MBA Asks CFPB for Clear ‘Rules of the Road’

The Consumer Financial Protection Bureau should adopt clear “rules of the road” when implementing new rules or changing existing rule interpretations, the Mortgage Bankers Association said in a letter last week to the Senate Banking Committee.

“This clarity will facilitate efficient compliance, reduce implementation costs and ensure consistent consumer treatment across the market,” MBA said in a letter to committee Chairman Richard Shelby, R-Ala., and Ranking Member Sherrod Brown, D-Ohio. 

CFPB Director Richard Cordray presented his bureau’s semi-annual Report to Congress to the committee last week.

MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said the real estate finance industry has a history of productive collaboration with the CFPB that results in better outcomes for both consumers and the housing finance market. “For example, the Ability to Repay/Qualified Mortgage implementation is an excellent model for the implementation of new and complex regulations,” he noted. “However, recently the CFPB has taken a number of actions that we believe will have an adverse impact on consumers.”

Killmer highlighted two key concerns that MBA raised with the CFPB over the past year, the use of consent decrees and administrative decisions to make changes in existing rules or guidance rather than using rulemaking or published written guidance that is prospectively applied, and issuing major new rules and then failing to provide additional written guidance to aid consistent implementation by the industry.

“Five years after the enactment of Dodd-Frank, enforcement actions present very significant challenges to the residential mortgage industry,” Killmer said. “Unfortunately, the CFPB has recently appeared to take a ‘regulation by enforcement’ approach, offering industry participants little guidance and simply instituting claims against them–often using new interpretations of old rules.”

Killmer called it critically important that consumers and lenders understand CFPB rules and interpretations of those rules. “Unfortunately, despite lenders’ good-faith efforts to comply with the CFPB’s rules–including using compliance management systems, seeking advice from outside counsel and seeking clarity directly from the CFPB–ambiguities remain and answers, even among CFPB employees, are inconsistent,” he said. “Oral guidance, whether provided privately in response to individual inquiries or on CFPB’s webinars, does not address the need for authoritative written guidance issued broadly to industry.”

Killmer noted the CFPB’s current practice provides no constructive notice or opportunity to comment when the CFPB’s view of market behavior changes. “Industry is left to parse through every enforcement action to determine if it contains new views or enforcement theories,” he said. “This is particularly burdensome for small lenders that do not have an army of lawyers on staff to conduct these reviews. Should the CFPB wish to redirect market behavior, lenders need clear rules or official supervisory guidance that puts market participants on notice of new interpretations and affords firms an opportunity to adapt without having to guess about the standards set forth in a CFPB order.”

Lenders would rather have a complete understanding of the CFPB’s expectations in a rule or guidance than wait for a series of costly enforcement actions–especially if they may become the subject of such enforcement, the letter said.

Killmer said that in addition to diverging from prior law interpretation, CFPB has also refused to provide timely written guidance on new rules, such as its “Know Before You Owe” rule (i.e., TRID), which became effective this past October.

“At its core, TRID represents the largest restructuring of the residential mortgage application-to-closing process in nearly 40 years,” Killmer said. “Implementing this new rule required major changes to industry systems and business processes as well as thousands of hours of training. In light of this complexity, the CFPB announced prior to the October 3 effective date that it would take into account ‘good faith efforts’ by industry to comply with the rule. Unfortunately, the CFPB did not provide a timeline for this good faith window, nor did it define the scope of good faith compliance.”

Killmer said the housing finance industry appreciates that CFPB established a diagnostic good faith period for TRID implementation, but noted that it needs to address many questions.

“Since the TRID rule’s implementation, a significant number of issues have emerged, mostly due to lingering misperceptions, differing interpretations and technical ambiguities in the regulation,” he said. “These are not matters with important policy or consumer protection implications; they are technical issues arising out of an incredibly complex rule. However, because the rule contains significant penalties for failure to comply, lenders and investors need clear written guidance.”

Such guidance will speed uniform adoption of the TRID rule, ensure a consistent consumer experience and eliminate impediments to the sale of loans in the secondary market, Killmer said.