CFPB Issues Revised Administrative Litigation Procedures, Signaling Possible Increase In In-House Adjudications – Finance and Banking

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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