Robert M. Chasnow is a Partner in our Washington, D.C. office
The transition of administration to the newly established Consumer Financial Protection Bureau (CFPB or the "bureau") of the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S. C. 1701 et seq., is described in the July 21, 2011 Real Estate alert. For 40 years, ILSA had been administered by the U.S. Department of Housing and Urban Development (HUD). The first 100 days of CFPB administration of ILSA is described in a November 29, 2011 Real Estate alert which suggests areas of the ILSA statute, regulations and policies which might be improved upon. The CFPB may have been thinking along the same lines since on December 5, 2011, it published a notice in the Federal Register, 76 FR 75825, on streamlining its "inherited" regulations including ILSA.
In the notice, the CFPB recites its responsibility for 14 "inherited statutes,"1 and asks the public to identify and provide reasons to justify assigning priority for regulatory revisions among the 14 statutes since, as the notice states, the bureau is not staffed to handle all-at-one-time rulemaking for all regulations for which it is responsible.
The notice continues by stating that although "[t]he inherited regulations serve important public policy purposes and provide key protections to consumers ... the Bureau believes there may be opportunities to streamline the inherited regulations by updating, modifying, or eliminating outdated, unduly burdensome, or unnecessary provisions" and requests specific suggestions from the public for streamlining regulations under these statutes.
Additionally, the notice states that while a top priority for 2012 is the mortgage reforms that Congress instructed the bureau to implement by a January 2013 deadline, the bureau acknowledges that Congress also directed it to "reduce unwarranted regulatory burden" by regularly identifying and addressing "outdated, unnecessary, or unduly burdensome regulations."
Guidance on Successful Revisions
Thus, the first evaluation on which the bureau seeks public input is the question of which of the 14 sets of inherited regulations should take the highest priority in terms of streamlining and which should be allowed to remain "as is" for another year or more?
Rationale on the importance of revising the ILSA regulations is discussed in the November 29, 2011 Real Estate alert. Assuming the case can be convincingly made in comparison to the other 13 sets of "inherited" regulations, the bureau will evaluate specific points for revisions to the ILSA regulations and policies according to principles described in the notice:
- The bureau says it is not ignoring circumstances that may call for stronger rules in some cases, and "will consider in due course how the inherited regulations may need to be strengthened. [However, for the comments now being elicited] ... the Bureau is focused on identifying streamlining opportunities."
- The notice states that revisions to the regulations should concentrate on those not requiring statutory amendment. "If the Bureau judges that a desired change requires a statutory amendment, the Bureau will consider making recommendations to Congress. But the purpose of this [notice] is not to solicit recommendations for changes, however important, that require Congressional action."
- To be favorably received the suggested streamlining regulatory amendments must compare favorably to five factors set forth in the notice: (i) benefits must clearly outweigh the costs for consumers and covered entities; (ii) no statutory change would be needed; (iii) the change can be rapidly implemented; (iv) minimal governmental and private resources should be needed to realize the public benefits; and (v) the strength and persuasiveness of the evidence should be utilized to describe and plead these factors. For good measure the bureau advises that specifics are more compelling than generalities and that "practical measures to facilitate compliance and promote innovation" will gain traction.
The bureau invites attention to use of technology as a part of the public's streamlining suggestions and encourages comments on regulatory provisions that should be:
- simplified, rationalized, or consolidated
- relaxed, modified, or eliminated, perhaps for smaller firms or certain classes of transactions, without undermining essential protections
- updated to reflect current practices and technology
- adjusted to avoid unintended consequences
- changed to remove an obstacle to responsible innovation
- explained in practical, non-regulatory guidance to ease compliance
Opportunity to Revise ILSA Regulations
The final page of the four-page notice focuses on nine examples of the types of "potential streamlining opportunities" in inherited regulations in which the bureau is interested. The last example is about the ILSA regulations. Although last, the bureau's description of the potential for revising the ILSA regulations is the most far reaching of all the examples:
Comments and submittals are due by March 5, 2012, and will be posted as submitted on the CFPB website.
The regulatory amendment process for ILSA, if it occurs, cannot be expected to be quick or easy. Notwithstanding the challenges, this is the opportunity that those with abiding interests in ILSA have been waiting for. Developers and other industry participants can engage in a constructive effort to introduce or enhance smart regulation that will end the drag of the ILSA regulations and enable streamlined, simplified regulations to help create a win-win paradigm for developers and purchasers alike.
If the ILSA regulations are to become part of the solution, now is the time for the various constituencies involved in residential real estate development and sales, including large scale community developers, lot sales subdivision developers, residential and condominium builders, marketers, and savvy lenders to invest time and resources toward active engagement in the regulatory revision process.
1 These 14 laws are: The Consumer Leasing Act; the Electronic Fund Transfer Act (except with respect to Section 920 of that Act); the Equal Credit Opportunity Act; the Fair Credit Reporting Act (except with respect to Sections 615(e) and 628 of that act); the Fair Debt Collection Practices Act; Subsections (b) through (f) of Section 43 of the Federal Deposit Insurance Act; Sections 502 through 509 of the Gramm-Leach-Bliley Act (except for Section 505 as it applies to Section 501(b)); the Home Mortgage Disclosure Act; the Real Estate Settlement Procedures Act; the S.A.F.E. Mortgage Licensing Act; the Truth in Lending Act; the Truth in Savings Act; Section 626 of the Omnibus Appropriations Act, 2009; and the Interstate Land Sales Full Disclosure Act.
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