Bankers: Agencies Are Ignoring Laws in Issuing Guidance

The ABA thinks regulating without public comment is happening through agency issued guidance

Federal regulators are disguising regulations as guidance and are short-circuiting the formal rulemaking process, the American Bankers Association charged this month.

In a letter to banking regulators, ABA President/CEO Rob Nichols charged that regulators are managing to evade the legal requirement that substantial policy changes be opened to public comment before the changes are adopted.

“While the banking industry welcomes guidance that helps banks understand and comply with legal requirements, too often recently, your agencies have characterized as guidance what is in practice a “legislative rule” that Congress requires to go through notice-and-comment rulemaking,” Nichols wrote in his letter to the agencies. “In the most egregious cases, your agencies have issued guidance that exceeds the legal authority Congress provided.”

An ABA white paper cites the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve as the offending agencies. Since the National Credit Union Administration does not supervise ABA member banks, the ABA does not single out that agency for criticism.

The ABA charged that guidance documents frequently are released without warning and without any communication with those affected by the guidance. As a result, the trade group said, the guidance’s acceptance may be undermined and may limit its durability as presidential administrations change. “Our intent is for your agencies to issue guidance documents that are transparent, consistent with the law, and focused on promoting the interests of consumers in a strong, vibrant, and innovative market for consumer financial products and services,” the ABA said.

In its white paper, the ABA mentioned that banks may be sensitive to guidance in an effort to stay on an agency’s good side. The trade group goes on to discuss the case of the Obama Administration’s “Operation Choke Point” program, which it says used guidance from the Federal Deposit Insurance Corporation to pressure banks to stop conducting business with legal industries that were disfavored by regulators. Critics of that program have charged that the FDIC pressured banks to stop doing business with gun companies and retailers.

The ABA also cited guidance that association officials believe was effective and some examples that they believe were not. The white paper said that the CFPB’s 2020 guidance defining “Abusive Acts or Practices” was effective because it established a framework for enforcement of the standard. That guidance was issued during the Trump Administration; it was quickly rescinded when President Biden took office.

Then in 2022, the ABA notes, the CFPB changed its examination manual to add discriminatory practices to a list of unfair practices prohibited by federal law. “The CFPB announced the exam manual update with a blog post that also suggested the review for discrimination would focus on disparate impact in addition to intentional and invidious discrimination,” the ABA said, adding that the guidance set new policy that should have gone through the formal rulemaking process.

“Guidance should help regulated entities understand agency priorities and how agencies will exercise their discretion,” the ABA said. “To that end, agencies should limit guidance documents as much as possible to identifying principles that will inform the exercise of agency discretion.”