On June 6, 2012, the Consumer Financial Protection Bureau (“CFPB”) announced and issued three final rules relating to its procedures and practices for enforcing federal consumer financial law. Consistent with its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), these rules establish the Bureau’s procedures for conducting investigations and adjudicative proceedings, which are largely consistent with procedures used by the SEC and the FTC, as well as the notification process by which state officials must keep the Bureau informed of actions to enforce Dodd-Frank or regulations promulgated thereunder. Each of these rules, summarized below, will be effective immediately upon publication in the Federal Register.
Rules Relating to Investigations
The CFPB’s final rule governing investigations under section 1052 of the Dodd-Frank Act describes the Bureau’s authority to conduct investigations and its procedures for employing certain investigative tools, including civil investigative demands (“CIDs”) and investigational hearings. Under the rule, only certain designated officials of the CFPB have the non-delegable authority to initiate investigations and issue CIDs. CFPB CIDs can be issued to obtain any combination of the following: documentary materials; tangible things; written reports or answers to questions; and oral testimony given under oath at an investigational hearing.
Notably, once a CID is issued, the recipient must “meet and confer” with a Bureau investigator to discuss and attempt to resolve any issues regarding compliance with the CID. This meeting must take place either within 10 days of receipt, or prior to the 20-day deadline for filing a petition to modify or set aside the CID, whichever is earlier. Extensions of the deadline for filing a petition to modify or set aside are disfavored and only issues raised in the meet and confer will be considered.
The rule also details the rights of witnesses in investigations, including the right to:
- be advised of the nature of the conduct constituting the alleged violation under investigation and the applicable provisions of law;
- file a petition, including appropriate arguments, affidavits and other supporting documentation, for an order to modify or set aside a CID;
- obtain copies of, or access to, documents or testimony provided; and
be represented by counsel at investigational hearings.
Based on the facts disclosed in the course of an investigation, the Bureau may choose to:
- institute further proceedings in Federal or State court, or in accordance with the Bureau’s adjudicatory process;
- refer investigations to appropriate agencies; or
- close the investigational file if enforcement action is unnecessary or not in the public interest.
Although the rule provides that CFPB investigations will be non-public, the Bureau has reserved the right to disclose the existence of an investigation to the extent necessary to advance the investigation.
Rules Relating to Adjudicative Proceedings
In crafting its final rule regarding adjudicative proceedings, the CFPB has noted that its goal was to create an adjudicative process that is both expeditious and fair. The final rule sets forth the Bureau’s general rules for adjudicative proceedings, as well as its specific procedures for initiating proceedings, conducting hearings, and issuing decisions. Similar to its investigative rules, the CFPB has stated that its adjudicative rules incorporate and attempt to improve upon the adjudicative processes adopted by other regulators, such as the SEC and FTC. For example, the Bureau has largely adopted the SEC’s approach to fact discovery in adjudicative proceedings. The final rule provides any party in a proceeding with the opportunity to inspect and copy certain documents obtained by the Office of Enforcement in connection with the Bureau’s related investigation.
The Bureau’s decision-making procedure, as set forth in the final rule, also incorporates elements of the SEC and FTC rules. Under the CFPB’s final rule, a hearing officer will issue a recommended decision in each administrative adjudication. The rule further provides a mechanism for parties to contest the recommended decision prior to adoption of a final decision by the Bureau. The rule also provides specific deadlines by which recommended and final decisions must be provided.
State Official Notification Rule
The CFPB’s final rule establishes procedures by which state officials must provide the Bureau with prior notice of state actions undertaken to enforce compliance with federal consumer law under the Dodd-Frank Act and related CFPB regulations. The final rule establishes a default notice period of ten calendar days, and requires notice that is straightforward and comprehensive. Furthermore, the final rule makes clear that the Bureau can intervene as a party, appeal any order or judgment, and participate as otherwise appropriate in an action brought by a state official. The notice provisions do not create any procedural or substantive rights, however, for parties in litigation against the United States or a State that brings an action under Dodd-Frank.
With the issuance of these final rules, the CFPB has largely adopted the current enforcement models of the FTC and the SEC. It now remains to be seen how the CFPB will carry out its enforcement mandate once it begins to ramp up its efforts in the enforcement arena.
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