"Is the CFPB bound by its non-binding guidance? The implications of the PHH due process decision for TRID and other CFPB rules" by Benjamin K. Olson, Brandy A. Hood, and Steven R. vonBergBenjamin K. Olson, Brandy A. Hood, Steven R. vonBerg
Predictability and certainty are crucial components of the consumer finance market. Consumers crave it, as do industry participants. A common understanding of legal requirements promotes uniformity in the application of consumer protections and allows lenders, servicers, systems providers, investors, and others to cooperate and compete on a level playing field. In contrast, ambiguity can harm consumers and industry participants alike because it places competitors on uneven ground and makes it difficult for consumers to compare products and identify bad actors. If a lender can gain an advantage over its more risk-averse competitors by adopting an aggressive interpretation of an ambiguous regulation, that ambiguity harms everyone in the market, including the consumer. While competition on price and quality is generally beneficial, competition on compliance is not.
This need for certainty and predictability produces an insatiable industry appetite for regulatory guidance. A common sentiment among compliance professionals is “We don’t care what the answer is, as long as we get an answer.” Since July 2011, the Consumer Financial Protection Bureau (CFPB or the Bureau) has been the agency with primary responsibility for providing answers on regulatory requirements for consumer financial products and services. While the CFPB’s guidance is often criticized, there is little doubt that the Bureau surpasses its predecessors in the quantity of guidance it provides. In addition to the “formal guidance” provided in regulations and official interpretations, the Bureau constantly communicates with the industry and the general public through “informal guidance” in reports, preambles to proposed and final rules, supervisory guidelines and highlights, compliance bulletins, letters, webinars, speeches, press releases, blog posts, and other vehicles.