In what seems to be a response to the Government Accountability Office’s (“GAO”) determination that the Consumer Financial Protection Bureau’s indirect auto finance bulletin (the “Bulletin”) was a rule subject to the Congressional Review Act (“CRA”) and a rebuke to the Bureau’s prior approach of “rulemaking by enforcement,” the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and the Bureau (collectively, the “agencies”) this week issued an Interagency Statement Clarifying the Role of Supervisory Guidance (the “Interagency Statement”). The Interagency Statement’s stated purpose is to “explain the role of supervisory guidance and to describe the agencies’ approach to supervisory guidance.”

The Interagency Statement begins by clarifying the agencies’ position as to the difference between supervisory guidance and laws or regulations and provides: “Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance.” As set forth in its 2017 letter to Senator Patrick Toomey, a significant factor in the GAO’s determination that the Bulletin was a “rule” subject to the CRA was the Bureau’s use of the Bulletin to advise the public prospectively of the manner in which the Bureau proposed to exercise its discretionary enforcement power. The Interagency Statement clarifies that supervisory guidance is meant to outline supervisory expectations or priorities and articulate a general view regarding appropriate practices but should not serve as the basis for enforcement actions. And, while the agencies indicate that they may continue to seek public comment on supervisory guidance in order to improve their understanding of a given issue, any such guidance is not intended to be a regulation or have the force and effect of law.

The agencies state that they will aim to reduce the issuance of multiple supervisory guidance documents on the same topic and will seek to limit the use of numerical thresholds or other “bright-line” tests (numerical thresholds will generally be used as exemplars only). Finally, the Interagency Statement also provides that the agencies will limit examination and supervisory citations to violations of law, regulation or compliance with enforcement orders or other enforceable conditions and that their examiners will not criticize supervised financial institutions for a “violation” of supervisory guidance. Supervisory guidance may, however, be referenced as an example of safe and sound conduct in an examination finding.

What does this mean going forward? The Interagency Statement suggests that instead of issuing supervisory guidance to set forth expectations to be used as a “sword” if not followed by supervised entities, the agencies intend to use supervisory guidance to identify compliant practices. As a result, supervised entities may be better able to rely on supervisory guidance as a potential “safe-harbor” or “shield” from agency criticism when structuring their compliance programs. Additionally, existing supervisory guidance issued by the agencies such as supervision manuals and supervisory highlights and including the Bureau’s newly-released Summer 2018 edition of Supervisory Highlights should be viewed as helpful guidance, without precedential effect, in light of the Interagency Statement. Finally, Congress’ override of the Bulletin following the GAO’s determination that the Bulletin was a “rule” subject to the CRA may serve as a deterrent to any attempt by an agency to use its supervisory guidance in a way that is inconsistent with the Interagency Statement.

Webinar. On October 10, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Key Takeaways from the CFPB’s Summer 2018 Supervisory Highlights” where the Interagency Statement will also be addressed. The webinar registration form is available here.