CFPB Issues Final Rules Clarifying Role of Supervisory Guidance, Escrow Accounts

In final actions of the Trump Administration, the Consumer Financial Protection Bureau yesterday issued two final rules. The first confirms the Bureau’s use of supervisory guidance for its supervised institutions; the second exempts certain financial institutions from establishing escrow accounts for higher-priced mortgage loans.

The rule codifies the statement, with amendments, that the Bureau and other federal financial regulatory agencies issued in September 2018, which clarified the differences between regulations and supervisory guidance.

The Bureau reemphasized unlike a law or regulation, supervisory guidance “does not have the force and effect of law” and the Bureau “does not take enforcement actions or issue supervisory criticisms based on non-compliance with supervisory guidance. Rather, supervisory guidance outlines supervisory expectations and priorities, or articulates views regarding appropriate practices for a given subject area.”

The Bureau also clarified in contrast to supervisory guidance, regulations do have the force and effect of law and enforcement actions can be taken if regulated institutions are in violation. Regulations, the Bureau noted, are also generally required to go through the notice and comment process.

The Mortgage Bankers Association has previously expressed support for clarity in the supervisory guidance process, noting that earlier statements and guidance on specific issues created “regulation by enforcement” instead of updating rules and regulations, leading to concern and confusion among regulated entities.

The final rule can be found here.

The Bureau also issued a final rule to implement a requirement of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). The final rule exempts certain insured depository institutions and insured credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans.

The final rule takes effect upon publication in the Federal Register and exempts from the HPML escrow requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on the principal dwelling of a consumer if (1) the institution has assets of $10 billion or less; (2) the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) certain of the existing HPML escrow exemption criteria are met.

To read the final rule, click here.