The Consumer Financial Protection Bureau in late February issued a
Our internal tracking shows that almost all of the CFPB’s pending enforcement actions were originally filed in federal district court, even though the Dodd-Frank Act permits it to pursue enforcement through administrative actions. The updated rule amends the Rules of Practice for Adjudication Proceedings in a number of ways, and notably includes several amendments that could make it easier for the CFPB to litigate claims without the need to resort to filing actions in federal court in the first instance.
Director Rohit Chopra has made clear in testimony and in public appearances that the CFPB has a wide range of enforcement priorities, including but not limited to automobile lending, prepaid cards, bank fees, credit reporting and medical debts, to name a few. The updated rule lays out a clearer pathway to enforcement through administrative actions. That could expand the CFPB’s reliance upon a potentially more advantageous forum to pursue its priorities by appearing before administrative law judges. Just as important, the new rule may open a playbook that allows the CFPB to pursue its regulatory agenda at a much faster pace than it could in often-backlogged federal courts. The updated rule does this in a number of important ways.
Among other things, the amendments create a presumption that the director of the CFPB will rule on the merits of the dispute rather than procedural or discrete matters, unless the director refers the issue (in whole or in part) to an administrative law judge for adjudication.The CFPB explained that it adopted this change because “the head of the agency has authority and expertise to rule initially on dispositive motions, and doing so can improve the quality of decision-making and expedite the proceeding.” The updated rule also gives the director authority to bifurcate proceedings if the director determines that it would promote efficiency in the proceeding or for other good cause. This allows the director to separate liability from damages, for example, and issue an early decision on whether there is a violation of the law.
Taken together, these provisions effectively empower the director to rule on key issues more quickly than under the prior rule.
The updated rule also included procedural changes that could limit judicial review if not properly followed. It adds a new rule that requires a party to (1) raise an argument before an administrative law judge in order for that issue to be heard by the director and (2) raise an argument before the director in order to eventually raise that issue in any court appeal of an administrative decision. This layered process creates multiple avenues for a party to inadvertently waive an issue by failing to raise it relatively early in the legal process. Further, the updated rule also amends the requirements for answers in administrative proceedings to require parties to not only plead affirmative defenses, but also plead “avoidance defenses” — those that typically depend on introducing new facts outside of the complaint. That requirement, too, opens another window for a procedural misstep that could result in a party accidentally waiving issues during the administrative process.
The updated rule also revises the rules of practice to bring civil litigation-style depositions to the administrative process. Previously, depositions were only permitted for witnesses unable to attend or testify at a hearing. The updated rule eliminates that limitation by permitting discovery depositions either by oral examination or by written questions.
The updated rule includes many other changes, but those above make it easier for the CFPB to litigate in the administrative process. In this regard, the CFPB’s approach is consistent with state-level financial services regulators that primarily enforce through administrative processes rather than in court. Of course, any final agency decision will still be subject to judicial review, but there are many respects in which the applicable standards of review could put an appealing party at a disadvantage.
While the updated rule is effective immediately, the CFPB is accepting comments on it until April 8. Given the potential significance of the changes, whether and to what extent the CFPB’s preferred forum for litigated matters shifts in light of these changes bears monitoring.
