Former Consumer Financial Protection Bureau (CFPB) Deputy Director Brian Johnson is calling on the agency to rescind its 2015 bulletin on marketing services agreements (MSAs) and other guidance he said misrepresents RESPA Section 8.

And if CFPB Director Kathy Kraninger doesn’t do it on her own, Congress and President Donald Trump need to get involved, Johnson said in a new paper titled, “RESPA Section 8 — the CFPB and the President Should Act Now to Restore the Rule of Law.”

Johnson argued that although the bureau’s case against PHH – in which it sought to impose its RESPA misinterpretation retroactively – is long over, the CFPB continues to inflict injustices on businesses.

“The CFPB can atone for its actions by credibly dedicating itself to preventing such abuses in the future,” he wrote. “Furthermore, due to a recent Supreme Court decision, the president can also act to help restore the rule of law at the CFPB.”

In the paper – published by The Heritage Foundation, a Washington, D.C.-based research and educational institution – Johnson recommended the CFPB take the following seven actions to restore the plain meaning of RESPA Section 8:

1. Rescind the 2015 RESPA bulletin on MSAs and any other bulletin that is premised on the CFPB’s repudiated misinterpretation of RESPA Section 8;
2. Issue an interpretive rule that officially restores its interpretation of law to one that is consistent with the plain text of RESPA Section 8, Regulation X, long-standing Department of Housing and Urban Development (HUD) guidance and the PHH opinion;
3. Issue an interpretive rule clarifying the statutes of limitations that are applicable to its administrative proceedings;
4. Issue an interpretive rule clarifying the way the CFPB will calculate disgorgement for purposes of seeking equitable relief in light of the Supreme Court’s recent opinion in Liu et al. v. SEC; which held that the Securities and Exchange Commission may continue to obtain disgorgement in federal court.
5. Amend its remaining guidance documents to conform to these interpretive rules;
6. Issue a policy statement against former Director Richard Cordray’s “regulation by enforcement” doctrine; and
7. Refrain from ratifying, and immediately terminate, any portion of an existing supervisory or enforcement matter (including any supervisory matter requiring attention, any supervisory memorandum of understanding, any CID, and any enforcement action) that is premised on the CFPB’s repudiated misinterpretation of RESPA Section 8.

“The CFPB can take each of these seven actions on its own. However, Congress can also help to restore the rule of law,” Johnson wrote, noting that the Congressional Review Act (CRA) establishes a process for congressional review of agency rules and establishes special expedited procedures to overturn the rules.

“The CRA defines an agency rule broadly to include a ‘statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency. This definition very likely encompasses the CFPB’s 2015 RESPA bulletin,” Johnson said. “In fact, the Government Accountability Office (GAO) previously concluded that another CFPB enforcement bulletin (regarding indirect auto lending) was a rule under the CRA, and Congress overturned it.

“If necessary to prompt the CFPB to taking action regarding the 2015 RESPA bulletin, a member of Congress could write to the GAO requesting an opinion on whether the bulletin is a rule for the purposes of the CRA. Such an opinion rendered by the GAO could prompt potential consideration of a joint resolution of disapproval to overturn the bulletin. Congress can also require the CFPB to engage in a notice-and-comment process before issuing guidance documents. Such a requirement, if enacted, could serve as an effective early warning signal whenever the CFPB seeks to change the requirements of the law through guidance rather than through a legislative rulemaking.”

In addition, Trump also can act to help restore the rule of law at the bureau, Johnson added.

“Because of the Supreme Court’s June 2020 decision in Seila Law v. CFPB, the president can now remove the CFPB director from office for any reason, not just for cause,” he said. “This means that President Trump can direct Director Kraninger to take affirmative actions to carry out his administrative priorities, including by ordering the CFPB to take each of the seven concrete actions enumerated above. The fact that the president can now control the agency also means that the president can require the CFPB to comply with his executive orders.”

In October 2019, Trump issued an order to prevent executive departments and agencies from issuing non-binding guidance documents that unlawfully provide new interpretations of law outside the Administrative Procedures Act.

The requirements of that executive order clearly would address the MSA bulletin, Johnson wrote.

“Finally, the Seila Law decision also means that the president now effectively controls the CFPB’s budget, since he can specify the amount of funds the director may request from the Federal Reserve each fiscal quarter,” Johnson said. “This means that he can also affirmatively prohibit the CFPB from using funds for any particular purpose. For that reason, the Office of Management and Budget should actively manage the CFPB’s budget in order to bring it into line with the administration’s budget priorities and should also forbid the CFPB from using funds in furtherance of its repudiated misinterpretation of RESPA.

“Through these collective actions, the CFPB, Congress, and the president can continue the work started by the DC Circuit Court of Appeals in PHH to restore the plain meaning of RESPA Section 8. However, even if all of these actions are taken, it should not be forgotten that the CFPB’s RESPA enforcement actions were just one of many manifestations of the ‘regulation by enforcement’ doctrine espoused by former Director Cordray. Other examples exist, and the CFPB would be wise to identify them quickly and pull each of them out by the root. But unless or until Congress enacts legislation ensuring that the CFPB is accountable to Congress through the appropriations process, the only guarantee that the ‘regulation by enforcement’ doctrine does not return is the personal commitment and vigilance of the CFPB director.”

One additional accountability mechanism that the director could institute to help her police the CFPB’s actions, Johnson wrote, would be to require the associate director for Supervision, Enforcement, and Fair Lending to inform her any time the CFPB proposes to send a Notice and Opportunity to Respond and Advise (NORA) letter or a Potential Action and Request for Response (PARR) letter to a company containing a preliminary conclusion of law that is not “clearly and unambiguously supported” by controlling case law or a legislative rule, interpretive rule, or guidance document issued or adopted by the CFPB.