In the next week, Consumer Financial Protection Bureau Director Richard Cordray will make his annual spring appearance before the House Financial Services Committee. His most recent public comments might have provided a preview of what will dominate the discussions during that hearing.
In remarks to the Consumer Bankers Association CBA Live conference in Phoenix, Cordray said that the bureau is regulating by enforcement, that criticism of the practice is “badly misplaced” and that enforcement consent orders provide “detailed guidance for compliance officers across the marketplace.”
Reaction the following day was swift.
“Instead of promulgating rules or guidance and allowing public feedback, the CFPB continues to operate unchecked in its quest to dramatically alter the consumer marketplace,” a spokesman for Rep. Randy Neugebauer, one of the members of the Financial Services Committee, told Dodd Frank Update. “Businesses deserve certainty and clear rules of the road, yet the bureau continues to fall short.”
Richard Horn of Richard Horn Legal, PLLC, said the idea that the bureau was pointing the industry to the consent orders for guidance rather than issuing new rules or formal guidance itself left the CFPB open for criticism.
“It’s a lot more difficult to put something through notice and comment,” he said. “It’s a lengthy process, you have to weigh the public comments. For an agency’s rules to have the force of law, the process is built that way for a reason. The public should have a chance to weigh in on this to make sure the rule or guidance the agency is putting out is clear as can be.
“I think regulation by enforcement, when you’re changing interpretations or policy by enforcement, means you’re essentially playing gotcha.”
National Association of Realtors President Tom Salomone said his group would continue to work with the bureau and industry partners to get clarity on issues involving members and the real estate industry.
“We anticipate continuing to work with the CFPB on issues related to enforcement, and believe there are occasions where further guidance is required,” Salomone told Dodd Frank Update. “It’s important that such guidance be meaningful, however, and, regrettably, the CFPB bulletin addressing RESPA compliance and marketing services offered little additional guidance from the CFPB’s previous enforcement actions. Moreover, consistency in the positions taken by the CFPB in enforcement matters and those articulated by CFPB and its predecessors in guidance documents is paramount, as the PHH enforcement proceeding now on appeal demonstrates.”
Horn said the difficulty for the industry is evident in cases such as the Lighthouse Title enforcement, where the CFPB provided new interpretations of RESPA compliance in the consent order.
“Say, for example, MSAs, where the industry was following previous long-standing interpretation of RESPA by HUD that MSAs could be engaged in as long as you stay within certain boundaries,” he said. “The CFPB changed the existing interpretation of RESPA, and did that in an enforcement action.
“This becomes extremely difficult for entities subject to CFPB enforcement jurisdiction. Basically, you have to discern from past orders, which are based on a particular set of facts and do not describe the legal analysis as clearly as guidance would, what the CFPB's general interpretation will be going forward.”
It’s that kind of problem between industry and agency that has led some in Congress to call for a change in the leadership structure of the CFPB.
“Chairman Neugebauer believes the bureau would better protect consumers and would provide more certainty to the American economy by operating as a bipartisan five-person commission instead of as a single director-led agency,” his spokesman told Dodd Frank Update. “He will continue to work with his colleagues on a bipartisan basis to move H.R. 1266 into law.”
In a question-and-answer session with CBA CEO Richard Hunt after his remarks, Cordray also addressed early observations on the TILA-RESPA Integrated Disclosure (TRID) rule implementation. He said that although reports have shown mortgage are taking longer to close since TRID was implemented, the jury still is out on how much of an effect TRID has had on delayed closings.
“First of all, we take this issue very seriously,” he said. “I would dispute the numbers in the delays and closing costs. There definitely have been some (delays) and they vary by institution, but if you look at Realtors’ data from the past year, you find that closing (times) right now on the average loan are 10 days longer than they were a year ago, but eight of those days happened between January and July of last year and only two of them happened between July and January of this year. So, we’ll continue to watch and the jury’s out on this.”
In terms of additional costs that lenders are bearing since TRID was implemented, Cordray said most of those were one-time expenditures that had to be made.
“In terms of costs there clearly were significant one-time costs. Anytime you change your IT systems, and not only lenders, but also all the partners in the real estate market have had to adjust their systems and get back on the same page,” he said. “There are also transitional costs as people get used to these new rules and undertake changes in their systems. As this settles down we’re going to be very interested to know what the lasting effects are and we will be mindful about how we can adjust our approach in light of the data.”
Cordray did say that the CFPB would be watching how the rules were implemented and progressed because the bureau didn’t want to do something that ended up “fouling up the mortgage market.”
“So rather than just take these rules and throw them out there and say, ‘It’s your problem now deal with them,’ we feel it continues to be our continuing concern,” he said. “And as we can respond and help clean up and clarify issues for you and make sure that these actually work, as you said, the project here was to streamline disclosures. That’s a good thing. What we often find is the project itself can be more difficult than people appreciate, but in the long run this will be beneficial.”