A highly-publicized leadership battle, political posturing, overturned decisions and challenges that may go all the way to the U.S. Supreme Court have made it an interesting time at the Consumer Finance Protection Bureau (CFPB).The agency created to regulate and police the financial services industries has been mired in controversy and questions about its future since the election of a new administration in 2016. Recent developments surrounding the overseer of the mortgage and finance sectors have been a mixed bag with something for its supporters and detractors alike:
- A federal court upheld President Donald J. Trump's appointment of Mick Mulvaney as interim director of the CFPB in spite of a challenge by Leandra English who was appointed to the post by outgoing director Richard Cordray
- The D.C. Circuit Court of Appeals upheld the constitutionality of the CFPB's structure against a challenge that the agency is unaccountable due to its single-director leadership and funding that comes from the Federal Reserve instead of the congressional appropriations process
- The same court that ruled in favor of the CFPB's structure overturned a $103M penalty that former director Cordray imposed on PHH Corp. for violating the Real Estate Settlement and Procedures Act (RESPA) by allowing a lower court ruling to stand that determined Cordray exceeded his authority and incorrectly interpreted the law
Support and approval of the CFPB seems to fall along party lines when it comes to the public and politicians; however, the delineation gets murkier among people in the industries it governs. While some lawmakers characterize criticism of the CFPB as proof of disregard for protecting consumers, the mortgage industry and its trade organizations are actually pushing to get clarity on how to interpret the rules instead of trying to eliminate or avoid them.
From the overhaul of loan officer compensation to the rollout of the TILA-RESPA Integrated Disclosure (TRID) and all other directives, the CFPB has been criticized for providing only fragmentary glimpses of how the bureau interprets the laws and regulations it enforces and failing to provide advance notice and guidance to allow companies to prepare for procedural changes and avoid disruption in customer service. Outside of calls from political conservatives to deconstruct or completely eliminate the CFPB, trade organizations like the Mortgage Bankers Association (MBA) have lobbied for the agency to do a better job of educating the industry on how to comply rather than regulating by enforcement.
The white paper prepared for the MBA by the law firm of Covington and Burling, LLP entitled CFPB 2.0: Advancing Consumer Protection takes a blunt approach to calling for authoritative guidance and outright states, "Rather than seeking to provide the equivalent of 'detailed guidance' through enforcement, the Bureau should simply provide detailed guidance." Taking action on what is a simple principle in the private sector can be like moving a mountain in government-created bureaucracies. But if acting director Mulvaney's recent move of requesting zero dollars for the bureau's second quarter operating budget (compared to his predecessor's request for $217M for Q1) is any indication, change is coming to 1700 G Street.
The elimination of compliance guesswork would help the entire finance sector and by extension, consumers. Everyone involved in the real estate process would prefer to avoid closing delays brought on by lack of clarity on things like how to execute regulations like TRID. But beyond that, the lending industry needs to be spending its time and energy focusing not only on helping people build their dreams and reach their goals through homeownership, but also in improving the customer experience. As technology continues to advance, so do consumer preferences. Somewhat ironically, the same technology that can help mortgage companies and loan officers with compliance can also supercharge marketing efforts and enhance the customer experience through a combination of automation and digital availability.
Staffing and budget changes have already occurred at the CFPB, but as the various players maneuver to reform or preserve the CFPB and advance differing agendas, it's hard to say if the agency that emerged to prevent practices that contributed to the pain of the housing market collapse will become more "user-friendly" to the companies and practitioners it oversees. Contrary to incendiary accusations from politicians portraying industry campaigns to reform the agency as nefarious, efforts by the MBA and others to enact change will help create a better working relationship between the CFPB and the finance sector - which benefits the public they all serve.