An interesting article from a quartet of lawyers at the law firm of Pepper Hamilton has raised awareness of a potential issue regarding any guidance issued by a federal regulator, including those that keep an eye on financial institutions.
The General Accountability Office issued an opinion back in October that guidance from federal banking regulators is in fact a “rule” that is subject to submission to Congress and subject to the Congressional Review Act.
The GAO was responding to a letter from Sen. Pat Toomey [R-Penn.], who was questioning whether the guidance — in this case in the area of leveraged lending — was in fact a rule, even though it was issued more than four years ago.
The Congressional Review Act has become an important tool for Republicans this year, who have used the act 15 times to undo rules and regulations enacted by federal agencies. The CRA was used to overturn a proposed rule from the Consumer Financial Protection Bureau that would limit mandatory arbitration clauses in most consumer lending contracts. A bill was also introduced last week to use the CRA to undo the CFPB’s proposed small dollar lending rule.
The CRA provides that a rule must be presented to Congress before it “can take effect.” Therefore, in finding that agency statements of general policy are subject to the CRA, the GAO has called into question all agency guidance. Because issuing informal guidance is a routine practice of all federal agencies, the possibilities for future challenges are virtually boundless. Theoretically, all agency guidance dating back to 1996 could be challenged.
The lawyers cited guidance from the CFPB, 2013-07:
(Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts) provides a “non-exhaustive list of examples of conduct related to the collection of consumer debt [that] could constitute UDAAPs” if engaged in by creditors. The listed practices are expressly prohibited for third-party collectors under the Fair Debt Collections Practices Act, which exempts first-party creditors. Consistent with the GAO’s opinion, Bulletin 2013-07 created rules because it identifies acts or practices that may prompt CFPB enforcement action.
Yet, the guidance was not submitted to Congress for CRA review.
The implications could be very problematic for the companies that are regulated by the CFPB, or any agency.
UPDATE: The GAO yesterday issued a notice yesterday that guidance that came from the CFPB related to auto finance and how interest rates are determined should be considered a rule and thus, be subject to the Congressional Review Act.