GAO says five recommendations to financial regulators post Dodd-Frank, focusing on process, not yet implemented

Five of the total 37 recommendations the congressional watchdog agency has made to financial regulators since enactment of the 2010 law responding to the financial crisis have yet to be implemented, according to a report issued to Congress Tuesday, with one of those recommendations being to implement a systematic process within the consumer protection bureau to prioritize risks to consumers.

The Government Accountability Office (GAO) notes that since 2011, the year following enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), it has conducted an annual study of the regulations arising from that statute and made a total of 37 recommendations to help enhance regulatory analyses and interagency coordination. It says that federal agencies have implemented 32 of these recommendations but that five have yet to be fully implemented as of Oct. 15 of this year. “For example, 3 agencies need to develop and implement policies and procedures to consistently meet requirements related to assessing potential impacts of new regulations on small entities,” the GAO says.

The five outstanding recommendations are those made to the Consumer Financial Protection Bureau (CFPB), Commodity Futures Trading Commission (CFTC), Federal Reserve Board, and Securities and Exchange Commission (SEC). Some recommendations pertain to more than one agency, so the more agencies targeted by a single recommendation, the higher the count of outstanding recommendations. That is, the outstanding recommendations in Tuesday’s really add up to two that were issued to one or more of the four agencies still working to implement them.

One of the multi-agency recommendations made in January 2018 was that regulators develop and implement policies and procedures for how they will consistently comply with Regulatory Flexibility Act (RFA) requirements “and key aspects of the Small Business Administration (SBA) Office of Advocacy and OMB [Office of Management and Budget] guidance that include elements such as processes for considering to the extent practicable a rule’s potential economic impact on small entities.” The CFPB and the Fed reportedly were among those yet to complete action, as follows:

  • The CFPB in June said it is working to amend its regulatory analysis policy document and plans to make changes that will address the recommendation’s three elements. “CFPB needs to finalize this document to fully address this recommendation,” the report says.
  • Fed staff in June told GAO that the Federal Reserve is continuing to review its policies and procedures to ensure compliance with RFA requirements. “While Federal Reserve staff said that they use an RFA handbook developed by the SBA Office of Advocacy to support their analyses, the Federal Reserve has not made changes to its policies and procedures based on our recommendations,” it states. “The Federal Reserve needs to develop and implement RFA policies and procedures to fully address this recommendation.”

In December 2018, the GAO also said the CFPB should implement a systematic process for prioritizing risks to consumers and considering how to use the bureau’s available policy tools – such as rulemaking, supervision, enforcement, and consumer education – to address these risks. Such a process could incorporate principles from the prior “One Bureau” process, GAO stated, such as an assessment of the extent of potential harm to consumers in financial markets, to prioritize the most significant risks.

GAO reports that in October, the CFPB said its director (Kathleen Kraninger) approved a proposal to implement a short-term policy prioritization exercise. “According to a memorandum describing this exercise, CFPB anticipates that it will involve CFPB’s Strategy Office engaging members of cross-bureau working groups to review and update priorities related to addressing risks to consumers,” GAO wrote. “According to CFPB staff, the working groups will need up to a few months to complete this work, and the results should be available in the second quarter of 2020.”

The report adds, “To fully address this recommendation, CFPB needs to make further progress in implementing this planned prioritization exercise, including demonstrating steps taken to prioritize risks to consumers and considering how to use CFPB’s various policy tools to address these risks.”

The GAO report went to House and Senate leaders and the leaders of key congressional committees, including the House Financial Services Committee and the Senate Banking Committee.

GAO report: Status of GAO Recommendations to Enhance Regulatory Analyses and Interagency Coordination (Dec. 10, 2019)