Understanding Formal vs. Informal Rulemaking

By John Zasada, JD, CAMS – Shareholder, Financial Institutions Group

There is a noticeable trend from federal financial institution agencies toward more informal rulemaking. Formal rulemakings are still in place, whether it be the Regulation B small business lending data collection rule, or the proposed Regulation Z rule to limit credit card late fees. However, there is a relatively new financial institution agency phenomenon, primarily from the Consumer Financial Protection Bureau, issuing guidance and expecting immediate compliance. This guidance, whether it be advisory opinions, circulars or blog posts, often contains strong language around discontinuing a particular practice. One example is authorized positive, settle negative overdrafts. In some cases, this is being applied to not only ban the practice going forward but to provide some level of restitution going backward. Many financial institutions experience frustrations as they are being held to comply with a rule they weren’t aware existed.

Complying With Informal Rulemaking

Informal rulemaking does not go through the formal rulemaking process in keeping with administrative law. Should you comply with it? It is a business decision every financial institution must address. Informal rulemaking has a degree of impermanence lacking in formal rulemaking. In addition, it can be changed on a whim by an agency, or more likely after an election and a change in a presidential administration. Even if you comply with an informal rulemaking, you may need to, or have the opportunity to, pivot away from it should it be suddenly overturned via a new informal rulemaking.

Navigating Rulemakings

Contact Doeren Mayhew’s Financial Institutions Group today for help in testing compliance with formal and informal rulemakings.