CFPB Issues Final Rules of Practice Governing the Agency’s Adjudication and Investigational Proceedings and an Interim Final Rule Pursuant to the Equal Access to Justice Act

On June 29, 2012, the CFPB issued two Rules of Practice separately governing the agency’s adjudication proceedings and investigational, nonadjudicative matters. In addition, the CFPB issued its final State Official Notification Rule. These rules codify the interim final rules promulgated on July 28, 2011, previously discussed here, and have an immediate effective date. Also on June 29th, the CFPB issued an interim final rule with request for comment entitled the Equal Access to Justice Act Implementation Rule. The key provisions of each rule are summarized below.

Rules of Practice Governing Adjudication Proceedings

In promulgating the final rule governing adjudication proceedings, the CFPB seeks to promote the expeditious resolution of claims while ensuring that parties receive a fair and impartial hearing. The final rule is modeled on the rules of practice of other federal agencies, including the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the prudential regulators.

In particular, it sets forth the authority of a hearing officer to conduct administrative proceedings and issue recommended decisions. Similar to the SEC rules, the final rule permits the hearing officer a specified period of time – 300 days from service of the notice of charges or 90 days after briefing is complete – to issue a recommended decision. If a recommended decision is appealed, the director must issue his final decision within 90 days. Extensions of time are generally disfavored.

Further, the final rule contains provisions for the deposition of witnesses unavailable for trial, the use of subpoenas to compel the production of documentary or tangible evidence, and expert discovery. Similar to the SEC’s affirmative disclosure approach, the CFPB must provide any party in an adjudicative proceeding the opportunity to inspect and copy certain documents obtained in connection with the underlying investigation and certain non-privileged documents created by the CFPB. In addition, the final rule establishes the procedures by which parties may request confidential treatment of filings or disclose confidential information received by a third party, including the third party’s right to intervene for purposes of protecting its confidential information.

Rules Relating to Investigations

The final rule relating to investigations describes a number of CFPB policies and procedures that apply in an investigational, nonadjudicative setting. Among other things, the final rule sets forth (1) the CFPB’s authority to conduct investigations under Federal consumer financial law, and (2) the rights of persons from whom the CFPB seeks to compel information. This rule is modeled on investigative procedures of other law enforcement agencies, including the FTC, the SEC, and the prudential regulators.

In pertinent part, the final rule authorizes the director and certain other officials to issue civil investigative demands (CIDs) for documentary materials, tangible things, written reports, answers to questions, or oral testimony. The rule also details the authority of CFPB investigators to conduct investigations and to hold investigational hearings pursuant to CIDs for oral testimony. With regard to the rights of persons subject to an investigation, the final rule sets forth certain notification requirements and procedures to petition for CID modification or set-aside. The rule further describes the process by which persons may obtain copies of or access to documents provided in response to a CID, and details the rights of witnesses in investigations, in particular, the parameters under which witnesses may be accompanied, represented, and advised by counsel during an investigational hearing.

State Official Notification Rule

Applicable federal law mandates that the CFPB establish procedures by which state officials notify the CFPB of actions brought under the Dodd-Frank Act. Under the final rule, state officials must provide notice to the CFPB at least ten days before initiating an action under section 1042(a) of the Dodd-Frank Act. For matters of emergency, if state officials initiate an action to protect the public interest or prevent irreparable and imminent harm, they must notify the CFPB within 48 hours of filing the action. The notice must include information such as the names of parties involved and the nature of claims. In response, the CFPB can intervene and participate in the action as appropriate.

Equal Access to Justice Act Implementation Rule

The Equal Access to Justice Act (EAJA), 5 U.S.C. 504, requires agencies that conduct adversary adjudications to award attorneys fees and other litigation expenses to certain parties other than the United States in certain circumstances. The EAJA also requires that these agencies establish procedures for the submission and consideration of applications for the award of fees and other expenses. The CFPB’s interim final rule establishes those procedures. Under the interim rule, a party subject to a CFPB adjudication is eligible to receive an award in two instances: first, when it is the prevailing party, unless the CFPB’s position in the proceeding was substantially justified or special circumstances make an award unjust; or second, when the CFPB’s demand is substantially in excess of the decision of the adjudicative officer and is unreasonable when compared with that decision, unless the party has committed a willful violation of law or otherwise acted in bad faith.

All affected companies and businesses are strongly encouraged to carefully review the CFPB’s new Rules of Practice relating to adjudicative processes and investigative proceedings, and the State Official Notification Rule. In addition, interested parties are encouraged to submit comments on the interim final rule relating to the Equal Access to Justice Act prior to the deadline of August 28, 2012.

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