More than 50 Tell the BCFP What They Think of the Rulemaking Process

The comment period for the latest in a series of “requests for evidence” by the Bureau of Consumer Financial Protection (BCFP or Bureau) closed last Thursday. By my count, 52 unique organizations and individuals submitted input to the Bureau’s RFI on its rulemaking process. All submissions can be accessed here on Regulations.gov.

Here is the breakdown of who responded:

Banks/Credit Unions/Other Financial Services (19 groups, 3 individuals)

• American Bankers Association
• American Financial Services Association
• Bridge Credit Union
• Cincinnati Ohio Police Federal Credit Union
• Community Financial Services Association of America
• Credit Union National Association
• Emerald Credit Union
• Financial Service Centers of America
• GROhio Community Credit Union
• Impact Credit Union
• Independent Community Bankers of America
• Integrity Federal Credit Union
• Minnesota Credit Union Network
• Ohio Credit Union League
• Port Conneaut Federal Credit Union
• ProMedica Federal Credit Union
• TDECU
• Village Bank
• Wisconsin Bankers Association
• Anonymous – in support of federal credit unions
• Terry Tucker, a credit union professional
• Jeffrey Schmid, SVP of SBREFA HMDA panelist in support of community banks

Home/Mortgage Related (8 groups, 2 individuals)

• American Escrow Association
• Manufactured Housing Institute
• Mortgage Bankers Association
• National Association of Home Builders
• National Association of Realtors
• National Reverse Mortgage Lenders Association
• Pioneer Title Agency
• Real Estate Services Providers Council (RESPRO)
• Barry Horn, a non-delegated mortgage banker
• Anonymous individual mortgage professional

Debt Collection (3 groups)

• ACA International (ACA)
• RMA International (RMA)
• National Creditors Bar Association (NCBA; formerly NARCA)

Consumers (3 groups, 5 individuals)

• Americans for Financial Reform (representing 45 community, civil rights and legal services groups)
• Consumer Advisory Board
• Cities for Financial Empowerment Fund
• Consumer-Patty Melton
• Consumer-Diana Willis
• Consumer-Kevin Ernst
• Consumer-Amit Narang
• Consumer-David Soffer

Legislators/Regulators/Think Tanks (7 responses)

• Senators Elizabeth Warren & Mark Warner
• Administrative Conference of the United States
• Conference of State Bank Supervisors
• Office of Advocacy, US Small Business Administration
• Senator Catherine Cortez Masto
• Center for Capital Markets Competitiveness
• Competitive Enterprise Institute

Other (2 responses)

• Scratch – a startup fintech (loan servicer)
• McIntyre & Lemon, PLLC (a law firm that represents banks, lenders, trade groups, etc.)

For the insideARM audience, the following summarizes the comments from ARM industry trade groups. Look for a follow up article tomorrow that summarizes the positions of consumer groups and other non-industry responders.

The gist of ACA’s comments:

ACA summed up its input this way –

“Too often, the Bureau’s rulemaking processes have been agenda-driven, lacking in objective evidentiary support, dismissive of both SBREFA small entity representative (“SER”) input and the need for rigorous cost-benefit analysis, and poorly conceived to solve real problems. As discussed more specifically below, the Bureau’s approach to its debt collection rulemaking has prompted objections to a flawed and non-transparent consumer survey; failure to conduct effective consumer disclosure testing; a misconceived SBREFA panel process that failed to include critical participants and issues while inappropriately seeking to impose a “one size fits all” approach; regulatory overreach; and unworkable proposals. With respect to SBREFA, many have observed that the Bureau has treated this important process as an empty, formalistic exercise, obligatorily tacked on the end of the Bureau’s pre-rulemaking schedule, well past the point when the Bureau’s course was set.”

Although this particular RFI had to do with process issues, ACA also commented on the substance of the proposals in the July 2016 Outline provided in advance of the SBREFA hearing. The group expressed concern over the following topics:

• Regulatory overreach
• The introduction of the concept of “warning signs”
• Validation notice requirements that go beyond statutory mandates
• Unworkable proposals, such as: no definition of the key term “dispute”; no process for responding without running afowl of third party disclosure rules; failure to consider feasibility of proposals for transfer of data between first and third parties.

The gist of RMA’s comments:

This RMA comment summarized its response –

“The Bureau issued the ANPR in November 2013 – nearly five years ago. As of now, we expect the Bureau to issue a Notice of Proposed Rulemaking (“NPRM”) in March 2019, with final rules to be issued at least several months after that. To have a rulemaking go on for six or more years is, to say the least, lengthy. This has created substantial uncertainty for our industry, the banks that sell to us, as well as our investors and consumers. Courts across the nation have issued a host of different and often conflicting decisions for virtually every aspect of collections in the absence of formal rules. The result is, simply put, a web of different standards and rules across states and sometimes across cities and counties. It is also worth noting that the Bureau’s various Consent Orders have also added a layer of uncertainty to whether certain industry business practices, although not prohibited under the law, are permissible. We urge the Bureau to move forward with well-considered debt collection rules faster than has been the case to date, in order to provide a federal standard that creates certainty and clarity for the industry and the consumers we serve.”

In addition, RMA urged the Bureau to apply any future rulemaking only to accounts that are charged-off or go into default after the effective date of the rules, not retroactively.

Finally, like ACA, RMA also made reference to specific debt collection rule content such as “the promotion of communication between collectors and consumers, including the potentially harmful impact of unduly restrictive contact caps and modern communication methods (e.g., email, cell phone, text and voicemail messages) that are not reflected in the Fair Debt Collection Practices Act that was enacted over four decades ago.

The gist of NCBA’s comments:

Not surprisingly, NCBA highlighted its position that the Bureau should not engage in rulemaking that would effectively regulate the practice of law, as this would violate the separation of powers doctrine of the Constitution.

As to the rulemaking process, NCBA highlighted the fact that when the debt collection ANPR was issued, stakeholders were initially given 60 days to respond to more than 160 questions (that timeframe was extended by 30 days, but it was still tight). Further, the group commented,

“Other than the ANPR, the Bureau did not request any other additional information about debt collection processes other than to issue several Requests for Information (RFI) on the consumer credit card market as part of the Card Act, which incorporated some requests regarding debt collection. The Bureau started the process of disclosure testing on consumer disclosures but that research was discontinued. It appears that the Bureau conducted most of its fact finding about debt collection behind closed doors with stakeholders.

NCBA members have been very hesitant to provide the Bureau with data since client information is subject to attorney-client privilege and confidentiality. In instances where data could be provided, NCBA members have not been willing to do so for fear that the Bureau could use the information against them in enforcement actions. For instance, the Bureau has in the past asked about forms and processes law firms use to document the review of files. Those requests were made subsequent to enforcement actions already brought against law firms alleging those law firms failed to adequately review files prior to a collection action. Under the circumstances, NCBA members saw no benefit in providing this information to the Bureau. If the Bureau truly seeks honest feedback and information from industry it must be done so on the condition of immunity, especially in markets where rules have not been written as in the case of debt collection. Instead of writing rules from the beginning of the Bureau’s inception, the Bureau chose to engage in the process of “regulation by enforcement”. This course of action resulted in the debt collection industry, including debt collection attorneys, [being un-]willing to provide the information that could be used to support the Bureau’s enforcement activities.

At no time after the ANPR did the Bureau seek information on cost-benefits analysis from NCBA members. NCBA’s ANPR response in 2014 identified that the costs of compliance over the prior 3 years had increased by over 300%. That data point was of no concern to the Bureau in subsequent engagement.

NCBA also commented on specific content in Bureau proposals, suggesting that “aspects of the Bureau’s Outline of Proposal for Debt Collection (Outline) failed to consider the breadth and scope of the debt collection marketplace and how attorneys represent their clients in the process.” The group specifically raised these issues:

• Pre-litigation disclosures and intent to sue
• Proposed rules cannot be retroactive
• Proposals did not take into consideration relationship between first parties and third party collectors
• Proposals introduced but did not define the overly broad concept of “warning signs”
• Proposals failed to clearly define dispute
• Proposals for transfer of information may be impossible from a technology and formatting standpoint, and provided no basis to treat revocation and consent differently
• Proposals related to statute of limitations disclosure do not value the difficulty of calculating the statute of limitations on a given account
• One size fits all nature of various proposals would create additional confusion for all

Of course, the debt collection industry has only experienced pre-rule activities.

As a representation of input from non-debt collection-related supervised entities that have experienced the full rulemaking cycle with the Bureau, the following is the gist of the input from RESPRO. The suggestions that follow the opening comment sound like they could apply to just about any industry.

The gist of the RESPRO comments:

“The Bureau’s TRID effort obviously did not lead to simplification. To this day there are many uncertainties as well as concrete issues such as the needlessly confusing disclosure of title insurance that in many states is simply contrary to reality. That is but one issue in the grand scheme of things. Is this the most efficient and effective regulation it can be? Is it even close? No. However, industry has invested so much in compliance because it was clear at the time that there was no turning back, that it would likely be more costly to scrap the whole mess and implement a truly useful and simple system that starts with a one page GFE that might have a box with the APR on it. I will not revisit the reams of good suggestions that have been made and ignored over the last two decades. My only point is a) that this is not how a good rule or regulation is made and b) this is exactly how many regulations are made.

Below are some suggestions to improve regulations and perhaps develop more of a model process that yields efficient regulations that do no more and no less than required.

• The Bureau should err on the side of simplicity and evaluate the true costs and benefits of what it is doing. Most regulatory agencies have broad authority and the Bureau has some of the broadest. It should use this authority to do LESS, when less is simply better. Regulations should not be a make work project for lawyers.
• The Bureau should take small business concerns seriously and also use practitioners as a resource. There are many knowledgeable people in Washington to be sure, but they are not the people who will have to live with these rules day in and day out. It is important to reach out to those who will and take their suggestions seriously. Many of the problems with TRID and other rules could have been avoided by listening more closely to practitioners.
• When issuing rules, continue to issue practitioner guides. Though there always can be improvement, the Bureau has been good at issuing guides. Of course, the guides should be able to be explicitly relied upon (perhaps included in the final rule) and not contain disclaimers warning against such.
• The Bureau should be more generous in using trial implementation periods where appropriate and useful. Much TRID consternation could have been avoided if the Bureau utilized the explicit statutory authority to institute a trial period.”