The CFPB recently issued its interim final “Rules of Practice for Adjudication Proceedings,” part of a quartet of rules released on July 28, 2011. We issued a legal alert describing all of these rules, but a further review of the CFPB’s procedural rules for administrative enforcement actions leads to a couple of interesting observations.
By way of background, the CFPB’s expansive enforcement powers include the ability to bring actions both in federal court and in administrative proceedings housed wholly within the CFPB itself, similar to the SEC and FTC. These enforcement powers are limited to banks with more than $10 billion in assets and non-bank entities over which the CFPB has jurisdiction, and, while the CFPB is without a Director, are further limited to enforcement of the “enumerated consumer laws” like TILA, ECOA and FCRA. In devising its rules for administrative enforcement proceedings, the CFPB seems to have taken the view that speed is the overriding goal.
The “rocket docket” aspect of CFPB administrative proceedings is evident in the pace of the time deadlines set by the rules. After a complaint is filed, the respondent must answer within 14 days. No real discovery is permitted beyond the CFPB’s required disclosures, which reach only documents in the possession of the Bureau’s Enforcement Division; no other division of the Bureau is required to produce anything. There are no depositions or interrogatories, and subpoenas can only be issued by the hearing officer, not by the respondent in the proceedings, and they can be enforced only by the Bureau. Of course, the CFPB won’t need any discovery – it will have gathered all of the information it needs before commencing an action through examinations conducted by various divisions of the Bureau, as well as its own subpoenas and its other investigative powers. The CFPB explained that it was dispensing with formal discovery to serve the goal of “eliminating much of the expense and delay often associated with pre-trial discovery in civil matters.”
Delay is certainly one thing the CFPB didn’t want in its administrative enforcement proceedings. Its Rules put a hard time limit of 300 days from the time the action is commenced until the hearing officer must issue a recommended decision, which is subject to review only by the Director of the CFPB. This 300-day limit is subject to enlargement only in “rare circumstances.”
The overall impression of these Rules is to suggest that a respondent subject to a proceeding under them will certainly lose many of the procedural protections afforded in a court proceeding, even though under § 1055 of Dodd-Frank, there is no difference in the relief the CFPB can seek in court as opposed to in an administrative proceeding.
But reading the CFPB’s procedural rules, I can’t help being reminded of arbitration – which dispenses with discovery and court procedures in favor of simplicity and speed. Providers of consumer financial services typically limit the coverage of arbitration agreements to relatively small claims – certainly not the kind of “bet-the-bank” claims the CFPB could potentially bring. And it will be interesting to see how the CFPB squares its own Rules with any study it may eventually conduct of arbitration agreements in the consumer financial services industry. The tension may arise both with regard to the supposed importance of procedural protections and with regard to the often-mentioned “repeat player effect,” which is sure to be equally applicable to the CFPB regularly appearing before its own hearing officers. If simple, expedient procedures are a fair way to adjudicate the CFPB’s use of its enforcement powers, aren’t they also fair enough for the resolution of private disputes?