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Who Should Be Writing Regulations?
Writing regulations is a simple concept. Congress designates an agency to take primary responsibility for carrying out the purposes of the regulation. This may include the authority to issue regulations or, as in the case of FCRA, only the authority to issue interpretations.
In addition to interpretive responsibilities, usually one or several agencies are given the responsibility of enforcing the law - of making sure that the law and its regulations or interpretations are being followed. Each agency has its own assignments of work to do.
This sounds pretty reasonable. However, regulations can function very differently and serve different ends. The real determinant of how a regulation works is the purpose of the agency in drafting it. The theory of regulation writing - to clarify and add detail to the law - is all well and good. And Congress acts in good faith when the responsibility for writing regulations is assigned to a federal agency with a strong - or the strongest - connection to the regulatory issue and industry.
Once in the hands of the agency, things can happen very differently from the original plan. Some agencies, such as the Federal Reserve, focus their regulation writing efforts on clarifying the law in ways that will help businesses subject to the law with compliance. To this end, the FRB carefully considers how the industry does things and how to reach the goals of the law without turning the industry inside out and upside down any more than is necessary. We moan and groan about Regulation Z, but the FRB works diligently to help the industry with compliance. The Official Staff Commentaries to Z and other FRB regulations is a good measure of the "how to do it" approach.
But other agencies have different agendas. HUD, for example, considers that its primary mission is to protect consumers. (If you don't believe this, just visit HUD's Internet site!) HUD's attention is squarely placed on preventing certain actions. HUD doesn't seem to see that an important part of regulations is to explain how to do something in a way that is consistent with the law. HUD misses the point that giving this kind of guidance in regulations can be the most effective way of helping consumers.
The fact that much of the industry is willing to comply and simply wants to know what to do seems to pass over the regulation writers at HUD. Instead, they seem intent on designing rules that help with investigation and enforcement. In short, the regulations are for the HUD enforcement staff rather than for the industry.
We have seen this happen in several HUD actions in the past year. The self-assessment protection passed by Congress was transformed into an evidence rule rather than a guide on how to self-assess and correct. The proposals for the amendments to RESPA settlement cost disclosures, both the GFE and the HUD-1, are to add sanctions to the act rather than to clarify the existing regulation. And the recommendations on packaging services for a fixed fee don't provide the creditor with any guidance on how to package, much less provide protection from Section 8. The proposal would basically protect creditors from Section 8 if HUD decided that the package was in the consumer's interest.
These "ex post" tests do not provide the industry with any protection. More importantly, they provide very little guidance on correct procedures. Worst of all, they take away the motivations to be in the business. The people who care, the organizations that try to do it right, may end up so frustrated that they leave the business. And when the good guys leave the business, who do we have left making loans? That's not a world I want to be in!
Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 12, 10/98
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