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GAO determination that leveraged lending guidance is subject to CRA could foreshadow similar fate for CFPB indirect auto finance guidance

In May 2017, we blogged about press reports that the Government Accountability Office (GAO) had accepted a request from Senator Patrick Toomey for a determination concerning whether the CFPB Bulletin 2013-02, titled “Indirect Auto Finance and Compliance with the Equal Credit Opportunity Act,” is a “rule” within the scope of the Congressional Review Act (CRA).  Our blog post also noted reports that the GAO had accepted a similar request from Senator Toomey regarding the interagency leveraged lending guidance (Interagency Guidance) issued jointly by the OCC, the Fed, and the FDIC on March 22, 2013.  (While we did not have a copy of Senator Toomey’s request regarding the CFPB Bulletin when we blogged, we have since obtained a copy.  Both of Senator Toomey’s requests to the GAO were dated March 31, 2017.)

Last week, the GAO issued a response to Senator Toomey’s request regarding the Interagency Guidance.  The GAO concluded that the Interagency Guidance “is a general statement of policy and is a rule under the CLA.”  Under the CRA, an agency must submit a final rule to the GAO and Congress “before a rule can take effect.”  Once this notification requirement has been satisfied, there is a limited period of time during which a joint resolution of disapproval can be introduced and acted upon.  If a joint resolution of disapproval is passed by both houses of Congress, it is sent to the President for executive action.  Most significantly, the CRA establishes a fast-track process under which a joint resolution of disapproval cannot be filibustered in the Senate and can be passed by the Senate by a simple majority vote.

In analyzing the Interagency Guidance, the GAO applied the Administrative Procedure Act’s definition of “rule” which the CRA generally adopts.  The CRA provides that a rule is “the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency.”  Three types of rules are excluded from the scope of the CRA: (1) rules of particular applicability; (2) rules relating to agency management or personnel; and (3) rules of agency organization, procedure or practice that do not substantially affect the rights or obligations of non-agency parties.

According to the GAO, the gist of the banking agencies’ argument was that their Interagency Guidance was merely a statement of policy rather than a rule subject to the CRA.  The GAO agreed with the agencies’ characterization of their guidance document as a statement of policy that:

[p]rovides information on the manner in which the Agencies will exercise their authority regarding leveraged lending activities, does not establish a ‘binding norm,’ and does not determine the outcome of any Agency examination of a financial institution.  Rather, the Guidance expresses the regulators’ expectations regarding the sound risk management of leveraged lending activities.

The GAO nevertheless framed the issue presented as “whether this general statement of policy is a rule under the CRA.”

In concluding that the Interagency Guidance is a rule subject to the CRA, the GAO relied on its prior decisions finding general statements of policy to be rules subject to congressional review.  In doing so, the GAO pointed to floor statements made by the principal sponsor during final congressional consideration of the bill that became the CRA as well as the analyses of legal commentators.  Among other things, the principal sponsor had stated that the types of documents covered by the CRA include “statements of general policy, interpretations of general applicability, and administrative staff manuals and instructions to staff that affect a member of the public.”  The GAO specifically rejected the argument that an agency action cannot be a rule under the CRA unless it establishes legally binding standards that are certain and final and it substantially affects the rights or obligations of third parties.

The CFPB Bulletin setting forth its indirect auto finance guidance was issued on March 21, 2013.  Its stated purpose was to “provide[ ] guidance about compliance with the fair lending requirements of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, for indirect auto lenders that permit dealers to increase consumer interest rates and that compensate dealers with a share of the increased interest revenues.”  There are very compelling arguments that the CFPB guidance falls squarely within the CRA definition of a “rule” because it is an agency statement of future effect that is designed to implement, interpret or prescribe law or policy, and it is not one of the types of rules that is expressly excluded from the scope of the CRA.  Additionally, the GAO determination regarding the Interagency Guidance suggests that it would similarly reject any CFPB assertion that the indirect auto finance guidance is not a “rule” because it is a non-binding statement of policy that merely provides information on the manner in which the CFPB will exercise its enforcement and supervisory authority with respect to the subject addressed.

A GAO finding that the CFPB guidance is a “rule” under the CRA could have several potential consequences.  Because the CRA requires an agency to submit a final rule to the GAO and Congress “before [it] can take effect,” the guidance arguably would be ineffective because it presumably was not reported to the GAO and Congress in the manner required by the CRA.

Additionally, any member of Congress might respond to a GAO determination that the CFPB guidance is a “rule” by introducing a joint resolution of disapproval.  According to a Congressional Research Service report, in prior instances where the GAO determined that an agency action satisfied the CRA definition of a “rule” and joint resolutions of disapproval were subsequently introduced, “the Senate has considered the publication in the Congressional Record of the official GAO opinions . . . as the trigger date for the initiation period to submit a disapproval resolution and for the action period during which such a resolution qualifies for expedited consideration in the Senate.”

Finally, a GAO determination that the CFPB guidance is a “rule” could open the door to GAO determination requests and CRA challenges to other CFPB guidance documents that might likewise satisfy the CRA definition of a rule.  As our readers are well aware, CFPB compliance bulletins announcing regulatory expectations have been issued on a wide range of regulatory compliance topics including debt collection, credit reporting, and credit card add-on products.

Copyright © by Ballard Spahr LLP


About this Author

Barbara S. Mishkin, Ballard Spahr, Philadelphia, Deceptive Practices Lawyer, Fair Debt Collection Practices Act, Gramm Leach Bliley
Of Counsel

Barbara Mishkin focuses on consumer compliance and banking law. The federal laws with which Ms. Mishkin has dealt extensively include the Truth in Lending Act, Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, and Gramm-Leach-Bliley Act. She also has significant experience with state usury and lender licensing laws, as well as state laws prohibiting unfair and deceptive acts and practices.

American Bar Association, member, Consumer Financial Services Committee;...

Peter Cubita, Ballard Spahr Law Firm, Financial services attorney
Of Counsel

Peter N. Cubita is one of the leading consumer financial services attorneys in the country, having practiced in the area for more than 30 years. His experience is wide-ranging, encompassing regulatory compliance, transactional, class action litigation, and government enforcement matters, with extensive experience in the motor vehicle retail finance and leasing areas. Before joining Ballard Spahr, Peter worked as an in-house attorney at Ally Financial Inc. and previously was in private practice at a major law firm.

Peter developed the first generation of retail installment sale contracts and vehicle lease agreements for the retail sales finance and retail leasing programs of the captive auto finance company of a major foreign automaker. In addition to his regulatory compliance experience, Peter has substantial experience in class action litigation and government enforcement matters involving a wide variety of consumer financial services issues.

His advocacy efforts in the litigation context have yielded seminal appellate decisions in cases presenting novel issues of consequence to the financial services industry. For example, Peter successfully briefed and argued the appeal in Perrone v. GMAC, which resulted in the first appellate decision to analyze whether detrimental reliance is required to recover actual damages for TILA disclosure violations. He also represented GMAC in connection with its interlocutory class certification appeal in Coleman v. GMAC, which resulted in a seminal holding that compensatory damages under the Equal Credit Opportunity Act are not recoverable by a Rule 23(b)(2) class, and in the subsequent district court proceedings. While in-house at Ally, Peter co-authored briefs that resulted in significant decisions holding that negative equity on a trade-in vehicle financed under a retail installment sale contract is a “purchase-money obligation” protected from cramdown by the “Hanging Paragraph” of the Bankruptcy Code.