A number of federal regulators, including the Bureau of Consumer Financial Protection, joined together yesterday and issued a statement clarifying how supervisory guidance will be used and applied going forward, making sure to let everyone know that it has no legal bearing and should not be interpreted the same as a rule or regulation.
Joining the BCFP were the Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Administration, and Office of the Comptroller of the Currency. There have been criticisms in the past that guidance, such as bulletins, frequently asked questions, and advisories, were being treated the same as rules and regulations. Yesterday’s statement is the clearest indication yet that the federal government continues to try and de-emphasize its regulatory mandate in the financial services sector.
“Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” the regulators wrote. “Rather, supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.”
The BCFP has, for example, issued bulletins in the past warning institutions against “tricking consumers into expensive pay-by-phone fees,” “warning supervised financial companies that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if not properly managed,” and “warned credit card companies against deceptively marketing interest-rate promotions.”
How this new approach will manifest itself is that regulators and examiners will cut back on using concrete examples when issuing supervisory guidance materials. As well, institutions will not be cited for any “violation” of supervisory guidance, even though examiners may “identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation. In some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.”
The regulators “intend to limit the use of numerical thresholds or other ‘bright-lines’ in describing expectations in supervisory guidance. Where numerical thresholds are used, the agencies intend to clarify that the thresholds are exemplary only and not suggestive of requirements. The agencies will continue to use numerical thresholds to tailor, and otherwise make clear, the applicability of supervisory guidance or programs to supervised institutions, and as required by statute.”
Earlier this year, Rep. Blaine Luetkemeyer [R-Mo.], a member of the House Financial Services Committee, wrote a letter to federal regulators, calling on them to define the difference between guidance and rules and regulations.
