U.S. Consumer Financial Protection Bureau Rulemaking: A New Frontier For Cost- Benefit Analysis

The Consumer Financial Protection Bureau (CFPB) recently announced that it plans to propose a series of rules regarding mortgage servicing during the summer of 2012 with the intention of finalizing them by January 2013. This announcement spotlights the special issues that the CFPB will face when it seeks to issue rules. It also points out the importance of public participation in the CFPB rulemaking process, as well as the potential for challenges to CFPB rules.

The Practical Takeaways of Cost-Benefit Requirements

As described more fully below, to the extent cost-benefit requirements apply:

They provide a significant basis for commen-ters to impact a rulemaking process; They may subject the agency's empirical analysis to scrutiny; and They may provide a basis to invalidate a proposed rule. CFPB Rulemaking Rules of the Road

The CFPB, unlike the federal banking agencies (the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (the Prudential Regulators)), is subject to a statutory cost-benefit analysis requirement. A series of recent successful challenges to rule-makings by the Securities and Exchange Commission (SEC) have been based on findings that the SEC did not satisfy its statutory cost-benefit analysis requirements. These cases have hig-hlighted the challenges that agencies face when their rulemakings are required to satisfy rigorous cost-benefit analysis principles.

The CFPB is also required to consult with federal regulators throughout its rulemaking process. If a federal regulator provides a written objection to all or part of a CFPB proposed rule, the CFPB is required to describe the objection and the basis for the CFPB's decision in regard to the objection. Furthermore, an agency that is a voting member of the Financial Stability Oversight Council (FSOC) and that has been unable to resolve certain concerns about the impact of a CFPB final rule may petition the FSOC to set aside the CFPB's rule. The approval of two-thirds of all voting FSOC members is required to achieve that result.

Cost-Benefit Analysis Requirements

The Dodd-Frank Act (DFA) mandates that the CFPB, in issuing a rule, consider "the potential benefits and costs to consumers and covered persons,1 including the potential reduction of access by consumers to consumer financial products or services resulting from such rule." The DFA also requires the CFPB to consider the impact of...