Rules Make for Better Rules Than Lawsuits Do

I have made a certain amount of fun of Mick Mulvaney's appointment as the acting head of the Consumer Financial Protection Bureau, a job that he is doing part-time after previously calling the bureau a "sick, sad" joke, but here is a client note from Davis Polk & Wardwell LLP calling Mulvaney's memo to the CFPB last week "one of the most remarkable documents to be published by an agency head in many years," and they are not exactly wrong? Here is Mulvaney:

Well, it bothers me! We have talked before about regulation by enforcement, in which agencies (or prosecutors) decide that some previously widely accepted practice really should have been illegal, and instead of declaring it illegal from now on, go back and prosecute the people who were doing it before. Regulation by enforcement is appealing to regulators because of its efficiency: You don't have to go through the brainstorming exercise of thinking up new rules about what should be forbidden, or the administrative work of writing and passing those rules. You just see stuff that looks bad, sue the people doing it, and get them to settle for a large fine because, to be fair, it does look bad and they don't want to spend years litigating it. There is a rough justice here: If something looks bad enough to get the regulator angry, and it looks bad enough to embarrass the people doing it into settling, then it probably should have been illegal, and declaring it illegal after the fact makes some sense.