The Consumer Financial Protection Bureau's practice of "regulation by enforcement" and use of nonbinding guidance materials makes its regulatory efforts "unfair and ineffective" to lenders and servicers, claims the Mortgage Bankers Association.

"Unfortunately, the Bureau's practice of using disclaimers to make guidance nonbinding on the Bureau erodes much of its reliability," Pete Mills, the MBA's senior vice president of residential policy and member engagement, wrote in a letter to the agency.

"Regulated entities must be able to rely on guidance to ensure they are operating within the rules. MBA therefore asks that the Bureau stand by its guidance and use disclaimers only when absolutely necessary and provide the rationale for doing so," Mills added.

The letter was submitted in response to a CFPB request for information and reiterates the trade group's longstanding criticism of the agency's enforcement practices. The bureau has issued roughly a dozen requests for information about its operations as part of a top-to-bottom review by acting director Mick Mulvaney.

Regulation by enforcement — the practice of using enforcement actions against individual institutions to set standards for industrywide compliance — is "unfair and ineffective," the MBA claims. Instead, the bureau should enforce regulations "by issuing rules and guidance to facilitate compliance rather than relying on fact-specific enforcement actions to announce new regulatory interpretations," Mills said.

Pete Mills
Pete Mills is the MBA's senior vice president of residential policy and member engagement.

The letter also calls on the CFPB to more clearly communicate when and how it plans to offer compliance guidance and provide more due process protections in its enforcement actions to maintain fairness and consistency. The MBA further suggests the bureau accept requests for guidance through a variety of channels, like stakeholder engagement events and comments received during rulemaking. It also recommends that the CFPB improve guidance accessibility and its no-action-letter policy.