The CFPB, OCC, FDIC and NCUA have issued substantially similar final rules on the role of supervisory guidance.  The final rules adopt the agencies’ proposals without substantive change.

In September 2018, the agencies issued an “Interagency Statement Clarifying the Role of Supervisory Guidance.”  In response to the Statement, the agencies received a petition requesting a formal rulemaking on the subject.  The final rules codify the Statement, with clarifying changes, as an appendix to a new subpart added to the regulations of each agency.  Each of the new subparts states that the subpart “reiterates the distinctions between regulations and guidance, as stated in the [Interagency Statement]” and that the Statement “is binding on the [agency].”

Key items in the final rules are:

  • The following description of the difference between supervisory guidance and laws or regulations:

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.  Rather, supervisory guidance outlines the [agencies’] supervisory expectations or priorities and articulates the [agencies’] general view regarding appropriate practices for a given subject area.

  • The agencies intend to limit the use of numerical thresholds or other “bright-line” tests in describing expectations in supervisory guidance and numerical thresholds will generally be used as exemplary only and not suggestive of requirements.
  • Examiners will not criticize (through the use of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution, and supervisory recommendations) a supervised financial institution for, and agencies will not issue an enforcement action on the basis of, a “violation” of or “non-compliance” with supervisory guidance.

The final rules provide that examiners may reference supervisory guidance “to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.”  (The CFPB’s final rule substitutes “appropriate consumer protection” for “safe and sound conduct.”)  However, the agencies indicated in their discussions of the final rules that they do not “deem examples in supervisory guidance to categorically establish safe harbors.”  According to the agencies:

[E]xamples offered in supervisory guidance can provide insight about practices that, in general, may lead to compliance with regulations and statutes.  The examples in guidance, however, are generalized.  When an institution chooses to implement such examples, examiners must consider the facts and circumstances of that institution in assessing the application of those examples.  In addition, the underlying legal principle of supervisory guidance is that it does not create binding legal obligation for either the public or an agency.” (emphasis added).

As a result, while supervised entities can use supervisory guidance to develop appropriate compliance practices, supervisory guidance does not provide a safe harbor from agency criticism or enforcement.

On January 20, President Biden’s Chief of Staff Ronald Klain issued a memorandum to the heads of executive departments and agencies setting forth the terms of a regulatory freeze.  The memorandum requires a rule that has been sent to the Federal Register but not yet published to be immediately withdrawn from the Office of the Federal Register and approved by a department or agency head appointed by President Biden.  The final rules on the role of supervisory guidance were issued on January 19, 2021 and have not yet been published in the Federal Register.  Accordingly, assuming the CFPB would be considered an executive agency as a result of the U.S. Supreme Court’s Seila Law decision making the CFPB Director removable at will by the President, Mr. Klain’s memorandum would require the CFPB to withdraw its rule for approval by Acting Director Uejio.  However, it is not clear that the memorandum would apply to independent agencies such as the OCC or the other banking agencies.