EXPLAINER: What is the GUIDE Compliance Act Anyway?
The American Land Title Association, which has a membership level specifically for real estate attorneys, has been promoting the proposed Give Useful Information to Define Effective Compliance Act (GUIDE Compliance Act) to members of Congress in hopes of getting it passed into law. The GUIDE Act has not received much publicity, but it’s a proposal of which real estate professionals should be aware. If this bill becomes law, it would likely simplify the closing process from an administrative standpoint.
As a developer of automation software that helps real estate closing professionals, Easysoft thinks it’s important to put the spotlight on a proposal that is of interest to our current customers and potential clients. If you haven’t heard of the GUIDE Compliance Act before, read on to discover more information about a bill that may have important implications for real estate. Even if you're familiar with the GUIDE Compliance Act, you may still learn something new.
In June 2018, ALTA’s president Steve Day testified in a hearing before the House Committee on Financial Services Subcommittee on Financial Institutions. While this hearing may not have gotten much publicity, it was undoubtedly crucial to real estate closers.
Even before Mr. Day’s testimony, the GUIDE Act was the subject of some media coverage in the real estate industry because it was one of two proposals highlighted during ALTA’s annual Advocacy Summit in May. At this summit, hundreds of title industry professionals from all over the country descended on Capitol Hill to meet with legislators. The other bill the event chose to highlight was the TRID Improvement Act, which has bounced around Washington but has yet to find a home in any approved legislation.
The first question you’re probably asking about the GUIDE Act is “How does Congress always come up with such great acronyms?” The second question you’re probably asking is “What exactly is the GUIDE Compliance Act?” The answer to your first question is “years of practice and too much time on their hands.” (Seriously, a former Senate press officer said legislative staff would spend hours trying to think of names that would be better remembered by constituents, media and the staff members themselves.) The answer to your second question is below.
So, what is the GUIDE Act?
The GUIDE Compliance Act (H.R. 5534) would provide explicit standards for Consumer Financial Protection Bureau (CFPB) guidance and compel the Bureau to offer guidance on statutes and other regulatory text. It would also provide protections for people that have acted in good faith with the CFPB's guidance. According to the testimony Mr. Day addressed to the House Financial Service Subcommittee, the bill requires:
- the director of the CFPB (currently acting director Mick Mulvaney) to issue guidance that is necessary or appropriate to those laws the bureau is responsible for, including for facilitating compliance;
- the Bureau to devise a proposed rule which will define the type of guidance the Bureau will provide, and set the criteria the Bureau will use for selecting each type of guidance to be published in the Federal Register and its website within 1 year of the enactment of the GUIDE Compliance Act as law; a final rule will be required to follow within 18 months of the final adoption of the GUIDE Compliance Act as law;
- the Bureau to provide liability protections for those who rely on the Bureau's guidance in good faith;
- the CFPB to establish a process and timeframes for requests for guidance, including time limits to provide answers to requests for guidance;
- the Bureau to create guidelines for amending or revoking guidance, and implement a process a process for public notice and comments;
- the CFPB to develop guidelines for determining the size of any civil money penalties and publish these guidelines within 18 months of enactment.
The GUIDE Compliance Act bill gives the Consumer Finance Protection Bureau responsibilities and obligations that many people think it already should have. For this reason, the bill currently has widespread bipartisan support. A similar bill (S. 3443) has been introduced in the Senate by Senators Orrin Hatch [R-UT] and James Lankford [R-OK]. The CFPB previously performed some of the regulations outlined above but if the law passes there will finally be defined rules and laws governing what was previously done on a de facto basis.
The proposed GUIDE Compliance Act would lay out clear and specific rules so that title companies will no longer have to monitor their counterparts to learn about enforcement standards.
Why does the title industry support this bill?
There are many reasons why this bill is essential, and they all date back to when Richard Cordray led the CFPB. Because of the CFPB’s unique autonomy from Congress and the President, accusations that its structure is unconstitutional have plagued the bureau since its inception in 2011. The CFPB's budget comes from the Federal Reserve rather than Congressional appropriations, and the President can only fire the director for cause. The title industry felt pressure from the CFPB because of the massive amount of relatively unchecked power the director has the power to wield.
With this immense power, the Consumer Financial Protection Bureau has often regulated by enforcement instead of guidance. Rather than offering guidance on how title companies might adequately follow the CFPB's rules, title companies were instead left to interpret specific enforcement actions against other companies and extract their own guidance from court rulings. The proposed GUIDE Compliance Act plans to fix this problem.
When the CFPB implemented the TILA-RESPA Integrated Disclosure (TRID) Rule, many in the title industry struggled to comprehend and adhere to the massive 1,888-page regulation. The CFPB attempted to answer questions in a series of five webinars before the ruling went into effect but claimed that the webinars did not offer official guidance. This webinar approach left many title companies with a lack of direction and is one of the main reasons why the GUIDE Compliance Act was proposed.
Another example of lack of guidance was the CFPB’s bulletin to service providers in 2012. According to Day, this 2.5-page bulletin was meant to remind “supervised banks and nonbanks that they are expected to oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law.” However, because of a lack of guidance from the CFPB, the bulletin led lenders to broadly interpret CFPB rules and treat small title companies the same as large ones. The increased standards to work with some lenders forced small title companies out of the market, decreasing consumer choice. The proposed GUIDE Compliance Act would lay out clear and specific rules so that title companies will no longer have to monitor their counterparts to learn about enforcement standards.
What are the Chances the GUIDE Compliance Act Becomes Law?
The bill was introduced in the House in April and immediately recommended to the Financial Services subcommittee. In September 2018, the bill was ordered to be amended by the Committee on Financial Services. The similar bill that went to the Senate was also ordered to be amended by the Senate Committee on Banking, Housing, and Urban Affairs. It’s unclear how likely it is to be passed by the committee, but it seems to have bipartisan support for now. Even if the GUIDE Compliance Act passes the House committee, it would still need to be approved by the full House, the Senate and the President. The proposal, which is sponsored by U.S. Rep. Sean Duffy (R-WI), garnered bipartisan support. There are eight House Republicans and two House Democrats currently listed on the proposal as co-sponsors.
When he proposed the bill, Duffy said he hoped to bring clarity to the industry. He said the CFPB should focus on protecting consumers instead of trying to trap lenders and title companies with confusing guidelines.
“The CFPB has historically ignored requests for guidance and clarification from American businesses, consumers, and Congress – especially in relation to the Know Before You Owe rule,” Duffy said in a news release. “That’s why I’m proud to sponsor bipartisan legislation to bring predictability and transparency to the CFPB’s rule-making process. The CFPB should focus on its mission to actually protect consumers rather than play ‘gotcha’ with ambiguous and surprising guidance for mortgage lenders.”
Easysoft and our new Easysoft Online platform make real estate attorneys and other closers’ lives easier by providing an easy-to-use, easy-to-install automation solution. It sounds like the GUIDE Act would be a piece of legislation that simplifies the rules our customers and others follow for every transaction. It’s certainly a proposal that is worth keeping an eye on as it makes its way through the legal process from bill to law.