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Banking Regulators Issue Joint Policy Statement Downplaying the Role of Supervisory Guidance in Enforcement

On September 11, 2018, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection (the “Bureau”, and, collectively, the “Agencies”) issued a statement “clarifying the role of supervisory guidance.” The release affirms that the Agencies “do not take enforcement actions based on supervisory guidance” and that such guidance “does not have the force and effect of law.” This statement continues a recent pattern in regulatory policy of downplaying the force of guidance documents, at least as they relate to enforcement actions.

The statement explains that, rather than create binding rules with the force and effect of law, guidance “outlines supervisory expectations or priorities” and/or provides examples of practices the Agencies consider acceptable under applicable legal standards, such as safety and soundness standards. Further, the Agencies state that guidance is often issued in part as a response to requests from supervised institutions in order to “provide insight to industry” and help “ensure consistency in the supervisory approach.”

The Agencies’ statement further clarifies a number of going-forward policies and practices related to supervisory guidance:

  • The Agencies intend to limit the use of numerical thresholds and bright-line tests in guidance (although numerical thresholds, such as an institution’s asset size, will continue to be used to tailor the applicability of guidance).

  • Examiners will not criticize institutions for a “violation” of guidance, though they may reference guidance to provide examples of safe and sound practices, and other actions to appropriately address compliance with laws and regulations.

  • Though the Agencies may continue to seek public comment on some guidance documents, seeking comment does not transform guidance into a rule.

  • The Agencies will limit the issuance of multiple guidance documents on the same topic.

This statement is consistent with a recent U.S. government theme of reducing the perceived role of guidance documents in regulatory oversight and enforcement.

For example, Attorney General Jeff Sessions issued a memorandum in November 2017 that stated that the Department of Justice (“DOJ”) had “in the past published guidance documents . . . that effectively bind private parties without undergoing the rulemaking process” and directed the DOJ to revise its policy to “avoid circumventing the rulemaking process.” In January 2018, then-Associate Attorney General Rachel Brand issued such a revised policy “limiting use of agency guidance documents in affirmative civil enforcement cases.”

In a similar vein, the Government Accountability Office (“GAO”) has determined that multiple regulatory guidance documents are, in reality, “rules” for purposes of the Congressional Review Act (“CRA”). The CRA provides Congress with the opportunity to disapprove any rule before it takes effect.

Most notably, the GAO determined that Bureau guidance on indirect auto lending under the Equal Credit Opportunity Act, and interagency guidance on leveraged lending both constituted “rules” under the CRA because the statements were “designed to implement, interpret or prescribe law or policy.” Congress later invalidated the Bureau auto lending guidance under the CRA, and testimony and other comments from banking agency leaders have called into question the practical import of the leveraged lending guidance going forward. It is unclear whether the Agencies’ statement disclaiming the binding effect of guidance will affect future GAO reviews of guidance documents under the CRA.

© 2019 Covington & Burling LLP


About this Author

Sam Adriance, Data privacy Attorney, Covington

Sam Adriance assists clients with financial regulatory and data protection issues, including financial privacy, consumer financial services, safety and soundness, and anti-money laundering. He assists banks, fintech companies, payment processors, credit reporting agencies, and other non-bank financial institutions both in a wide variety of regulatory matters and high-stakes government investigations brought by the DOJ, CFPB, FTC, and prudential banking regulators.