Will CFPB advisory opinions offer clarity, or give companies a pass?

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Companies have long urged the Consumer Financial Protection Bureau to issue rulings on whether a practice complies with federal rules. But the agency's plan for providing such clarity is raising its own questions.

Industry representatives are hailing a proposal allowing firms to seek CFPB advisory opinions on specific regulatory questions. They say companies need official clarification without forcing the bureau to issue another rulemaking.

But consumer advocates and Democratic lawmakers worry the advisory opinions — issued upon request to specific firms but published for all to see — would circumvent formal rulemakings and a public comment period.

“If the law is that ambiguous they should do a rulemaking to adjust regulations through the public process," said Lauren Saunders, an associate director at the National Consumer Law Center.

For years the CFPB has provided informal, nonbinding staff opinions when a firm needs clarification about a specific practice or product. But the agency has stopped short of written advisory opinions that offer an interpretation of the law and can be extended to other firms in similar situations.

CFPB Director Kathy Kraninger in June sided with the industry's desire for a more formal advisory opinion process, proposing steps for companies to seek legal interpretations. The CFPB also announced that the agency would begin accepting such requests through a pilot program. Under the proposal, if the agency issues an advisory opinion it will be published in the Federal Register.

“One of the criticisms of the agency is that it hasn’t put out enough guidance to provide clear rules of the road,” said Brian Johnson, a partner at Alston & Bird and the CFPB’s former deputy director. “This is a way for the biggest areas of ambiguity to be resolved for everybody.”

But some critics are dead set against the plan, arguing that it could be used to favor companies and roll back regulations by reinterpreting existing laws without a formal rulemaking. They say advisory opinions can have legal significance by providing a safe harbor to companies that could allow them to evade consumer protection responsibilities.

“Piecemeal, company-by-company interpretations just end up with a lot of confusion,” said Saunders. "The intent should not be to relieve companies of the obligation to comply with the law rather than ensure they comply.”

While he was still at the agency, Johnson said in November that the bureau was considering a process for companies to seek an opinion on the legality of new products before they are offered to consumers.

But the next month, Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, sent a letter to Kraninger stating that while agency guidance may be appropriate in some situations, it should be “broadly applicable to industry” and not tailored to provide immunity from consumer protection or anti-discrimination laws.

“We have serious concerns that issuing advisory opinions tailored to companies' specific circumstances is not appropriate, especially if companies could use these opinions to circumvent consumer financial laws or as a defense in litigation by the Bureau or other parties,” the senators wrote.

The CFPB said requests for advisory opinions will pass muster if they are focused on issues that are substantive and have been raised in examinations, or prompt ambiguity or questions that have not been previously addresed. It said there will be a “strong presumption against” issuing advisory opinions on issues that are the subject of ongoing investigations or enforcement actions or an ongoing or proposed rulemaking.

Under the proposal, outside counsel or trade groups could request an advisory opinion on behalf of multiple firms. The request must describe a specific product or activity that the firm or group of firms are considering related to the issue. Published opinions could apply to "similarly situated parties."

Johnson said the intent of the program is to create a process where companies can get clarity on how to resolve legitimate issues of uncertainty.

“Greater clarity and transparency means the majority of companies can comply with the law," he said. "And that means harm that might otherwise be visited upon consumers wouldn’t occur in the first place.”

The original request for guidance and advisory opinions dates to early 2018, when former acting CFPB Director Mick Mulvaney issued a broad public review of the entire agency. The review included a request for information on improving the process for issuing guidance, which drew 44 responses.

For example, in one letter, former National Association of Realtors President Elizabeth Mendenhall said the housing industry would benefit from interpretive guidance on the the CFPB’s “Know Before You Owe” mortgage disclosure rule.

“The overhaul of the mortgage disclosures was, and continues to be to a certain extent, an uphill battle for settlement service providers,” wrote Mendenhall. “Such authoritative guidance, along with delayed enforcement, will provide the support sought by industry when undergoing an intensive regulatory shift and ultimately result in more attainable compliance.”

Some experts suggest that advisory opinions are a vehicle for the CFPB to speak candidly about a specific topic or to resolve a technical conflict in regulations.

Yet the CFPB has already issued interpretive rules, including two in April that were both narrowly targeted to help consumers deal with the coronavirus pandemic. The agency made it easier for consumers without bank accounts to get stimulus payments on prepaid cards by not classifying the payments as "government benefits.” The bureau also relaxed some disclosure requirements for consumers in need of cash to quickly close a loan.

“Advisory opinions are useful for companies in that it gives them more insight into regulators’ perspectives on activities” that are subject to regulatory supervision and enforcement, said Quyen Truong, a partner at the Stroock law firm and former CFPB assistant director.

Advisory opinions “are not innately pro-business,” Truong said, because they do not necessarily provide leniency on compliance issues. Rather, the opinions are “helpful in providing clarity as to what the regulator finds to be appropriate or wrongful conduct,” she said.

Regulators have had problems in the past controlling the number of requests from companies for more guidance.

The Federal Reserve stopped issuing individual interpretive letters to companies in 1981, Saunders said, after being inundated with requests and choosing to scrap the process in favor of official notice-and-comment rulemakings.

Since interpretive rules are governed by the Administrative Procedure Act, they can be challenged if consumer advocates believe an interpretation alters rights or obligations.

“There is a check here if someone believes the bureau is trying to change the requirements of a law without going through notice and comment,” Johnson said. "If the agency can improve compliance by providing greater clarity, it can focus more of its attention on bad actors who have no interest in complying with the law.”

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CFPB Compliance Financial regulations Kathy Kraninger Regulatory guidance Regulatory relief Disclosures TRID