The new Consumer Financial Protection Act (the "Act") creates a Consumer Financial Protection Bureau (the "Bureau") which will become the primary enforcer of the provisions of the Act. When fully operational, the Bureau is expected to have a bigger budget than the Equal Employment Opportunity Commission (EEOC). Anyone involved in the consumer lending business should become familiar with the powers that the Bureau will have, and the ways those powers can be asserted.
The Bureau will have broad investigatory powers, will hold hearings, and will litigate violations of the Act, other Federal consumer finance laws, and of its own regulations in the courts.
The Bureau will be able to investigate all matters relating to "fair lending", not just those matters that are dealt with in the Act. The Bureau will also be able to conduct joint investigations with HUD or with the Attorney General. The Bureau can issue its own subpoenas with can be enforced by the Federal district courts.
Civil Investigative Demands
Before commencing litigation, the Bureau can issue a notice stating the nature of the alleged violations, and may serve document requests, requests for tangible items, interrogatories and notices of depositions. All evidence obtained by the Bureau will be kept confidential, but the Bureau may adopt rules to permit it to give material to Congress, with prior notice to the owner of the materials to be delivered.
HEARINGS AND ADJUDICATION PROCEEDINGS
The Bureau has broad powers to conduct hearings and proceedings against anyone, both to enforce compliance with the Act and, and to enforce any other Federal law regarding consumer finance.
Cease and Desist Proceedings
Proceedings may be brought by the Bureau against any "covered person" or "service provider" as these terms are defined by the Act - basically anyone involved in consumer lending. After a hearing, or if the defendant defaults, the Bureau may order the defendant to cease and desist from any illegal activities, and/or may order the defendant to take affirmative action to correct the conditions that lead to the proceeding. The Bureau can also issue temporary restraining orders prior to the final resolution of a proceeding.
Appeals from these proceedings will be to the appropriate Circuit Court of Appeals. Only the Appeals Court can stay the order of the Bureau pending appeal.
Incomplete or Inaccurate Records
If the Bureau charges that books and records of a "covered person" or "service provider" are so incomplete and inaccurate that the Bureau cannot determine the financial condition or the details of any transaction that may affect the financial condition of the person, the Bureau may issue a temporary order requiring the cessation of certain activities, and/or order affirmative action to restore the books and records to an accurate state. These orders may be enforced by the Federal district courts.
Under the Act, there is no private right of action to assert any violations. All actions must be commenced by the Bureau. The Bureau can institute a civil action against anyone for any violation of any Federal consumer financial law in state or Federal courts, within three years from the date that the violation is discovered.
The Bureau is required to coordinate with the Attorney General to avoid conflicts so that the Bureau does not impede criminal prosecutions. The Bureau itself cannot conduct criminal prosecutions. It must transmit evidence of criminal activity to the Attorney General.
Remedies that may be ordered in proceedings commenced by the Bureau include:rescission or reformation of contracts; refund of money or return of real estate; restitution; disgorgement for unjust enrichment;damages; public notification of violations; proscribing certain activities of the defendant; civil money penalties; and costs to the Bureau.
Civil money penalties can be assessed in court and administrative proceedings for the violation of any Federal consumer financial law. There are three tiers of penalties:
- up to $5,000/day for any violation;
- up to $25,000/day for a reckless violation; and
- up to $1,000,000/day for a knowing violation.
Mitigating factors will be considered in setting these penalties, such as: the good faith of the defendant; the risk to consumers caused by the violation; the gravity of the violation; the defendant's history of previous violations; and any other matter that the tribunal determines is relevant.
Certain employees of "covered persons" and "service providers" are protected from retaliation for whistle-blowing by the Act. A"covered employee" is someone involved in offering a consumer financial service or product. If an employee is discharged or discriminated against he or she must file a complaint with the secretary of Labor. If the Secretary fails to act timely, the employee may sue in Federal district court, and is entitled to request a jury trial and attorney's fees. The remedies the employee may seek include reinstatement and damages.
No employment contract may include a waiver of these rights, or may require the employee to submit these disputes to arbitration. Such provisions will be deemed unenforceable.
The Act creates a Bureau that will have broad and far-reaching power to enforce its provisions. It will still take some time to staff the Bureau and for it to issue rules and regulations. During this time, those who are involved in offering consumer financial services or products should become familiar with Act and with the power of the Bureau to enforce all Federal consumer finance laws.