In recent months, the Consumer Financial Protection Bureau (CFPB) has increased the use of soft tools, such as advisory opinions, circulars or blog posts, to complement its rulemaking authority. These tools, which are more on the advocacy side than on the enforcement side, are arguably easier for the agency to use, require fewer human resources and may also deliver results.
There is one instrument, though, that the CFPB has used more than others in the last two months, and it may offer a new way of regulating some areas in the consumer finance space. Advisory opinions are issued under the CFPB’s authority to interpret a law. Their use adds a new approach that may save resources for the agency while being as effective as a new rule.
An advisory opinion is an interpretive rule, and is exempt from the notice-and-comment rulemaking requirement of the Administrative Act. Therefore, the agency doesn’t need to go through the process of publishing a rule. By avoiding the lengthy rulemaking process, the agency can start applying the new interpretation of the rule with immediate effect.
In just two months — from early May to early July — the CFPB has issued five advisory opinions. Given recent comments from CFPB director Rohit Chopra, this trend may not stop any time soon.
The most recent opinion was issued Thursday (July 7), outlining certain obligations of consumer reporting agencies and consumer report users under section 604 of the Fair Credit Reporting Act (FCRA).
This advisory opinion explains that the permissible purposes listed in FCRA section 604(a)(3) are consumer specific. It affirms that a consumer reporting agency may not provide a consumer report to a user under FCRA section 604(a)(3) unless it has reason to believe that all of the consumer report information it includes pertains to the consumer who is the subject of the user’s request.
On June 29, the CFPB issued an advisory opinion warning debt collectors that most “pay-to-pay” fees that they often charge violate federal law. The agency used this opinion to interpret the language in Section 808 of the Fair Debt Collection Practices Act.
More here: CFPB Warns Debt Collectors About Fees
The day before that, on June 28, the agency reminded states that they can issue their own fair credit reporting laws that protect residents. The bureau’s interpretive ruling said that with a few exceptions, states can enact their own laws that are stricter than the federal FCRA. The agency’s interpretation of the 52-year-old FCRA said that state laws aren’t preempted by federal law unless they conflict with each other.
You may like: CFPB: States Can Issue Their Own Credit Reporting Laws
On May 19, the CFPB issued an interpretative rule seeking to bolster the states’ enforcement actions to protect consumers. By clarifying the scope of state enforcement under the Consumer Financial Protection Act of 2010, the bureau sought to encourage states to take a more active role in protecting consumers “from financial fraud, scams and other wrongdoings.”
Related: CFPB Calls on States To Expand Enforcement Efforts
On May 9, the bureau published another advisory opinion to affirm that banks and other lenders need to follow fair lending laws when canceling loans or changing terms, not just during the application process. The opinion sought to clarify the scope of the Equal Credit Opportunity Act and Regulation B.
See also: CFPB’s Opinion on Fair Lending Rules Could Extend to AI
All these advisory opinions allowed the bureau to give a new interpretation of a rule without the hassle of going through a new rulemaking process.
Chopra recently wrote in a blog post that the agency “is seeking to move away from highly complicated rules” and the new approach would include a “dramatic increase” of guidance.
In the same post, Chopra said that with respect to this guidance, the CFPB “will increase its interpretation of existing law to the marketplace,” and that he was planning to boost the Advisory Opinion program as a quick way to provide interpretative rules to the industry.
These statements suggest that the CFPB may continue using advisory opinions more frequently, and it may propose new rules when the advisory opinion won’t be the right fit. This could partially explain the short number of proposed rulemakings included in the spring 2022 regulatory agenda published on June 21.
Read also: CFPB’s 2022 Spring Rulemaking Agenda: What’s In and Out
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