United States:
CFPB Issues Revised Administrative Litigation Procedures, Signaling Possible Increase In In-House Adjudications
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The upshot, for busy people:
- The Consumer Financial Protection Bureau (CFPB) can sue
companies in federal court or in its in-house administrative
proceedings. Although the CFPB regularly announces settlements
styled as administrative proceedings, it has rarely held
administrative trials or other contested enforcement proceedings in
that forum. - On February 22, 2022, and without an accompanying press
release, the CFPB published in the Federal Register a number of
changes to its in-house adjudication procedures. Some changes
are administrative-how to count days, etc. But others clarify and
expand the powers Director Rohit Chopra has to shape proceedings,
including to bifurcate remedial and liability determinations and to
decide all dispositive motions. - These procedural changes don’t alter any of the CFPB’s
substantive rules. But these changes do signal that the agency may
start bringing enforcement cases in-house, where Director Chopra
will decide what does and does not violate the law.
Background. Like many agencies, the CFPB’s
statute allows the agency to sue companies that violate the law in
two different fora: in federal court, where the matter is decided
by an Article III judge or jury; or in in-house administrative
proceedings, where the matter is initially decided by an
administrative law judge (ALJ) but ultimately by the CFPB Director.
And, like other agencies, the CFPB has a comprehensive set of
procedures for administrative adjudication, covering initial
pleadings, discovery, summary adjudication, trial, and appeal.
But the CFPB rarely has used its in-house court. Whereas
administrative consent orders are very common, the CFPB has (by our
count) initiated only a handful of contested administrative
proceedings in its history, and only two proceeded to an
administrative trial. This is in stark contrast with the Federal
Trade Commission, which regularly uses its administrative court in
connection with allegedly illegal mergers, unfair and deceptive
acts and practices or other legal violations.
What were the rule changes? On February 22,
2022, the CFPB published in the federal register its entire
procedural rulebook, noting a number of changes it made and
requesting comments on the changes by April 8, 2022. The CFPB
explained the changes and provided a helpful redline against the prior version. The most
important changes include:
- Director decision on dispositive motions. Under the
old rules, any dispositive motions were decided by the ALJ, with
the Director possessing only an overarching authority to review
matters “at any time” (and possessing ultimate review
authority over the final decision in the case). The new rules place
power directly into the Director’s hands, authorizing him to
decide a dispositive motion, refer it back to the ALJ, or decide
part and refer part. This procedure could be important to a
Director interested in moving cases along faster-avoiding ALJ
decisions that he will ultimately reverse. - Bifurcated proceedings. The new rules allow the
Director to bifurcate proceedings to allow for separate decisions
on liability and remedies. Although the CFPB notes that this is an
option in federal court case management, bifurcating proceedings
also may give the agency more leverage to convince companies to
settle after the finding of liability, but before the remedial
order. - Exhaustion requirements. The new rules include a
brand-new provision requiring defendants to exhaust all arguments
before the ALJ to preserve them for appeal before the Director or,
eventually, on appeal in federal court. There also is a new,
related, requirement to raise any “avoidance” defenses in
the defendant’s answer-an expansion on the prior requirement
that defendants raise “affirmative defenses.” - Withholding documents during discovery. The new rules
add a provision allowing the CFPB to withhold documents reflecting
settlement discussions between the agency and any other party
(other than the defendant). - Expanded use of depositions. Whereas prior rules
allowed depositions only if the witness was unable to attend the
trial, the new rules allow for a limited number of depositions.
Notably, the procedures appear to bar subpoenas to require the
testimony of CFPB employees “whose only knowledge of these
matters arises from the Bureau’s investigation.” This is
in contrast to a regular practice in federal court to require
agencies to produce representatives for deposition under Federal
Rule of Civil Procedure 30(b).
What does this mean for my business? It seems
that the CFPB may be interested in reviving its administrative
litigation practice. Companies subject to CFPB jurisdiction should
be aware that future enforcement actions may be decided by Director
Chopra under these new rules, rather than by a neutral Article III
judge. That may not affect what your company needs to do to comply
with the CFPB’s laws and rules. But it does affect what might
happen if the CFPB thinks you violated the law.
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