November 18, 2018

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CFPB seeks comments on its administrative enforcement proceedings

The CFPB has issued a request for information that seeks comment on how the CFPB can improve its administrative adjudication processes, including its “Rules of Practice for Adjudication Proceedings” codified at 12 CFR part 1081, Subpart E (Rules).  The Rules address the general conduct of administrative enforcement proceedings, the initiation of such proceedings and prehearing rules, decisions and appeals, and temporary cease-and-desist proceedings.  Comments on the RFI will be due no later than 60 days after the date it is published in the Federal Register, which the CFPB expects to be February 5.

In the background discussion, the CFPB states that, to date, there have been eight administrative adjudication proceedings under the Rules that were not immediately resolved through a consent order.  Six of those proceedings were settled during the course of adjudication, one is pending, and one has resulted in a final decision.  In explaining its rationale for issuing the RFI, the CFPB states that it understands “that the administrative adjudication process can result in undue burdens, impacts, or costs on the parties subject to these proceedings.”

The RFI seeks feedback on all aspects of the CFPB’s administrative adjudication process but lists 13 general areas, which according to the CFPB “represents a preliminary attempt by the Bureau to identify elements of Bureau processes related to administrative adjudication that may be deserving of more immediate focus.”  In addition to the requirements and other aspects of specific provisions of the Rules, the 13 general areas include “[w]hether, as a matter of policy, the Bureau should pursue contested matters only in Federal court rather than through the administrative adjudication process.”  Given that the administrative adjudication process puts the CFPB simultaneously in the role of prosecutor, judge and jury, we believe the CFPB should give careful consideration to discontinuing the use of the administrative adjudication processes.

In addition, a serious constitutional question exists as to whether the CFPB Director has the authority to appoint administrative law judges.  The U.S. Supreme Court recently agreed to decide whether SEC ALJs  are “inferior officers” who must be appointed by the President, the courts, or a department head in accordance with the U.S. Constitution’s appointments clause.  A similar question exists as to ALJs used by the CFPB in its administrative adjudication proceedings.  If they are “inferior officers,” it would raise the further questions of whether the CFPB is a “department” and thus whether the CFPB Director is department head who can appoint an ALJ.

The new RFI represents the second in a series of RFIs announced by Mick Mulvaney, President Trump’s designee as Acting Director.  Mr. Mulvaney described the CFPB’s plans to issue the RFIs as “a call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”  In its press release announcing the second RFI, the CFPB stated that the next RFI in the series “will address the Bureau’s enforcement processes, and will be issued next week.”

The first RFI, which was published last week in the Federal Register and has a March 27, 2018 comment deadline, was entitled a “Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes.”  In that RFI, the CFPB asks for comments on its processes surrounding Civil Investigative Demands and investigational hearings.  As we indicated in connection with the first RFI, with the recent change of leadership and philosophy, we anticipate a CFPB that will be more receptive to the concerns of industry.  We therefore view the RFIs as an important opportunity for the industry to argue for permanent changes in the areas addressed by the RFIs.

Copyright © by Ballard Spahr LLP

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About this Author

Christoper Willis, Partner, Ballard Spahr law firm, Consumer Financial Services Litigation attorney
Partner

Christopher J. Willis is Practice Leader of the firm's Consumer Financial Services Litigation Group. He devotes his practice to assisting financial services institutions facing government investigations and examinations, counseling them on fair lending risk and compliance assessments, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Mr. Willis also chairs the firm's Fair Lending Task Force. His clients span the financial services industry and include banks and...

678-420-9436
James Kim, Ballard Spahr Law Firm, Los Angeles, Financial Law Litigation Attorney
Of Counsel

Mr. Kim advises companies and individuals in matters involving financial regulation and litigation, and the myriad of federal consumer financial laws, such as Title X of Dodd-Frank (UDAAP), TILA, RESPA, EFTA, and the FDCPA. He has represented clients in examinations and investigations with the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), U.S. Department of Justice (DOJ), U.S. Securities and Exchange Commission (SEC), and various state and local agencies. His practice focuses on cutting-edge issues, including financial technology (FinTech), mobile financial services, and marketplace lending.

In addition to his regulatory work, Mr. Kim has tried, as first or second chair, more than 20 cases to verdict, and has briefed criminal and civil appeals before the U.S. Court of Appeals for the Second Circuit and the New York State Appellate Division.

646-346-8089