NCUA, CFPB, Financial Regulators Propose Rule to Clarify Use of Guidance

Federal financial regulators — including the NCUA and the CFPB — on Tuesday issued a proposed rule to make it clear that agency guidance does not have the force of law.

In codifying a policy statement issued in 2018, the agencies said they want to assure banks, credit unions and other financial businesses that supervisory guidance does not create legally binding obligations.

“Regulations create binding legal obligations,” the proposal stated. “Supervisory guidance is issued by an agency to ‘advise the public prospectively of the manner in which the agency proposes to exercise a discretionary power’ and does not create binding legal obligations.”

The agencies said after the policy statement was issued in 2018, a petition was filed with several of the agencies asking them to put the statement into regulations. The petitioner was not named and the NCUA was not one of the agencies petitioned.

In addition, a key House Republican has said in the past that merely issuing a policy statement was not sufficient.

Rep. Blaine Luetkemeyer (R-Mo.), ranking Republican on the House Consumer Protection and Financial Institutions Subcommittee, had told the regulators that he was concerned agency examiners continued to issue a warning known as “Matters Requiring Attention” based on guidance documents. He also said he was concerned that some previous warnings that were based on guidance have not been rescinded.

Luetkemeyer is a former Missouri bank examiner and his family owns a community bank.

In one celebrated controversy over guidance, the CFPB under former Director Richard Cordray issued auto sales guidance, which the Government Accountability Office said, in an opinion requested by Sen. Pat Toomey (R-Pa.), should have gone through the regulatory process. That process gives stakeholders the opportunity to comment on proposals before they become final.

Congress rescinded the rules using the Congressional Review Act, which allows Congress to examine rules before they go into effect.

In the proposed rule, the agencies said that supervisory guidance outlines the agencies’ expectations or priorities. It may include examples of practices that mitigate risk, they said. The proposed rule also makes it clear that agencies do not issue sanctions based on supervisory guidance.

The agencies said they agree that supervisory criticism should continue to be specific concerning practices that could have a negative impact on the safety and soundness of a financial institution.

A CUNA official said the trade group was pleased with the proposal.

“CUNA supports this unified approach from regulators and see this proposed rule as a positive development regarding supervisory guidance,” Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer and senior counsel, said. “We expect implementation of this proposal to a final rule will ultimately tighten the examination process to ensure criticisms against credit unions are in line with the law. We have consistently held the firm view that guidance documents do not carry the force of law.”

Comments on the rule will be accepted for up to 60 days after it is published in the Federal Register.