On March 9, 2015, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray presided over oral argument in the first appeal hearing of an administrative enforcement action.   The appeal involves two companies that allegedly gave and received millions in payments through a “captive” mortgage reinsurance arrangement. Administrative Law Judge Cameron Elliot’s recommended decision concluded that these payments were “kickbacks” in violation of the Real Estate Settlement Procedures Act. The companies and the CFPB filed notices of appeal, and Director Cordray allotted each party 30 minutes to present argument for the appeal.

CFPB’s Rules of Practice for Adjudication Proceedings explain the process for appealing an ALJ’s recommended decision to the CFPB director. A party must perfect an appeal of a recommended decision if the party intends to seek judicial review of the director’s final decision, and a recommended decision does not become final until it is reviewed by the CFPB director. In other words, the CFPB director is given an ironically critical role in an adjudication process that claims to be run by an “independent judicial office” within the CFPB.

The rules provide specific deadlines for appealing and suggest that the director’s final decision could issue in less than six months after a party files a notice of appeal:

Please click here to view table.

Although targets of a CFPB administrative action may appreciate the timeliness of receiving an appeal decision, they should be wary of some of the rules that provide a huge home-court advantage to the agency in an appeal proceeding. In particular, the rules provide the CFPB director with unlimited discretion in reaching his decision:

  • The rules provide no applicable standard of review to be applied by the director in reviewing a recommended decision.
  • At any time prior to issuing the final decision, the director may raise and determine any other matters outside the scope of the issues specified in the notice(s) of appeal as long as the director deems the issues to be “material.”
  • The director may schedule oral argument if the director determines it would be helpful, and the rules do not set restrictions as to the time limitations for oral arguments

Parties are permitted to file a petition for reconsideration of the director’s final decision, but the rules limit the petition to addressing only new questions raised by the final decision that the party did not have the opportunity to previously address in briefing or oral argument. A response to the petition is not permitted unless requested by the director.

The rules also allow parties to seek judicial review of the director’s final decision, but provide no guidance as to that review.

As we await the first appeal decision by a CFPB director, it will be enlightening to see how the CFPB director uses (or abuses) his unfettered discretion.