MBA Urges CFPB to Develop ‘Rule on Rules’

The Mortgage Bankers Association, in a letter last week to the Consumer Financial Protection Bureau, urged the Bureau to develop, propose, and adopt standards and requirements to govern its own provision of rules and guidance–in essence, a “rule on rules.”

The letter also offers feedback and suggestions on each of the identified stages of the rulemaking process addressed in the a Bureau Request for Information, including initial outreach and information gathering, notices of rulemaking and final rules. Additionally, MBA urged the Bureau to consider allocating sufficient staff to provide stewards of the rules which they develop.

The letter is the latest in a series of MBA responses to more than a dozen Bureau Requests for Information promulgated this year; this particular RFI asked for recommendations on the Bureau’s rulemaking processes.

“Rulemaking and how it is conducted is a crucial part of addressing these issues,” wrote MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills. “MBA believes both the Bureau’s rulemaking and accompanying guidance processes deserve priority attention.”The letter points out mortgage lenders in the past five years have had difficulties with the Bureau’s uneven rulemaking process and its lack of authoritative guidance for both the rules required under the Dodd-Frank Act and rules under other laws the Bureau is assigned.

“These problems have in some cases led to considerable confusion among regulated entities, uneven compliance and ultimately worked to undermine consumer protection and increase borrowers’ costs because of higher compliance costs and delays associated with uncertainty,” MBA said.

Consequently, MBA said the Bureau should, through the rulemaking process, develop, propose and adopt standards and requirements to govern its own provision of rules and guidance, in essence establishing a “rule on rules,” calling it a particularly appropriate time to consider such a rule in light of the Bureau’s recent rulemaking experiences, which can inform the development of such a rule.

“Establishing a formal ‘rule on rules’ would guide the Bureau today and in the future,” MBA said. “Such a rule would help ensure the Bureau does a better job of protecting consumers and decreasing unnecessary costs through rules and guidance rather than, as in the past, simply using enforcement cases to articulate standards.”

MBA emphasized the current rulemaking regime through enforcement has proven to be a counterproductive consumer protection strategy. “It forces compliance staff to do costly guesswork and distorts the market in favor of those willing to undertake ‘riskier’ approaches,” MBA said. “A rule on rules is the right place to explicitly reject ‘rulemaking by enforcement’ by committing the Bureau to necessary rules and guidance and setting the standards for them–now and for the future.”

The letter noted the real estate finance industry “is well attuned to complying with clear rules and guidance. Unfortunately, the experience of the past five years makes clear that both the [Bureau’s] rulemaking and guidance processes could be improved. The development, proposal, public comment and ultimately finalization of a [Bureau] ‘rule on rules’ governing its own rulemaking and guidance process, or at least the inclusion of these points in [Bureau] practices, with the allocation of necessary staff, is the best course for the [Bureau] to take to protect consumers and decrease their costs.”