[The following pre-prepared speech was given by Richard Cordray, director of the Consumer Financial Protection Bureau, during the U.S. Chamber of Commerce 11th Annual Capital Markets Summit held March 30 in Washington, D.C. The speech has been edited by Servicing Management for style, fit and readability.]
Since the bureau opened its doors in 2011, we have been working hard to reform certain markets that were not working well for consumers and honest businesses. As most of you know, we are the first federal agency with jurisdiction over both the larger banks and the non-bank financial companies that compete with them. Just as an umpire must be authorized to assess the entire field of play, we are tasked with putting compliance standards and expectations for these providers on the same level. This is crucial because both logic and experience teach that incomplete oversight over only one portion of any marketplace is likely a recipe for failure.
What we have begun to see over time is tangible progress. Compliance programs are being strengthened through our supervisory program, which the chamber has helped us refine and improve in the past five years. Contrary to certain narratives, consumer lending is expanding in mortgages, credit cards and auto loans. Bank profitability is solid, and smaller institutions like community banks and credit unions are growing their share of the mortgage market. Consumer spending has been carrying the economic recovery for the past four years, growing faster than the economy as a whole. Those are encouraging developments – and let me be clear that we are in favor of them. We want to see more consumers have access to responsible credit, which expands people’s opportunities and improves their lives. Banks and financial companies providing that kind of value with strong customer service will always thrive, just as they should.
Today, I want to describe our approach to regulatory implementation, which we believe is key to helping the industry avoid unnecessary burdens while achieving compliance. As we approach our work, we have made it very clear that we see ourselves as a 21st-century agency. What does this really mean? Among other things, it means an agency built on developing our own independent sources of data and ensuring a strong democratic foundation of public engagement.
Despite our best efforts, we recognize that the outcome of any human process will be imperfect. We learn from the comments we receive, and our final rules are helpfully informed by that input on a consistent basis. But even after we issue a final rule, if the data shows over time that any of our substantive calls need to be reconsidered, we can and will face the issue frankly and address it. We will not let pride of authorship interfere with the serious task of policymaking in the interests of consumers and the American public.
We believe our rulemaking process does not end with finalizing a set of rules. It is not good enough for us to take the view that once new rules are published, our work is done and we can say to financial institutions that “it is your problem now.” If the point of our regulations is to protect consumers and to promote fair, transparent and competitive markets, then we should care a great deal about how well the rules are implemented. We feel that way especially because we fully appreciate the difficulty of the task and the constant perils of unintended consequences, changes in circumstances, and the difficulty of predicting the future.
Our efforts with the mortgage rules went much further than simply reacting passively to industry inquiries (though we have fielded thousands of them). We also took affirmative steps to help the industry understand our rules through publications, videos, webinars and phone calls with individual institutions. We adopted a diagnostic and corrective approach to supervision in the early months to ease anxieties about the difficulties of complying with certain components of the rules. As we became aware of operational or interpretive issues, we worked to address them.
Through rulemaking, we showed our willingness to repeal and replace provisions that were not working as expected, such as the definition of “rural and underserved,” which we expanded not once, but twice. We made these adjustments with one aim in mind: to ensure the effectiveness of our rules by making compliance easier. By addressing and clarifying industry questions, we reduced the need for individual institutions to spend time reaching their own uncertain judgments. And we recognized all along that if we could ease implementation without sacrificing any of our key objectives, the result would be better and more-effective consumer financial protection, not just in theory, but as a practical reality.
Another way that the consumer bureau is helping businesses is by streamlining and modernizing old regulations and making new ones clearer. We believe that more clarity reduces burden, increases competition and produces a better market for consumers.
Some of this has been legislated by Congress, which specified that one of the bureau’s core objectives is to identify and address outdated, unnecessary or unduly burdensome regulations. Congress also specified a certain amount of streamlining through more-specific provisions, such as the “Know Before You Owe” mortgage rule mandated by Congress. Among other things, it streamlined four previous mortgage forms into just two, correcting for the fact that Congress had enacted overlapping statutes over the years that had created unnecessary confusion for consumers and burdens for the industry.
Our experience with the rule shows that even overt streamlining can come at considerable implementation cost, especially given the many players in the real estate market who were affected by the rule. But we believed that in carrying out the legislative mandate, we should design new forms and procedures to make prices and risks clearer so that consumers can make sound decisions they will be able to live with over the long run. By all accounts, we have succeeded in doing that.
Congress also has required the bureau to conduct retrospective reviews of its significant rules after five years have passed. We recently announced that we would begin this project by reviewing our first rule on remittances, followed by the relevant mortgage rules. This process will tell us more about the effectiveness of the rules and yield other insights. One thing we have learned is that whenever you try to “improve” things, you create new transitional challenges, as the industry finds itself facing a moving target for compliance management. So we will try to be sensitive to the need for further changes.
Addressing ambiguities and conflicts is another important task that we take seriously. After all, most of the federal consumer financial laws that we administer were enacted in the 1960s and 1970s. Since that time, not only has technology drastically changed many industries, but certain market practices have evolved, as well.
Debt collection is a prime example of where we seek both to clarify existing legal requirements and to adapt them to our rapidly changing world. The main federal law that protects consumers and governs the industry is the Fair Debt Collection Practices Act, enacted in 1977. One thing we should keep in mind when we consider the burdens of regulation is the following question: compared with what? The complexities and problems of real life cannot easily be wished away, and they have to be addressed somehow. Without agency rules, the law will be interpreted, instead, by courts, which may develop quite an underbrush of precedents over time, sometimes unclear or conflicting, with decisions having to be reached based on legal doctrines and interpretive tools rather than any data-driven assessment of policy and operational effects.
The debt collection statutes are great examples of this; in the 40 years since they were enacted, courts have come to very different interpretations of them, creating widespread uncertainty for debt collectors and consumers about what the law does or does not permit. Moreover, as new forms of technology have emerged, many questions have arisen as to how to apply the law. For example, the statutes explicitly address the use of postcards, collect calls and telegrams but are silent about the use of voicemail, email and text messages.
The Dodd-Frank Act authorized the bureau to be the first agency ever to issue any rules to implement the debt collection laws by providing clear views and directives on what those laws require. Last summer, after studying the issues and conferring with stakeholders, we issued an outline of proposals that we are considering for possible new rules. The basic goals would be to identify more specifically the kinds of practices that violate the general prohibitions in these laws and to make clear how they apply to the types of technologies that consumers and collectors use today.
Balancing brevity with clarity
So how do we go about trying to write rules effectively? There are competing approaches here. Some prefer short and simple rules, which may seem more elegant and flexible, though one shortcoming is that much is left to interpretation. This means people must bear the uncertainty of their own interpretations until others, such as the courts, develop their own potentially thick body of law through expensive litigation over a longer period. Others put a premium on having more-specific and comprehensive language from the outset, though it may be unreasonable or even superhuman to suppose that all hard problems can be anticipated and solved at once.
This more prolix culture is the one I found in federal consumer finance when I came here from my previous experience in state government. Federal banking agencies are sometimes derided for writing long and complicated rules. Yet the plain truth is that many businesses prefer more comprehensive language that answers questions explicitly up front, leaves less terrain undefined and uncertain, and minimizes the prospect of protracted and costly litigation. They do not want the meaning and application of broad legal standards to get sorted out in court over many years. They do not want to have to make educated guesses initially and bear the risk of later being found to have gotten things wrong. Clarity and certainty are held at a special premium.
In the end, rulemaking is simply a tool like any other. It can be used wisely, it can be misused, and it can be overused. How to strike the right balance is a difficult judgment that everyone simply has to make as best they can. But clearly, we can learn much from a process of vigorous engagement with all stakeholders. The rules should be focused. Streamlining and providing ease of use are key priorities to consider very carefully. These methods can help us achieve what I believe is a shared vision: a highly competitive economy that works for Americans in both the short run and the long run.
At the consumer bureau, we envision a consumer financial marketplace where reasonable and evenhanded oversight promotes better functioning of markets, where consumer protections and business opportunities complement one another, and where institutions lead by establishing long-term and sustainable relationships with their customers. We do not have any one-sided aim to maximize consumer protection or industry deterrence at all costs. There is such a thing as doing too little, and there is such a thing as doing too much. We, quite simply, are focused on getting things right, as far as we can manage to do so.