower cost."6

The CFPB also intends in the near future to republish the inherited regulations as regulations of the CFPB, which will be codified in Chapter X of Title 12 of the Code of Federal Regulations.7

Overview of Notice

In initiating the review, the CFPB notes that a number of developments over time may have created opportunities for streamlining rules and reducing regulatory burden. For example, as products have evolved, the applicable regulations may have become "overly complex" and difficult to understand and comply with, which may present an opportunity for simplification. In addition, differences in how key terms are defined between regulations may provide opportunities for harmonization. In certain cases, regulatory provisions may favor larger market participants but impose disproportionate costs on smaller participants.

The CFPB also notes that changes in technology and market practices may have made certain provisions obsolete or out-of-date or barriers to the use of existing or emerging technologies. At the same time, however, the CFPB cautions that market changes may have also produced gaps in coverage of certain types of entities or transactions, potentially necessitating the need to supplement existing disclosures or the replacement of disclosures with substantive restrictions to address unfair practices. Nonetheless, for purposes of this Notice, the CFPB is focusing on identifying streamlining opportunities.8

Because the mortgage-related reforms required under the Dodd-Frank Act will likely absorb most of the CFPB's rulemaking resources in the coming year, the CFPB has indicated that it intends to focus its review of its inherited regulations towards identifying the highest priorities for streamlining current regulations, particularly those improvements that can be made without Congressional action. Specifically, the CFPB is soliciting comment on changes that would be consistent with the existing statute, or with the CFPB's authority to adopt exceptions or adjustments to statutory requirements.9

In conducting its review, the CFPB has identified the following five factors that it will consider in setting priorities for streamlining:

  1. the potential benefits and costs of a regulatory change for consumers and covered entities;
  2. the likelihood that the CFPB would be able to achieve the benefits consistent with the underlying statute;
  3. the speed with which the public would realize the benefits;
  4. the governmental and private resources it would take to realize the benefits; and
  5. the state of the evidence with which to judge these factors.10

As input to assist this review, the CFPB intends to "seek the most reliable evidence, including quantitative data where feasible." Sounding a familiar theme that has become prominent among agencies implementing the Dodd-Frank Act, the CFPB also stated its expectation that advocates of specific regulatory revisions "provide evidence to justify any assertion that the benefits of these revisions would justify the costs."11

In addition to seeking public input on particular provisions that may be appropriate for update, adjustment, or deletion, the Notice raises a number of specific questions. These questions (see Appendix) are intended to help the CFPB to structure and plan its review process, identify specific opportunities for streamlining inherited regulations, and identify practical measures to facilitate compliance and promote innovation. Among other things, the request for information notes that the CFPB could engage in the review on a regulation-by-regulation basis or focus on regulations applicable to various market sectors, and solicits comment on an appropriate approach. Commenters are also invited to comment on their highest priorities for updating, modifying, or eliminating specific provisions of regulations that are outdated, unduly burdensome, or unnecessary. In submitting suggestions for regulatory change, the CFPB requests that commenters describe and quantify the potential costs and benefits to consumers and providers, and provide empirical models, data, research, case studies, or other evidence that the CFPB can use to analyze the recommended change.12

Finally, the Notice provides specific illustrations of potential streamlining opportunities in the inherited regulations, but notes that the CFPB has not necessarily determined the merits of the potential change or whether it has sufficient authority to implement the change. For example, the Notice recognizes that several of the inherited regulations define key terms differently, including "consumer," "credit," and "business day," or fail to identify key terms, such as when an application is "approved," "denied," or "withdrawn." Other examples include whether annual privacy notices should continue to be required even when an institution's policy has not changed since the last notice, the threshold for the number of consumer credit loans in a calendar year for purposes of determining coverage under Regulation Z (Truth in Lending), and whether existing requirements to provide certain disclosures in writing should be adjusted to permit delivery of disclosures in electronic form. Importantly for mobile banking applications, the Notice also solicits comment on the circumstances, if any, under which the CFPB should consider allowing certain disclosures to be provided by text messaging, even though text messages are not readily retainable.13

Action Plan – Review Request for Information and Provide Comments Identifying Regulatory Provisions That Should Be Updated, Modified, or Eliminated to Make Regulations More Effective

The CFPB's Notice provides an important opportunity for financial services providers to participate in the CFPB's review process as it seeks to identify ways to update and streamline existing consumer financial services regulations. Providers have a unique perspective in understanding current product offerings and in anticipating how products are likely to evolve in the future. Given this perspective, providers can offer valuable input to the CFPB on how changes in technology, market practices, and consumer preferences may have rendered certain provisions of existing regulations obsolete, unnecessary, or redundant.

Key steps that you, as a consumer financial services provider, should consider in assessing how to provide meaningful and effective input to the CFPB during this regulatory process include the following:

  • Review your lines of business to identify the consumer financial products and services that you offer, and the extent to which such offerings are subject to existing consumer financial laws and regulations.
  • Review the delivery channels in which you provide consumer financial products and services to consumers. Consider whether existing regulatory provisions may hinder the methods (for example, mobile) by which your customers and consumers generally may obtain consumer financial products, and if so, how regulatory requirements may be modified to encourage greater innovation in the provision of such products and services.
  • Identify the means by which consumers currently obtain or access information regarding their consumer financial products. Consider whether existing regulatory provisions may serve as a barrier to providing cost and product information effectively to consumers, and if so, how they may be modified to promote better transparency for consumers while lowering costs for providers.
  • Identify or collect data, research or other evidence that may assist the CFPB in analyzing the impact, including the associated costs and benefits, of any recommended changes on both providers as well as consumers.

APPENDIX

Through the Notice, the CFPB has solicited comment on (a) planning for reviews of the inherited regulations generally; (b) specific opportunities for streamlining its inherited regulations; and (c) practical measures to facilitate compliance and promote innovation. Comments should prominently identify the specific provision of the specific regulation addressed (which should be republished shortly). In addition, the CFPB has requested comment on the following:

Question 1. The CFPB could define its priorities for reviewing the inherited regulations in at least two different ways. It could focus on a particular regulation or set of regulations. Or it could focus on a market sector and all of the regulations that apply to that sector. Commenters may suggest other approaches. What approach should the Bureau take, and why? In what order should the Bureau review the inherited regulations, and why?

Question 2. Commenters are invited to offer their highest priorities for updating, modifying, or eliminating specific provisions of regulations that are outdated, unduly burdensome, or unnecessary. Commenters are asked to single out their top priority. Suggestions should focus on revisions that would not require Congressional action. Commenters may wish to take into account the five factors the CFPB plans to consider to set its priorities: the size, likelihood, and speed of potential gains from streamlining; the resources needed to achieve the gains; and the strength of the evidence with which to judge these factors. Commenters may consider suggesting provisions of regulations that should be:

  • Simplified, rationalized, or consolidated;
  • Relaxed, modified, or eliminated, perhaps for smaller firms or certain classes of transactions, without undermining essential protections;
  • Updated to reflect current practices and technology;
  • Adjusted to avoid unintended consequences; or
  • Changed to remove an obstacle to responsible innovation.

Question 3. The CFPB is in the midst of testing new mortgage disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act. Are there other required disclosures that available evidence suggests should be considered for modification or removal?

Question 4. For each suggestion in response to questions 2 and 3, commenters are asked to describe and, where possible, quantify the potential benefits and costs to consumers and providers of changing the regulation as recommended.

Question 5. For each suggestion, commenters are asked to submit or identify empirical models, data, research, case studies, or other evidence the CFPB could use to analyze and, if possible, to quantify or describe the potential costs and benefits of the changes the commenter advocates.

Question 6. Are there pilots, field tests, or demonstrations that the CFPB could launch to better assess benefits and costs of potential revisions to regulations?

Question 7. The CFPB is interested in identifying practical measures it can take, apart from revising regulations, to make compliance with the inherited regulations easier. For example, are there systematic ways the CFPB could improve guidance about how to comply with regulations? Are there ways the CFPB could make it easier for financial institutions to obtain answers to specific compliance questions they may have? The CFPB will evaluate recommendations according to the same factors it will use to evaluate suggestions to revise regulations.

Question 8. The CFPB also is interested in identifying practical measures it could take to promote, or remove obstacles to, responsible innovation in consumer financial services markets.

Footnotes

1 76 Fed. Reg. 75825 (December 5, 2011).

2 See DFA Section 1011(a). As defined under DFA Section 1002(14), "Federal consumer financial law" includes certain consumer laws enumerated in DFA Section 1002(12), consumer financial protection laws transferred to the CFPB from other federal agencies, and new rulewriting authorities granted to the CFPB under the DFA, such as its authority to issue rules addressing unfair, deceptive, or abusive acts or practices. Federal consumer financial law excludes the Federal Trade Commission Act.

3 The "transferor agencies" include the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Department of Housing and Urban Development.

4 See 76 Fed. Reg. 43569 & n. 12. The rules also include Regulation FF (Obtaining and Using Medical Information in Connection with Credit), which was inadvertently omitted from the July 21, 2011 list. See 76 Fed. Reg. at 75825 n.3.

5 See DFA Section 1021(b)(3).

6 See Raj Date, "The Consumer Financial Protection Bureau: The First 100 Days," Testimony Before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives" (November 2, 2011), available at: http://www.consumerfinance.gov/speech/testimony-of-raj-date-the-first-100-days /.

7 According to the Notice, the republished regulations are intended to incorporate only technical changes to reflect the transfer of authority to the CFPB and certain other changes made by the Dodd-Frank Act, and will not impose new substantive obligations. See 76 Fed. Reg. at 75825.

8 See 76 Fed. Reg. at 75826.

9 See 76 Fed. Reg. at 75826-27.

10 See 76 Fed. Reg. at 75827.

11 Id.

12 See 76 Fed. Reg. at 75827-28.

13 See 76 Fed. Reg. at 75828-29.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.