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CFPB’s Cordray speaks on agency rulemaking process

Richard Cordray

Richard Cordray

CFPB Director Richard Cordray spoke before The Exchequer Club on the agency’s rulemaking and supervisory responsibilities, saying one of the agency’s purposes is to “level the playing field between banks and nonbanks under the consumer financial laws.”

Cordray said the idea of unfair competition has a direct impact on the agency’s rulemaking.

“For businesses that want to know how to comply with the law, and at times may care as much about the clarity of the law as about its substance, the rulemaking function can serve to accomplish this goal,” Cordray said. “But the rulemaking project must take on a certain form to do this effectively, putting a premium on more specific and comprehensive rules.”

Cordray said that while many agencies are criticized for their lengthy and complex rules, “many businesses prefer comprehensive rules that answer more questions up-front, leave less terrain unidentified and uncertain and minimize the prospect of protracted and costly litigation.”

“First, for some concepts it is difficult to provide this kind of detailed and specific guidance, and more specificity may become an invitation to evade and circumvent the law,” Cordray said. “Second, sometimes principles and standards can operate effectively by allowing the parties to exercise discretion in areas where painstaking exactitude does not clearly further any particular interests, and the parties themselves may have sufficient incentives to cabin potential misconduct. Third, though a forest of intricate regulations may offer more comfort about the requirements of the law than a vague directive to act generally ‘in the public interest’ so familiar in other areas of agency regulation, it also comes at a cost, imposing substantial compliance burdens on smaller entities.

Additionally, Cordray said that while the agency does consult with stakeholders and consumers, the rulemaking process “can be thwarted by…lack of information, lack of imagination and mistaken judgments.”

“On each of these points, we find it beneficial to cast a wider net to hear more perspectives,” Cordray said. “Good information and data about the markets we regulate are also quite helpful on each of these fronts. For this reason, the Consumer Bureau is not only reaching out for more information as we develop specific proposals…but also taking on the task of developing better data to inform the agency’s efforts in the future. As for imagination, one of the admittedly difficult parts of writing new rules is to anticipate the unexpected. Unforeseen consequences can loom large, and broader consultation through an open and accessible process helps us mitigate this concern. Finally, as to mistaken judgments, no foolproof system can be devised to prevent them, but again, an open and accessible process managed by our highly competent staff provides some assurance that we will hear and test conflicting viewpoints before reaching our conclusions – thereby subjecting our rules to the rigors of the proverbial ‘marketplace of ideas.’”

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