Timothy A. Raty
“All laws must be objective (and objectively justifiable): men
must know clearly, and in advance of taking an action, what the
law forbids them to do (and why), what constitutes a crime and
what penalty they will incur if they commit it.”
(Ayn Rand, American Novelist)
As is prone to occur in the passing of broad, yet detailed regulations, the facts of reality do not always mesh with such, thus putting compliance officers in the quandary of having to satisfy the spirit of such regulations without at the same time violating them. Such situations are caused by a lack of quality in the language in the regulation or from a lack in ensuring that such regulations will appropriately cover all subjects they could impact (either from a lack of view of the current subjects or a lack of foresight of subjects they will eventually affect).
Such has been the case with the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure rule (78 FR 79730 [2013]), with many questions raised as to how to apply its requirements, how to properly disclose certain loan terms (e.g. mortgage insurance and owner’s title insurance premiums), how to calculate certain disclosures (e.g the APR and the TIP), or even how to properly disclose all loan terms for transactions which do not neatly fit all the requirements of Regulation Z (e.g. buydown and construction loan transactions).
With the breadth of TRID’s scope, it is not possible for the CFPB to propose clarifying regulations for every ambiguity that exists. Thus, in response to these many questions, the CFPB has maintained a policy of answering questions posed to them through various means (emails, written letters, verbal questions posed in public events, etc.) and have even provided webinars addressing some of the more frequently asked questions (see https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/).
While these have largely been helpful and have been a vast improvement over their predecessor’s guidance when new rules are implemented, they are provided as nonbinding, verbal guidance. This is best expressed by the CFPB in the slides to their webinars, where they disclaim that their presentations “do[] not contain legal interpretations, legal guidance, or legal advice” and “[are] not binding on the Bureau.”
Because interpretations of the application of regulatory text is based upon the opinions of the personnel of the agency enforcing them – and such personnel change constantly – compliance officers cannot expect that the guidance provided in one instance will be credible in the next. In addition, several of the same questions may be posed within the same timeframe, but guidance for all such questions are provided by different staff members who may reach credible – yet incompatible – conclusions.
Taken altogether, compliance officers may find a whole new meaning in the Latin phrase “caveat emptor” (“let the buyer beware”), leaving them to their own devices in determining what procedures are compliant with Federal law – and praying that auditors, investors, and courts will always agree with their conclusions.
Financial CHOICE Act
Under the proposed Financial CHOICE Act (H.R. 10 [2017]), this may change, if this Act passes substantially in the same form as it was passed originally in the House of Representatives. Under Section 721 of this Act, the Director of the CFPB is required to “promulgate rules to provide written opinions in response to inquiries concerning the conformance of specific conduct with Federal consumer financial law” (proposed 12 USCA § 5512[b][7][A][i]). Such inquiries “must relate to specific proposed or prospective conduct by a covered person contemplating the proposed or prospective conduct” (Ibid.)
Under proposed Ibid. § 5512(b)(7)(B), the Director “shall [must], within 90 days of receiving the request for an opinion” either “issue an opinion stating whether the described conduct would violate Federal consumer financial law”, deny the request, or “explain why it is not feasible to issue an opinion.” Denials may only be made if permitted by statute, such as if the inquiry asks a general question of interpretation, asks about hypothetical situations, etc.
Generally, such opinions must be published and “any person may rely on an opinion issued by the Director pursuant to this paragraph that has not been amended or withdrawn. No liability under Federal consumer financial law shall attach to conduct consistent with an advisory opinion that had not been amended or withdrawn at the time the conduct was undertaken.” (Ibid. § 5512[b][7][C])
Precedent
Requiring written opinions from the CFPB is not only feasible (they certainly have the infrastructure to support it, if they are capable of issuing thousands of nonbinding guidance), but also has precedent. Under current law (which has been in effect since 1974), the Federal Election Commission (“FEC”) is also required to provide written opinions to campaign committees of candidates for Federal office, to help guide them through detailed, comprehensive campaign finance laws.
Under 52 USCA § 30108(a)(1), the FEC is required “not later than 60 days after [it] receives from a person a complete request concerning the application of this Act . . . or a rule or regulation prescribed by [it], with respect to a specific transaction or activity by the person, [it] shall render a written advisory opinion relating to such transaction or activity to the person.”
Ibid. § 30108(c)(1) also states that “any advisory opinion rendered by the Commission under subsection (a) may be relied upon by (A) any person involved in the specific transaction or activity with respect to which such advisory opinion is rendered; and (B) any person involved in any specific transaction or activity which is indistinguishable in all its material aspects from the transaction or activity with respect to which such advisory opinion is rendered.”
Such opinions are published on the FEC’s website, for anyone (particularly campaign committees) to access and use to help ensure that they are complying with the laws enforced by the FEC (see https://www.fec.gov/data/legal/advisory-opinions/ and https://www.fec.gov/data/legal/search/advisory-opinions/?type=advisory_opinions).
Conclusion
Requiring formal written opinions from the CFPB is not a new, untested, and risky idea, but one based on precedent. At least one other Federal agency (the FEC) uses formal written opinions to help campaign committees ensure that their operations, practices, and procedures are compliant with the laws imposed on them. There is every reason to require the CFPB to formally indicate how they expect the laws they impose to be complied with, in order to enable the persons so governed to know actions they can safely take without penalties. Doing so would help to relieve the anxieties of “covered persons” and allow them to focus on what is most important to them: extending financial capital to consumers.