United States: New Consumer Financial Superagency Quietly Takes Over Commercial Law Enforcement Power

Last Updated: August 10 2011
Article by Daniel F. Wheeler

The new Bureau of Consumer Financial Protection (the "CFPB") recently listed the numerous rules and regulations for which it is taking enforcement authority from the other financial regulators. See new 12 CFR Chapter X, Identification of Enforceable Rules and Orders, filed May 27, 2011. This list was promulgated very quietly and received no attention in the press. It should have.

The May 27, 2011 date of the listing predates the CFPB's effective existence on July 21, 2011 by almost 2 months, which explains the peculiarity of the listing being signed by Rebecca Ewing in her capacity as Acting Executive Secretary, U.S. Department of the Treasury and not by anyone at the CFPB. This is really a Treasury Department regulation masquerading as a CFPB regulation. Presumably, the CFPB will try to retroactively ratify the regulation as its own once it has legal power to act.

According to the CFPB, the list does not have a substantive effect because the CFPB's authority is defined by Dodd-Frank. The CFPB says that the list "will merely provide a convenient reference source" and that "[a]ccordingly, the inclusion or exclusion of any rule or order would not alter the CFPB's authority." But, that statement by the CFPB is the CFPB's own interpretation; it is not the language of Section 1063(i) of Dodd-Frank that requires the CFPB to publish the listing. That Section of Dodd-Frank says:

Not later than the designated transfer date, the [CFPB] shall, after consultation with the head of each transferor agency, identify the rules and orders that will be enforced by the [CFPB]; and shall publish a list of such rules and orders in the Federal Register.

The statute does not say that the CFPB is to merely publish a "convenient reference source," a phrase that is not used anywhere in the entire United States Code! The statute says the CFPB shall identify the rules and orders that will be enforced. The plain meaning of the statute is that the CFPB is supposed to carefully list only the exact rules it will enforce and do so by a date certain as part of an official rulemaking. The statute intended CFPB to take a position, which would have the significant benefit of providing certainty to the parties to be regulated by the CFPB and to the other financial regulators who need to know what rules are being taken from them. Obviously, the CFPB does not want to be limited in case it overlooks a rule and the CFPB wants to insulate the list from being challenged for including too many rules.

The CFPB further said that the list is not subject to the notice-and-comment requirements of the Administrative Procedures Act. This statement is another self-serving interpretation by the CFPB. Section 551(4)-(5) of the Administrative Procedures Act defines "rule" and "rulemaking" as follows:

"rule" means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing;

"rule making" means agency process for formulating, amending, or repealing a rule;

The CFPB's listing of transferred rules is (1) an agency statement of general or particular applicability and future effect, (2) by the CFPB's own admission, is designed to implement and interpret Dodd-Frank and is being done under the express requirements of Dodd-Frank. The Administrative Procedures Act only uses the phrase "publish in the Federal Register" (the phrase used in Dodd-Frank) in connection with a standard rulemaking. Under an objective analysis of the language of Dodd-Frank, the CFPB's listing is a "rule" and therefore the publishing of the rule is a "rule making." By disclaiming the listing's character as a rulemaking but inviting comments, the CFPB has tried to prevent a challenge to the listing based on illegally promulgating a rule outside the required rulemaking process. This strategy minimizes real comments because no one will bother comment on a non-rule and might preserve the defense that the rule somehow went through the notice-and-comment process. It is a clever although wrong (and devious) legal strategy. These tactics are also distasteful for an agency that is supposed to set an example of transparency, accountability and integrity.

This list itself is striking because it demonstrates the CFPB's takeover of purely commercial law enforcement as well as all consumer financial laws and regulations. Here is the listing of the transferred rules, organized by the agency that formerly enforced those rules:

Board of Governors of the Federal Reserve

Regulation B (Equal Credit Opportunity Act)

Regulation C (Home Mortgage Disclosure)

Electronic Fund Transfers (Regulation E)

Regulation H, Subpart I (Registration of Residential Mortgage Loan Originators)

Regulation M (Consumer Leasing)

Regulation P (Privacy)

Regulation V (Fair Credit Reporting)

Regulation Z (Truth in Lending)

Regulation DD (Truth in Savings)

FDIC

Privacy of Consumer Financial Information

Fair Credit Reporting

Registration of Residential Mortgage Loan Originators

Office of the Comptroller of the Currency

Adjustable Rate Mortgages

Registration of Residential Mortgage Loan Originators

Privacy of Consumer Financial Information

Fair Credit Reporting

Office of Thrift Supervision

Adjustments to home loans

Alternative Mortgage Transactions

Registration of Mortgage Loan Originators

Fair Credit Reporting

Privacy of Consumer Financial Information

National Credit Union Administration

Loans to members and lines of credit to members

Truth in Savings

Privacy of Consumer Financial Information

Fair Credit Reporting

Requirements for Insurance

Registration of Mortgage Loan Originators

Federal Trade Commission

Telemarketing Sales Rule

Privacy of Consumer Financial Information

Disclosure Requirements for Depository Institutions Lacking Federal Depository Insurance

Mortgage Assistance Relief Services

Use of Prenotification Negative Option Plans

Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations

Preservation of Consumers' Claims and Defenses

Credit Practices

Mail or Telephone Order Merchandise

Disclosure Requirements and Prohibitions Concerning Franchising

Disclosure Requirements and Prohibitions Concerning Business Opportunities

Fair Credit Reporting Act

Procedures for State Application for Exemption from the Provisions of the Fair Debt Collection Practices Act

Department of Housing and Urban Development

Hearing Procedures Pursuant to the Administrative Procedure Act

Civil Monetary Penalties

Land Registration

Purchasers' Revocation Rights, Sales Practices, and Standards

Formal Procedures and Rules of Practice

Real Estate Settlement Procedures Act

Investigations in Consumer Regulatory Programs

Here are just a few of the surprises from this list:

  • The CFPB is taking over HUD's regulations relating to housing and urban development, which means the CFPB will be policing land registration paperwork involved in developers' leasing or sale of lots in a subdivision. But, subdivision land registration procedures are not within the CFPB's intended mandate under Dodd-Frank.
  • The CFPB is taking over the FTC's regulation of franchising and business opportunity ventures. But, the regulation of such business ventures is manifestly inappropriate for a consumer protection agency.
  • The CFPB's takeover of the FTC's telemarketing regulations gives the CFPB to regulate the activities of any telemarketer (i.e., anyone whose plan or campaign involves more than one telephone call) in the course of marketing any goods and services, including soliciting charitable contributions, not just financial services.

Overall, the CFPB has opted at every turn to interpret Dodd-Frank in a way that maximizes its own jurisdiction and power. The fact that this consumer agency can now enforce purely commercial laws and regulations apparently doesn't trouble anyone.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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