CFPB Rulemaking Table Simplification and Potential Registration of Nonbanks

The CFPB rulemaking process was the focus of Director Chopra’s most recent blog post, “Rethinking the approach to regulations,” posted in July 2022.

The CFPB’s efforts “to move away from highly intricate laws that have long been a mainstay of consumer finance regulation and towards simpler and clearer standards” were the first topic Director Chopra covered. Following the same principles, he said, the CFPB “is drastically boosting the amount of guidance it is offering to the marketplace.”

He stated that the CFPB intends to release guidance that sets down “clear, bright lines” because “unnecessary complexity placed new entrants and small enterprises at a disadvantage compared to their larger competitors.” This strategy will “avoid purposeful or intentional misunderstanding or plausible deniability that some firms utilize to flout the law,” says Director Chopra. Using inventive lawyering, he claimed, complexity “gives businesses the capacity to argue there is a loophole.”

The Section 1033 rulemaking on consumer access to financial information, the Section 1071 rulemaking on data collection and reporting requirements in connection with credit applications made by women- or minority-owned small businesses, and rulemakings regarding quality control standards for automated valuation models and property assessed clean energy financing were Director Chopra’s top priorities for what he called “traditional rulemaking.”

The CFPB “is investigating additional authorities provided by Congress that have gone underused,” he said most noticeably. He specifically mentioned that the CFPB has the power to register specific nonbanks and that it is currently deciding whether to utilize that power “to identify potential scammers and other people who frequently break the law.” The CFPB is permitted to “prescribe rules governing registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person” in accordance with Dodd-Frank Section 1022. The CFPB has stated in regulatory agendas released under former Director Cordray that it was debating whether rules requiring registration of specific nonbanks would improve supervision.

Director Chopra also spoke about the necessity for the CFPB to “take a new look” at several established regulations. He mentioned that the CFPB is reviewing the FTC regulations implementing the FCRA (Regulation V) “in an effort to identify potential enhancements and changes in business practices,” as well as the Regulation Z qualified mortgage rules “to explore ways to spur streamlined modification and refinancing in the mortgage market, as well as assessing aspects of the’seasoning’ provisions,” in addition to the CARD Act (Regulation Z) rules establishing safe harbors for credit card late charges.

He concluded by saying that the CFPB would be “increas[ing] its interpretation of existing law to the marketplace” in addition to using its new “circulars” to promote uniform enforcement among government agencies. He made reference to the CFPB’s advisory opinion program, which was introduced in 2020.

For a number of reasons, we are somewhat hesitant about the CFPB taking on this significant assignment. First, Director Chopra has shown a reluctance to use new rulemaking as a tool as opposed to enforcement, supervision, and the issuance of statements, to the extent that the new approach to rulemaking is intended to apply to CFPB regulations as well as the regulations that the CFPB inherited from other agencies. This is due to the fact that creating rules requires a great deal of time and effort, and litigation contesting them are common; an excellent example of this is the payday loan rule.

Second, the announcement made by Director Chopra is quite ambitious. To change all CFPB regulations and inherited regulations from lengthy, intricate, and prescriptive regulations to brief, straightforward, non-prescriptive laws with “bright-line” tests would amount to a full makeover. We don’t think the CFPB has nearly enough time or resources to take on such a huge endeavor, which is virtually certainly going to face pushback from the sector. Regulated entities will prefer and require prescriptive rules over overarching principles when regulators impose harsh penalties for even technical infractions of regulations.

We’ll be keeping an eye on the CFPB’s upcoming Spring 2022 regulatory program to see how much Director Chopra’s remarks are reflected there.


Marcadis Singer, PA
5104 South Westshore Blvd.,
Tampa, Florida.
Phone: (813) 288-1881

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