On January 19, 2021, The Consumer Financial Protection Bureau (“Bureau”) adopted a final rule that codifies the Interagency Statement Clarifying the Role of Supervisory Guidance, issued by the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and the Bureau (the “agencies”) on September 11, 2018 (“The September 2018 Statement” or “Statement”).
The September 2018 Statement was developed by the agencies to explain the roles and the agencies’ approach to supervisory guidance. Importantly, the Statement makes the important distinction between regulations and non-binding supervisory guidance documents. The Bureau states that where regulations create binding legal obligations, supervisory guidance advises the public “prospectively of the manner in which the agency proposes to exercise a discretionary power” and does not create binding legal obligations. The goal of the Rule is to further clarify that the Bureau will continue to follow and respect the limits of administrative law in carrying out its supervisory responsibilities. On November 5, 2018, the agencies received petitions to codify the 2018 Statement. By codifying the September 2018 Statement into a final rule, the 2018 Statement is now legally binding on the Bureau.
In the 2018 Statement, the agencies also expressed their intention to (1) limit the use of numerical thresholds in guidance; (2) reduce the issuance of multiple supervisory guidance documents on the same topic; (3) continue efforts to make the role of supervisory guidance clear in communications to examiners and supervised institutions; and (4) encourage supervised institutions to discuss their concerns about supervisory guidance with their agency contact.
In the response to the comments, the Bureau clarified that the Rule does not cover interpretative rules or small entity compliance guides, which are covered in separately published compliance aids. Further, the Bureau stated it will not consider examples in guidance as safe harbors. This is because the Bureau must consider the unique facts and circumstances of each institution. Further, the supervisory guidance does not create legal obligations and thus cannot establish examples in the guidance itself that are binding.
The Rule affects those subject to the Bureau’s supervisory authority and possibly non-depository institutions, insured depository institutions, and insured credit unions with more than $10 billion in total assets.
It is no coincidence that Director Kraninger finalized this rule on the eve of her potential departure. The Bureau has been subjected to much criticism in the past for using guidance as sort of an informal rulemaking. For example, in 2013, the Bureau issued guidance to prevent discriminatory mark ups by auto lenders that operate through dealerships. The guidance was submitted to the Government Accountability Office (GAO) which ruled that the guidance was in fact a rule and subject to the Congressional Review Act (CRA). The guidance was repealed by Congress shortly thereafter.
Agency guidance is necessary for a covered entity to rely upon to understand and operationalize compliance; a tool for assuring best practices and avoiding bad ones. Last week the Bureau issued a statement regarding how financial institutions should provide financial products and services to consumers with limited English proficiency (LEP). The statement provided only compliance principles and guidelines with the emphasis of encouraging financial institutions to expand these services to LEP consumers. The Bureau’s LEP statement is important guidance.
The guidance issued by prudential regulators has been an important resource for financial institutions developing their compliance management systems. Similarly, institutions who are subject to the Bureau’s oversight should not overlook past and future guidance, especially with changes coming to the Bureau with a new administration. Guidance and compliance aids will continue to be both an important part of any entity’s preparation for supervision as well as an essential tool for evolving and managing their compliance management systems.