Alert June 12, 2012

CFPB Issues Rules for Enforcement Actions

The CFPB issued three final rules and one interim final rule governing its enforcement of the consumer protection statutes under its authority. The three final rules relate to “the agency’s investigative and adjudicative processes and [ ] interactions with state law enforcement.” The interim final rule implements the Equal Access to Justice Act. The final rules are effective upon publication in the Federal Register, while the interim final rule will be open for comment for 60 days after publication. Each of the rules is discussed in turn below.

Procedures for Investigations

The CFPB adopted a final rule describing its procedures for investigations. Under Section 1052 of the Dodd-Frank Act, the CFPB has authority to conduct investigations to determine whether any person is or has been engaged in conduct that, if proved, would constitute a violation of any federal consumer financial law. Drawing most heavily from the FTC’s non-adjudicative procedures in constructing the rules, the rule sets forth the CFPB’s authority to conduct investigations, the rights of persons from whom the CFPB seeks to compel information in investigations, and the procedures related to Civil Investigative Demands and Investigative Hearings, among other things. The rule also revises and clarifies certain issues raised by commentators in the public comment period. For example, in response to several comments raising the concern that a staff-level employee could “unilaterally open an investigation or issue a CID,” the rule clarifies that the only the Assistant Director or any Deputy Assistant Director of the Office of Enforcement has the authority to initiate an investigation and issue a CID.

Adjudication Proceedings

Section 1053(e) of the Dodd-Frank Act requires the CFPB to establish procedures for conducting adjudication proceedings. Similar to the final rule on its investigative procedures, this final rule is modeled on the rules of prudential regulators, including the FTC and SEC, as well as on the uniform rules under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Key provisions of the rule include (1) a right to appeal a hearing officer’s recommended decisions and order on a dispositive motion; (2) deadlines for recommended decisions by hearing officers and final decisions by the Director; (3) a limited right to inspect and copy documents obtained by non-Bureau employees (notably, unlike the SEC rules, the rule does not create an obligation to turn over all material, exculpatory information in the CFPB’s possession, but only documents obtained by the Office of Enforcement); and (4) limited discovery – the rule does not allow for certain pre-trial discovery, such as interrogatories and discovery depositions.

State Official Notification

Section 1042(a) of the Dodd-Frank Act permits a state attorney general or regulator to bring an action to enforce Title X of the Act. However, prior to initiating an action, under Section 1042(b), the state official is required to provide notice of the action to the CFPB and the prudential regulator. The final rule sets forth the procedure for notification, including the timing and content of the notice and the notice recipients’ responsibilities. The final rule also clarifies that the CFPB can intervene as a party in a state action, and that the notice provisions do not create a substantive or procedural right against either the United States or the state bringing an action under Title X.

Equal Access to Justice Act

The EAJA requires federal agencies that conduct adversary adjudications to award attorney’s fees and litigation costs, and to establish procedures for the submission and consideration of applications for the award of fees and costs. The interim final rule mainly adopts the 1986 Administrative Conference of the United States model rules implementing the EAJA, with some minor departures that are explained in the rule. For example, unlike the ACUS model rules, the CFPB did not adopt a provision on the maximum rates for attorney’s fees, but rather referred back to the EAJA for the maximum hourly rates for attorney’s fees.

Click here for the related press release; here for the rule relating to investigations; here for the rule of practice for adjudication proceedings; here for the state official notification rule; and here for the interim rule implementing the EAJA.