WASHINGTON, D.C. -

During a speech last week to the American Bar Association, Richard Cordray again described the rule-making process the Consumer Financial Protection Bureau uses. The director also touched on a new project labeled, “regulatory implementation.”

When creating new or modifying current rules, Cordray explained how the process is intended to unfold using the example of a significant impact on a substantial number of small businesses, which can include dealerships. He noted the CFPB has a process of creating small business review panels in conjunction 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 provider 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,” Cordray said during the ABA event.

Next, rules changes must be published in the Federal Register, giving the public a certain amount of time to submit comments before the changes are officially enacted. Cordray said he believes most 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,” Cordray said. “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,” he continued.

Furthermore, Cordray indicated the CFPB is in the process of considering other areas for rulemaking where the bureau will be implementing federal law but “without a specific congressional mandate or timeline.” In these areas before commencing the rulemaking process, Cordray insisted the CFPB has 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,” Cordray said.

Corday Describes Regulatory Implementation

Later in his presentation, Corday shared his thoughts on an approach he contends is “vital to good rulemaking.” He called this process 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,” Cordray said.

The CFPB director acknowledged that federal 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,” Cordray said. “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,” he went on to say.

Cordray also acknowledged it can be difficult for companies and their personnel 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,” Cordray said. “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,” he continued.

“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,” Cordray went on to say.

Cordray’s complete remarks can be found here.