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Thank you. It is a pleasure to be here and to have the opportunity to reflect more generally about the regulatory work we do day in and day out on behalf of consumers.
Not quite a century into this new experiment of our democratic republic, Abraham Lincoln felt the need to remind us at the Gettysburg battlefield that it remained an open question whether such a novel government “of the people, by the people, for the people” could long endure. Through many further tests – such as wars, economic crises, and dramatic changes in social norms – we have continued to answer that question successfully, though our model of representative government continues to evolve in various ways.
I am serving in a new role in the federal government, as the first Director of the Consumer Financial Protection Bureau. My colleagues and I are blessed with responsibility for a mission that seeks to further our society’s noblest aspirations. We are the first federal agency ever created with the sole purpose of protecting consumers and seeing that they are treated fairly in the financial marketplace. It is no easy task, but it is crucial because the financial marketplace can be no easy place for consumers. And for this generation of consumers, household credit services – which are often tantamount to the opportunity to improve one’s life chances – are taking on greater importance than ever before.
The Consumer Bureau was born out of the landmark financial reform legislation of 2010. As was true when the United States was coping with the dislocations of the Great Depression, Congress created this independent agency to treat some of the malignancies that caused so much pain and difficulty for millions of Americans. Our job is to understand and analyze the markets for consumer financial products and services that are pervasive in our modern world, and to act as necessary to ensure access to credit and fair treatment for individual Americans.
In approaching 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 a strong democratic foundation of public engagement. And it means an agency that prides itself on using technology and other new tools to achieve broad outreach to communities across the country and to the individual consumers we were created to serve. We work to educate consumers, to enforce federal consumer financial laws, and to write rules that will make these markets work better for consumers.
We also are an independent agency in the evolving traditions of American government. This model of administrative independence was developed more than a century ago to balance what was perceived as the growing power and influence of bigness in the economy. Out of the Progressive Era and later the New Deal, conceived and developed by practical theoreticians such as Woodrow Wilson and Louis Brandeis, this model is designed to bring greater expertise and more specialized focus into our system of government. One of the central questions it raises, to refer back to Lincoln for a moment, is how this new concept of the independent administrative agency can be squared with our democratic system of representative government.
Today, I am going to explore these issues by giving you an overview of how our rulemaking process works, explain how we are doing some things differently, and talk about our evolving efforts to effectuate a new project that we call “regulatory implementation.”
So let us begin with how the rulemaking process works.
As many of you know very well, the Administrative Procedure Act lays out a defined process for agency rulemaking. Under our governing statute, however, the Consumer Bureau often has additional steps to follow. For example, where the rules we are contemplating would have a significant impact on a substantial number of small businesses, we must begin our process by creating small business review panels. We do this in conjunction with the Office of Management and Budget and the Small Business Administration’s Office of Advocacy. The goal is to gather input on our ideas from small financial services providers panels before we formulate a proposal. Concurrently, we have made it our practice to solicit the input of other stakeholders as well, including larger institutions, consumer advocates, vendors, government agencies, and other parties as appropriate depending on the nature of the rulemaking.
Absent exigent circumstances, any substantive rule must then be openly proposed through a notice in the Federal Register. This publication of our initial proposal becomes the APA’s triggering mechanism for a period of public comment. We have a legal obligation to sift through the comments, digest them, and consider them carefully in the course of finalizing the rule. Under the APA, this process is intended to leaven our delegated authority to “fill in the details” of federal legislation with the insights that come from public participation in the process. This heightened transparency through greater participation is thus a means of helping to square the workings of expert agencies with the principles of democratic government.
A practical problem, however, is that, on the whole, people do not read the Federal Register. And while agency communications with the public have improved over the last 60 years, it is still the case that rulemaking remains largely inaccessible to the average citizen and most of the businesses to whom the rules apply. Unsurprisingly, many comments come from a cottage industry of trade associations, advocates, lobbyists, and regulatory lawyers who are fluent in agency processes. While such groups play an important role in the vetting of rules, individual citizens and smaller businesses may find it difficult to participate and present their experience and their views. So we have made serious efforts to seek more input from the broader public.
We believe it is important to do that because of the role fashioned for this new agency. Our job is to write rules intended to protect consumers of financial products and services, a universe that covers virtually everyone in this country. And so these rules need all of the input, understanding, and support that we can gather from a broad range of Americans. Indeed, the Bureau has many financial experts, but it is our everyday consumers who know the bottom line. Who are they? They are responsible working families that scrimp to save enough to pay their bills on time, but have trouble securing a mortgage. They are people who are harmed by predatory practices. They are students who increasingly are leaving college saddled with high levels of debt. Our goal is to make sure that their voices are heard in our regulatory processes.
At the same time, the rules that we are writing typically will cover a wide range of institutions, from trillion-dollar megabanks to small community banks or credit unions that may have just a few employees and assets counted in the millions of dollars rather than the trillions. Like the average consumer, these businesses have much to contribute to the rulemaking process, but they, too, may find it difficult to provide input.
So we are working to reimagine the notice-and-comment process for our rulemakings. This is not an easy job, since consumers and small businesses are inundated with information, and capturing their attention is no easy task. Moreover, government agencies are not typically known for communicating with consumers or small business in a clear fashion – but we want to change that.
One way is by experimenting with online pilot projects like Cornell University’s e-Rulemaking Initiative to reach broader audiences. Some brave souls at Cornell University Law School have designed what they call the Regulation Room, an online project aimed at increasing the breadth and quality of public participation in rulemaking. Their approach starts from an easy-to-read summary of the main issues or provisions and then allows people to comment, in a relatively informal way. A moderator is available to answer questions and, where appropriate, to frame questions to the commenter. Cornell then submits to us a detailed summary report, called “Discussion Summaries,” which are included on the public docket.
This interactive process produces a level of engagement that deepens knowledge on both sides, and allows citizens to participate in rulemaking by means of a controlled forum. We did this when we proposed mortgage servicing rules and we did it again in connection with an advance notice of proposed rulemaking on debt collection. The Cornell website attracted more than 8,000 unique visitors and received over 900 comments through a moderated process designed to draw out additional information and allow participants to react to each other’s postings. The Bureau received another 22,000 comment letters directly. More than 80 percent of those who took part through the Cornell initiative had never previously provided feedback on a federal government rulemaking. We are finding it worth the effort to engage the public in new and different ways.
Even after the comment period on a proposal closes, we have been willing to meet frequently with various stakeholders. At this stage, as we work toward finalizing our rules, we are still thinking about how to solve some of the hard problems at hand. And we have found that we continue to benefit by meeting with people and groups representing a broad spectrum of views, as long as they are willing to include in our administrative record a summary of the meeting so that our processes remain transparent.
During our first 18 months of existence, our rulemaking activities were largely ones mandated by the Dodd-Frank Act to implement provisions of the statute governing the mortgage market. That was clearly the right priority, since irregularities in the mortgage market were the primary cause of the financial crisis and economic meltdown. We were mandated to complete those rulemakings by January 2013, and through the tremendous efforts of our dedicated team we succeeded in meeting that hard deadline.
We are now in the process of considering other areas for rulemaking where we will be implementing federal law but without a specific congressional mandate or timeline. In these areas, before commencing the rulemaking process, we have sought to build our foundation of knowledge through a variety of means. This ranges from research that we have conducted and published, to market monitoring efforts that we have been developing, to processes of securing public input through requests for information and advance notices of proposed rulemaking. We also have made a point of going outside of Washington to hold monthly field hearings on subjects of general interest and concern, such as payday lending, debt collection, or credit reporting. These hearings enable us to get more perspective from consumers and other stakeholders located in diverse communities throughout the country.
We also are refining our approach to prioritizing different areas and issues to be addressed by our regulations. One of the ways we are doing this is by placing the voice of the consumer at the center of our consciousness. We are soliciting, receiving, and handling a growing volume of complaints directly from consumers on a wide range of financial products and services. When we inaugurated our consumer response function in July 2011, we began by taking complaints only about credit cards, and we received 520 complaints that month. Our program has now expanded and evolved, to the point where last month we received over 20,000 complaints on financial products including mortgages, credit cards, auto loans, student loans, banking account products, payday loans, debt collection, credit reporting, money transfers, and other consumer loans. The patterns formed by more than 300,000 consumer complaints received to date help to underscore the importance of various issues as articulated by consumers themselves, in real time, that are worthy of our careful attention. This intensive focus on the voice of the consumer is also important as long-term insurance against the possibility of agency capture, to keep us from losing sight of the mission Congress conferred on us.
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 we find 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. We feel that way especially because we fully appreciate how hard the task is, given the constant perils of unintended consequences, changes in circumstances, and the difficulty of predicting the future.
Indeed, that is exactly what we did with the first substantive rule we issued to implement the provisions of the Dodd-Frank Act, which regulated remittances or international money transfers for the first time. We issued a rule in January of 2012 mandating that remittance providers, in disclosing the cost of a transaction, include the costs of foreign fees and taxes. Even after we issued the rule, we continued to speak to stakeholders and ultimately determined that the requirements to disclose foreign fees and taxes would be so difficult to implement that they could cause significant curtailment in access to these services. Although we were reluctant to revise a rule so quickly, we believed that fixing this problem was the right thing to do for consumers and providers both. For as Justice Frankfurter observed: “Wisdom too often never comes and so one ought not to reject it merely because it comes late.” We have also taken and continue to take the same approach to our mortgage rules, as I will describe in more detail in just a moment.
Let me now turn to another aspect of our approach that has proven to be vital to good rulemaking: regulatory implementation.
At the Consumer Bureau, 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.
Agencies routinely provide some period between issuance of a rule and its effective date to allow for an implementation period. This period allows a sensible transition time to adjust to the new regime, which includes the need to make operational changes, develop new processes, and train employees to understand and effectuate the changes that are being made. To focus more closely on operational changes, in this day and age one of the major projects is always to overhaul IT systems, not a factor at the time the APA was enacted but now a critical factor for both financial organizations and their service providers. But the entire range of operational changes poses interesting problems, which may not be fully understood until the process is underway and the problems are confronted directly.
Another dilemma is that it can be difficult for anyone to gauge the appropriate length of the implementation period for a given rule or set of rules. In our notices of proposed rulemaking, we typically seek comment on this issue. Industry representatives often seek a long implementation period, but they rarely provide any persuasive data to explain exactly why the estimated period is actually justified. Perhaps this is because they may not know themselves how to predict the future course of a brand-new project, which is understandable enough. Reasonable people might judge that we have set certain implementation periods either too long or too short, depending on how the steps in the process actually unfold. We have made it a point to have people at the Bureau with background and experience in financial operations, which helps, but we would clearly benefit by getting more and better information from regulated entities about these issues.
It is unclear how best to resolve this dilemma, but we are very committed to developing sensible and workable solutions. We will continue to learn more about these issues by deepening our outreach to vendors and taking other steps to set appropriate implementation periods.
Regardless of its length, any such period creates an opportunity to facilitate implementation of the new rules. With our mortgage rules, we unveiled them in January 2013 and most took effect in January 2014. These were largely congressionally-mandated deadlines and we stuck to them, though we knew they were tightly drawn. But we made a conscious decision to use that year to the fullest by climbing into the trenches and working closely with those who had to implement our new rules. The goal was a successful rollout, with fewer problems for industry and less consumer harm. So during this period, we engaged in vigorous outreach and assistance to financial institutions. We viewed this as a joint enterprise. We wanted to make things go more smoothly and achieve better results.
Our efforts with the mortgage rules went much further than simply reacting passively to industry inquiries. We took affirmative steps to help the industry understand our rules. Among other things, we published plain-language compliance guides for small entities. We launched a series of videos explaining our rules. We worked closely with other regulators to develop examination guidelines that reflect a common understanding of what the rules do and do not require.
We made it a point to publish those exam guidelines months before the effective dates of the mortgage rules to give institutions the time and confidence to get themselves prepared. We also distributed a readiness guide with a checklist of things to do before the rules took effect – like updating policies and procedures and providing staff training. We attended industry conferences to spread the word and make ourselves available to the real people who would have to implement our changes. We participated in webinars attended by thousands of participants.
We opened up our phone lines and let industry talk to our regulatory experts about the rules. As we became aware of critical operational or interpretive issues, we addressed them. We pledged to work with stakeholders to resolve ambiguities, to discuss obstacles to implementation, and to work through any serious, unintended consequences. In this vein, we tweaked and clarified the rules where needed, which included reopening the notice-and-comment process several times in limited areas to revise them. 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 on these matters. 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.
But implementation is not just about industry compliance. It is also about consumers knowing their rights and knowing how the rules of the road have changed. So our work on regulatory implementation for the mortgage rules included aggressive outreach to consumers, which again reflects the specific role and mission of this new agency. We consulted with consumer groups to determine how best to educate consumers with understandable information about how the new rules affect both current and prospective homeowners. This included sample letters that consumers could send to their mortgage servicers. We provided mortgage tips. We provided answers to mortgage-related questions through “Ask CFPB,” an interactive online tool designed to answer consumers’ most frequently asked questions in plain language. And we provided copies of consumer-facing mortgage materials in seven languages.
We also know that housing counselors are the leading source of expert advice for consumers who are having trouble with their mortgages. So we offered training and published a reference guide to help them in assisting people who are struggling to pay their mortgage. We wanted to ensure that housing counselors and others understood all about the new federal protections to help people avoid losing their homes to foreclosure.
With our remittance rule, we did many of these same things, including putting out a compliance guide for small entities, a video guide, and a plain-language translation of the regulations. We also engaged in broad outreach to various community organizations that serve people who send remittances. But we also tried something else new and different. We released “eRegulations,” a web-based, open source tool designed to make the provisions of the applicable regulation, known as Regulation E, easier to find, read, and understand. The eRegulations tool lets users identify and display definitions for specific terms within regulation text; move easily among past, present and future versions of a regulation; and smoothly navigate between regulation text, official interpretations, appendices, and section-by-section analyses contained within Federal Register notices. We have heard good feedback on this experiment, and we are now working to expand this initiative so that it encompasses a broader universe of consumer financial regulations.
The Bureau created the eRegulations tool with the goals of greater comprehension, increased compliance, more efficient supervision, and improved accessibility. When people are better able to understand the rules, it is more likely they will achieve the goal of protecting consumers. It is reported that during the decline of the Roman Empire, Caligula complied with the law requiring publication of his edicts by having them written in very small script and posted on high pillars where they could not be read by anyone. Our regulations should be handled very differently. They are meant to be understood by the general public, including both consumers themselves and small providers like community banks and credit unions, which cannot afford an army of lawyers poring over the Federal Register.
In short, our rulemaking process is designed to produce rules that deliver tangible value to consumers and make the financial markets work better. But without effective implementation, that cannot happen. Consumers and industry both win – as does the agency – when our rules can be understood consistently and applied effectively.
So these are some of the ways we are trying to reimagine the administrative state. At the Consumer Financial Protection Bureau, the vision we have adopted is for a consumer financial marketplace where customers can see prices and risks up front and where they can easily make product comparisons; in which no one can build a business model around unfair, deceptive, or abusive practices; and that works for American consumers, responsible providers, and the economy as a whole. We recognize this vision is shared by many of our diverse stakeholders, and we can work together to make this vision a reality.
And so we will continue to aim for our rulemaking process to be both innovative and sustainable. Both robust and transparent. Both expert and also broadly participatory to reflect and sustain our democratic traditions. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.