WASHINGTON (Legal Newsline) — Anyone can write a letter.

Consumer Financial Protection Bureau Director Richard Cordray
Consumer Financial Protection Bureau Director Richard Cordray

When Consumer Financial Protection Bureau (CFPB) Director Richard Cordray wrote a letter in August, giving the bureau's views about whether credit discrimination on the basis of gender identity and sexual orientation violates the Equal Credit Opportunity Act (ECOA), it prompted speculation.

Some industry watchers wondered why Cordray issued a letter rather than proposing a rule to express the CFPB’s views on the scope of the ECOA. Some thought he'd somehow bypassed the usual channels and created a rule.

"It is interesting that the CFPB would choose to issue this important interpretation about the scope of the ECOA and Regulation B by use of a letter, and not a proposed rule,” Leonard Chanin, of counsel in the Financial Services group of Morrison & Foerster LLP, told Legal Newsline.

"For a significant interpretation of the law, it is a bit surprising that the CFPB chose to express its views in a letter sent to individuals who sent the CFPB some questions."

For the CFPB, a letter does not make a rule, Chanin said. A letter is just a letter. "Issuing a rule requires compliance with a process and a detailed analysis about that rule," he said.

Chanin is someone who would know the difference between a letter and a rule at the CFPB. He was assistant director of the CFPB's office of regulations, where he headed the agency’s rulemaking team.

There he supervised several dozen attorneys responsible for promulgating rules and regulations to implement CFPB legislation and provided legal opinions to the bureau's supervisory and enforcement offices.

Prior to being nominated in 2011 by President Obama to lead the CFPB, Cordray spent part of his previous career as Ohio attorney general, another type of legal official who issues letters with opinions about laws.

In August, Cordray responded to a letter sent to the CFPB by Services and Advocacy for GLBT Elders (SAGE). In his reply, dated Aug. 30, Cordray addressed whether credit discrimination based on gender identity and sexual orientation violates the ECOA and Regulation B.

Cordray's letter specifically addresses whether that discrimination includes actual or perceived nonconformity with gender-based stereotypes and concludes that the ECOA and Regulation B does prohibit such actions.

Cordray's letter created speculation among some industry watchers that the CFPB, through Cordray's letter, was trying to expand the definition of sex discrimination under the ECOA to include actions not expressly addressed by the ECOA or implementing Regulation B. They thought that because Cordray's letter pretty much said that.

"In sum, the current state of the law supports arguments that the prohibition of sex discrimination in ECOA and Regulation B affords broad protection against credit discrimination on the bases of gender identity and sexual orientation, including but not limited to discrimination based on actual or perceived nonconformity with sex-based or gender-based stereotypes as well as discrimination based on one's associations," the letter said.

"The Consumer Bureau recognizes and supports these recent developments in the law. We regard them as important and relevant to ensuring fair, equitable and nondiscriminatory access to credit for both individuals and communities. We will continue to monitor these legal developments closely as we strive to ensure that our interpretation and application of laws and rules under our jurisdiction, including ECOA and Regulation B, appropriately reflect the evolving precedents interpreting sexual discrimination law."

All the speculation aside, Chanin said the letter clearly expresses the CFPB’s views on whether discrimination on the basis of gender identity or sexual orientation is governed by the provisions in the ECOA and Regulation B.

While the letter is not a rule, it seems certain that the CFPB will examine institutions for compliance with the views expressed in the letter. While agencies issue informal interpretations of the laws they implement, it is unusual for an agency to issue an interpretation via a private letter that involves a substantive issue without using a rulemaking process and allowing the public to review and comment on such views, Chanin said.

"However, such an approach can take a significant amount of time, and perhaps the CFPB was unwilling to invest the time needed in the present matter," Chanin said.

Producing a rule requires a lengthy process that includes drafting a legal explanation for the proposed rule, permitting public input and reviewing comment letters.

It also requires a great deal of analysis, including a cost benefit analysis, before a final formal rule is published. A letter, on its own, could be presented to a court, if someone wanted to challenge the CFPB’s views on the matter, in an enforcement action, but it would likely receive limited deference, Chanin said.

However, there is speculation about whether Cordray's letter could, itself, be the first step leading to the CFPB’s issuance of a proposed rule.

"That's a good question," Chanin said.

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