Last week in a televised interview, Richard Cordray, the controversially appointed Director of the CFPB said this:  “Responsible businesses embrace rules of the road that are clear [and] established.” 

He’s exactly right.  Businesses will play by the rules, but regulators have an obligation to ensure that those rules are clear. 

For a number of reasons, the creation of the CFPB has made it more rather than less difficult for companies to know what is expected of them. 

While the CFPB was sold as a “one-stop shop” for regulation and enforcement of consumer financial products and services, a number of other players have a seat at the table, and independent authority to come up with their own interpretations of the same laws.  Case in point:  the nearly 100 year-old Federal Trade Commission has a record of enforcing consumer protection laws against non-banks for decades, and the creation of the CFPB hasn’t changed that.  The agencies have significantly overlapping authority. 

If you run a business in that space, this means you may have one regulator tell you to go right, and the other tell you to go left.   Who do you listen to?  At the minimum, you’ll have to check with two regulators, rather than one, to figure out what the rules are.

The drafters of Dodd Frank understood the potential for conflict here and required the two agencies to come together to divide up responsibilities with a Memorandum of Understanding (MOU). 

The Chamber has pressed the agencies to use this process to establish a bright line test that companies can rely on to go to one agency and get unambiguous guidance and to prevent dueling, even competitive enforcement actions.  The final MOU released today, however, is a mixed bag.  

We appreciate that the CFPB and the FTC have put in place procedures to notify one another of investigations and enforcement actions, but we still have serious unaddressed concerns about business’ ability to get clear direction from their government.

The MOU lays out a process that relies upon staff coordination, and case-by case reviews rather than bright lines of division or at least a presumptive test that directs companies that are not in the financial services mainstream (but under the jurisdiction of the CFPB) like advertisers and retailers, for instance, to the FTC, and directs the companies that are more fundamentally financial to the CFPB. 

This means that businesses take their chances every time they assume one agency’s sign-off provides full coverage. 

Companies that provide credit to consumers and small businesses play an incredibly important role in our economy, and they work hard to follow all the rules that government throws their way, but the government owes these companies clear direction and clear expectations. 

Today, their government made a good faith effort, but didn’t quite live up to its side of the bargain. 

At least the two agencies themselves recognize that this MOU is a work in progress and expect to revise their arrangement based on the reaction they receive.  Frustrated businesses will definitely be making clear that one-stop guidance is a necessity in a world in which credit markets change quickly and requiring consultation with multiple government agencies will inevitably leave consumers, and small business, starved for the credit that is vital to their survival.