Bank Trade Chief Warns Of Rules 'Masquerading As Guidance'

The American Bankers Association's chief executive fired off a warning shot at federal regulators on Monday over their use of agency guidance, cautioning that several recent documents addressing certain bank fees and other practices are no substitute for formal rulemaking. Speaking at a conference in Texas, ABA President and CEO Rob Nichols criticized what he described as a trend toward "regulation masquerading as guidance" at the banking agencies and said they should not be "circumventing the notice-and-comment process" by using guidance to prescribe new standards. "Banks welcome guidance that helps them understand and comply with legal requirements," Nichols said in prepared remarks at the conference, an ABA-sponsored event for community bankers. "But we're seeing a disturbing pattern lately of federal agencies — including federal bank regulators — issuing so-called 'guidance' documents that are, in fact, regulatory rules." Nichols expanded on those concerns in letters that he and other ABA officials sent Monday to top officials at the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Consumer Financial Protection Bureau. Recent agency guidance has "too often" consisted of binding legal requirements that must go through notice-and-comment, and in the "most egregious cases," it has even exceeded their statutory authority, Nichols wrote in his letter. Other letters addressed to the FDIC and CFPB singled out five of their recent guidance documents as examples of what Nichols called "guidance gone wrong" in his Monday speech. Among the five were missives issued by the FDIC in 2022 that frowned on charging repeated non-sufficient fund fees, or NSF fees. That guidance is already the subject of an industry challenge pending in Minnesota federal court. The letters also flagged CFPB guidance from last year that warned about fees for "basic" bank account-related information, "pay-to-play" arrangements on mortgage comparison shopping sites, adverse action notices for lenders using artificial intelligence, and immigration-related credit discrimination. According to the ABA, these documents suffer from significant legal and procedural flaws, often create more uncertainty for banks, and should be scrapped until the agencies revise and re-issue them as proposals for public comment. "The failure to confer with industry about interpretive questions, operational impacts, and system constraints limits the utility of guidance, undermines its acceptance, and may limit its durability as administrations change," Nichols wrote.  Monday's letters built on an ABA white paper published last week that raised similar concerns about regulators' use of guidance and urged restraint going forward, including the adoption of a specialized notice-and-comment process for "significant" agency guidance. The paper said that while guidance can be "useful" as a way to clarify legal ambiguities and articulate enforcement approaches, regulators have frequently missed the mark by issuing guidance that is either poorly written or verges into rulemaking territory governed by the Administrative Procedure Act. This latter category of "ineffective" guidance, according to the paper, has included the FDIC and CFPB guidance highlighted in Monday's letters as well as an OCC bulletin issued last year on overdraft practices. But the paper also cited a few examples of "effective" guidance to emulate, such as an anti-money laundering-related issuance that the Fed, FDIC and OCC put out in April 2021. Neither the paper nor Monday's letters identified any specific Fed guidance documents as "ineffective" or otherwise problematic. Industry complaints about regulators exploiting guidance for backdoor rulemaking aren't new. A decade ago, for example, similar criticisms featured in debates over CFPB indirect auto lending guidance that federal lawmakers ultimately struck down as a de facto rule. During the Trump administration, the banking agencies and CFPB sought to reassure the industry by promising that they would limit how they use guidance and would not enforce based on it. The agencies codified this stance in a final rule published at the start of the Biden administration that remains on the books. But more recent regulatory efforts to rein in banks' fee practices, tighten the screws on digital assets and address other fintech-related risks have prompted renewed concerns in the industry about overuse of guidance. Bank trade groups have also shown greater willingness to push back in court on perceived agency excesses. The ABA, for example, is involved in two lawsuits against different CFPB regulatory actions and joined other trade groups last week in suing the Fed, FDIC and OCC to block their new community reinvestment rules. "It's never our preference to bring these kinds of lawsuits," the ABA's Nichols said in his Monday speech. "But we won't shy away from doing so when it's necessary and when we have no other recourse."