MBA Offers OMB Recommendations on Improving Regulatory Enforcement, Adjudication
The Mortgage Bankers Association, in a March 16 letter to the Office of Management and Budget, offered a series of recommendations and best practices as it considers changes to its regulatory enforcement proceedings and administrative adjudications.
The letter comes in response to an OMB Request for Information regarding appropriate due process protections in agency proceedings. MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills told OMB Acting Director Russell Vought while regulatory proceedings are not judicial, they can often carry similarly severe consequences for those that are the subject to them.
“The mere existence of a pending enforcement action, let alone its resolution or an adjudicatory decision, can result in very damaging financial and reputational consequences,” Mills wrote. “In light of this, it is important that those subject to these regulatory proceedings are afforded transparency, due process, procedural fairness and, if appropriate, sanctions that are proportional to the conduct and harm at issue.”
MBA offered OMB the following recommendations:
The Importance of “Clear Rules of the Road.”
MBA said a threshold issue that must be considered in the context of agency proceedings is whether regulated entities have fair notice of proscribed conduct. “One key step that can be taken to ensure systemic fairness is to provide reliable guidance to regulated entities and be responsive to inquiries around ambiguities to create clear rules of the road,” MBA said. Regulatory agencies can ensure that they are doing so by adopting the following best practices:
–Adopt a clear guidance policy.
–Provide guidance in response to public feedback.
–Use guidance appropriately. “Guidance should be used to clarify regulatory ambiguity, communicate supervisory priorities, and describe best practices,” MBA said. “It should not be used to create binding obligations. Agencies should formalize their commitment not to initiate enforcement actions based solely on guidance.”
–Guidance should be clearly reliable. “Because guidance is not binding, it should be understood as establishing an acceptable method of compliance, but not the only acceptable method of compliance,” MBA said. “Regulatory agencies should not penalize a party who, in good faith, relies on guidance.”
–No-action letters and advisory opinion. MBA said through a process of public notice-andcomment, regulatory agencies should consider adopting practical and robust no-action letter (NAL) and advisory opinion policies.
Best Practices for Fairness in Agency Proceedings
–Civil investigative demands. MBA said CIDs, which occur at the beginning of an investigation in an agency proceeding, is an “expensive, uncertain process of indeterminable duration. CIDs share many of the consequences of a formal legal action—legal costs, reputational harm, business disruption— but offer few of the protections.”
MBA made the following recommendations, similar to those in response to a recent Consumer Financial Protection Bureau request for information on their CID processes, intended to minimize CID burden by improving the fairness and transparency of the CID process:
–Clarify the “reason to believe” standard for issuing a CID. Establish a standard that clearly articulates what constitutes sufficient “reason to believe” to initiate an investigation by issuing a CID.
–Provide specific notifications of purpose for the CID. At a minimum, notification of purpose statements should clearly describe the specific conduct under investigation, including the relevant time period.
–Petitions to modify or set aside a CID or similar request should be confidential. Once submitted, pending petitions should be kept under seal or otherwise treated as confidential. Failure to do so requires the recipient to weigh the reputational harm of disclosing an investigation against the need to defend their rights.
–Timelines need to be realistic. Regulatory agencies should have flexible petition filing and meet-and-confer timelines.
–Entities are entitled to know when an investigation concludes. Regulatory agencies should provide prompt written notification when it decides to end an investigation. “Failure to do so leaves an entity under a cloud of suspicion that can impact their ability to run their business,” MBA said.
–Be transparent in the early stages of investigations. Regulatory agencies should clarify the nature and scope of investigations early in the investigative process and provide regular updates on the status of the action.
–Adopt transparent procedures for concluding an investigation.
–Require fairness and consistency in the NORA or similar process. Regulated entities should have the ability to respond to allegations and provide important factual response before the initiation of a proceeding.
— Establish a civil money penalties matrix or provide a clear rubric governing the imposition of penalties.
Fairness in Administrative Adjunctions
MBA noted administrative actions can appear to lack some of the procedural protections and impartiality of judicial proceedings. “The adjudicators are often tied—formally or informally—to the investigatory agency,” MBA said, offering the following recommendations:
–Be transparent in forum selection decisions. As an initial matter, regulatory agencies should adopt a transparent process for determining when to bring an administrative proceeding rather than proceeding in federal court.
–Allow for removal to federal court if respondent elects to do so. Through formal rulemaking, agencies should consider creating an automatic removal mechanism giving respondents the ability to remove a pending matter to an appropriate federal district court.
