The House Financial Services Committee overwhelmingly passed a bill declaring that the Consumer Financial Protection Bureau’s (“CFPB”) much-debated guidance document (“Bulletin”) on indirect auto lending to “have no force or effect.”
At first glance, this bill would do nothing legally. Under administrative law doctrine, guidance documents like the Bulletin lack legal effect by definition. The CFPB therefore would never cite the Bulletin in court as a source of binding law. Such a Bulletin is also unlikely to command significant deference from a court given that it was not issued via notice-and-comment (although that issue is somewhat murky given the messy caselaw on deference).
So from a purely legal perspective, this bill is strange. But the bill makes sense when you consider politics and policy. The bill is really is about signaling to the CFPB and about the CFPB’s ability to send a signal to indirect auto lenders.
The signal to the CFPB appears to be: a bipartisan group in the Financial Services Committee is serious about stopping CFPB from pursuing the underlying policy goal outlined in the Bulletin (many observers believe the Bulletin is intended to effectively ban discretionary pricing and require indirect auto lenders to pay fixed fees to auto dealers). Like many regulators, the CFPB seeks to regulate partly by issuing guidance documents like the Bulletin. The Bulletin, though nonbinding, can be a powerful regulatory tool because it signals the Bureau’s approach to enforcement and supervision.
But if the Committee’s bill is enacted in to law and the Bulletin is rescinded as a result, the CFPB’s message would be muddled. The CFPB could presumably pursue its policy goals in other ways such as by taking public enforcement actions pursuant to the legal theories expressed in the Bulletin or having its Director give speeches on the subject. But, the Bulletin is a powerful tool. That is why the House Financial Services Committee took the time to propose legislation to rescind it.
The dynamic outlined above also plays out in judicial challenges to guidance documents, where courts consider whether to invalidate guidance documents that by definition lack legal effect. The real fight is about substance of the agency action rather than procedure (of course, this is often true in administrative law more generally). Given this, courts should seriously consider directly reviewing the substance of guidance documents rather than their procedural validity. If you’re interested, Professor Bill Funk has a great summary of debate over proposals to this effect.