Rule2023-04109
Rules of Practice for Adjudication Proceedings
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 29, 2023
Effective
March 29, 2023
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Rules of Practice for Adjudication Proceedings (Rules of Practice) govern adjudication proceedings conducted by the Consumer Financial Protection Bureau (Bureau). The Bureau issued a procedural rule to update the Rules of Practice (Updated Rules of Practice). The Updated Rules of Practice expanded the opportunities for parties in adjudication proceedings to conduct depositions. They also made amendments concerning timing and deadlines, the content of answers, the scheduling conference, bifurcation of proceedings, the process for deciding dispositive motions, and requirements for issue exhaustion, as well as other technical changes. The Bureau sought to provide the parties with earlier access to relevant information and also foster greater procedural flexibility, which the Bureau expected would ultimately contribute to more effective and efficient proceedings. The Bureau invited the public to submit comments on the Updated Rules of Practice. After considering the comments, the Bureau has decided to retain the amendments.
Full Text
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<title>Federal Register, Volume 88 Issue 60 (Wednesday, March 29, 2023)</title>
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[Federal Register Volume 88, Number 60 (Wednesday, March 29, 2023)]
[Rules and Regulations]
[Pages 18382-18389]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-04109]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1081
[Docket No. CFPB-2022-0009]
RIN 3170-AB08
Rules of Practice for Adjudication Proceedings
AGENCY: Consumer Financial Protection Bureau.
ACTION: Final rule; consideration of comments.
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SUMMARY: The Rules of Practice for Adjudication Proceedings (Rules of
Practice) govern adjudication proceedings conducted by the Consumer
Financial Protection Bureau (Bureau). The Bureau issued a procedural
rule to update the Rules of Practice (Updated Rules of Practice). The
Updated Rules of Practice expanded the opportunities for parties in
adjudication proceedings to conduct depositions. They also made
amendments concerning timing and deadlines, the content of answers, the
scheduling conference, bifurcation of proceedings, the process for
deciding dispositive motions, and requirements for issue exhaustion, as
well as other technical changes. The Bureau sought to provide the
parties with earlier access to relevant information and also foster
greater procedural flexibility, which the Bureau expected would
ultimately contribute to more effective and efficient proceedings. The
Bureau invited the public to submit comments on the Updated Rules of
Practice. After considering the comments, the Bureau has decided to
retain the amendments.
DATES: This action is effective on March 29, 2023.
FOR FURTHER INFORMATION CONTACT: Kevin E. Friedl or Christopher
Shelton, Senior Counsel, Legal Division, at 202-435-7700. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#c88b8e988a9789ababadbbbba1aaa1a4a1bcb188abaeb8aae6afa7be"><span class="__cf_email__" data-cfemail="7f3c392f3d203e1c1c1a0c0c161d1613160b063f1c190f1d51181009">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
The Consumer Financial Protection Act of 2010 (CFPA) establishes
the Bureau as an independent bureau in the Federal Reserve System and
assigns the Bureau a range of rulemaking, enforcement, supervision, and
other authorities.\1\ The Bureau's enforcement powers under the CFPA
include section 1053, which authorizes the Bureau to conduct
adjudication proceedings.\2\ The Bureau finalized the original version
of the Rules of Practice, which govern adjudication proceedings, in
2012 (2012 Rule).\3\ The Bureau later finalized certain amendments,
which addressed the issuance of temporary cease-and-desist orders, in
2014 (2014 Rule).\4\
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\1\ Title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376, 1955-2113
(2010).
\2\ 12 U.S.C. 5563; see also section 1052(b), 12 U.S.C. 5562(b)
(addressing subpoenas).
\3\ 77 FR 39057 (June 29, 2012); see also 76 FR 45337 (July 28,
2011) (interim final rule).
\4\ 79 FR 34622 (June 18, 2014); see also 78 FR 59163 (Sept. 26,
2013) (interim final rule).
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II. Overview of the Updated Rules of Practice and Comments Received
The Bureau issued the Updated Rules of Practice in February
2022.\5\ The Updated Rules of Practice were exempt from the notice-and-
comment requirements of the Administrative Procedure Act, because they
were a rule of agency organization, procedure, and practice.\6\
Consequently, they were effective upon publication (although no
adjudication proceedings have occurred under the Updated Rules of
Practice). The Bureau invited the public to submit comments.
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\5\ 87 FR 10028 (Feb. 22, 2022).
\6\ 5 U.S.C. 553(b).
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The Bureau received four comments. These came from a group of trade
associations, a consumer advocacy organization, a bank holding company,
and a legal foundation.\7\ The group of trade associations noted that
administrative adjudication can play an important and valuable role in
an effective regulatory system by providing an efficient, and equally
fair, alternative to civil litigation. However, the trade associations
opposed the changes regarding the content of answers, bifurcation of
proceedings, rulings on dispositive motions, and issue exhaustion. By
contrast, the consumer advocacy organization supported the rule,
stating that it simultaneously strengthens the ability of the agency to
protect consumers and the rights of respondents subject to agency
action. The bank holding company expressed support for the trade
associations' comment. Finally, the legal foundation opposed the issue-
exhaustion provision.
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\7\ The Bureau also received other communications on the docket
that did not relate to the topic of adjudication proceedings.
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After carefully considering these comments, the Bureau has decided
to retain the amendments made in the Updated Rules of Practice. The
Bureau addresses the comments in more detail below.
III. Legal Authority
Section 1053(e) of the CFPA provides that the Bureau ``shall
prescribe rules establishing such procedures as may be necessary to
carry out'' section 1053.\8\ Additionally, section 1022(b)(1) provides,
in relevant part, that the Bureau's Director ``may prescribe rules . .
. as may be necessary or appropriate to enable the Bureau to administer
and carry out the purposes and objectives of the Federal consumer
financial laws, and to prevent evasions thereof.'' \9\ The Bureau
issues this rule based on its authority under section 1053(e) and
section 1022(b)(1).
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\8\ 12 U.S.C. 5563(e). As courts have recognized, the term
``necessary'' is ``a `chameleon-like' word'' whose meaning can vary
based on context; in the context of section 1053(e), the Bureau
interprets ```necessary' to mean `useful,' `convenient' or
`appropriate' rather than `required' or `indispensable.' ''
Prometheus Radio Project v. FCC, 373 F.3d 372, 391-94 (3d Cir.
2004). Section 1053 sets out the fundamental features of Bureau
adjudications, but it leaves many details open that can only be
addressed through more specific Bureau procedures. In turn, those
Bureau procedures could not be effective, or fair to the parties, if
they were limited to only the most rudimentary steps that would be
indispensable to holding a skeletal proceeding. Instead, the Bureau
believes that Congress gave the Bureau room to adopt procedures that
are useful in carrying out section 1053.
\9\ 12 U.S.C. 5512(b)(1).
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IV. Section-by-Section Analysis
1081.114(a) Construction of Time Limits.
12 CFR 1081.114(a) (Rule 114(a)) governs the computation of any
time limit that is prescribed by Rules of Practice, by order of the
Director or the hearing officer, or by any applicable statute. The
Updated Rules of Practice amended Rule 114(a) for the purpose of
simplifying and clarifying it, based on similar amendments made to
Federal Rule of Civil Procedure 6(a) in 2009.
As amended by the Updated Rules of Practice, Rule 114(a) provides
for time periods to be computed in the following manner. First, exclude
the day of the event that triggers the period. Second, count every day,
including intermediate Saturdays, Sundays, and Federal holidays. Third,
include the last day of the period unless it is a Saturday, Sunday, or
Federal holiday as set forth in 5 U.S.C. 6103(a). When the last day is
a Saturday, Sunday, or Federal holiday, the period runs until the end
of the next day that is not a Saturday, Sunday, or Federal holiday.
[[Page 18383]]
The Updated Rules of Practice also made adjustments to various
specific deadlines in the Rules of Practice, to roughly compensate for
the update in computation method. For example, a 10-day period under
the previous computation method would most frequently correspond to a
14-day period under the updated computation method, so 10-day periods
were generally changed to 14 days.
No comments opposed the amendments to Rule 114(a), and the Bureau
is retaining them.
1081.115(b) Considerations in Determining Whether To Extend Time Limits
or Grant Postponements, Adjournments and Extensions.
12 CFR 1081.115(b) (Rule 115(b)) concerns motions for extensions of
time. Under the 2012 Rule, the provision stated that the Director or
the hearing officer should adhere to a policy of strongly disfavoring
granting motions for extensions of time, except in circumstances where
the moving party makes a strong showing that the denial of the motion
would substantially prejudice its case. It then listed factors that the
Director or hearing officer will consider.
The Updated Rules of Practice simplified the provision, to state
only that such motions are generally disfavored, while retaining the
same list of factors that the Director or hearing officer will
consider. The preamble explained that the Bureau continues to believe
that extensions of time should generally be disfavored, but it believes
that relatively more flexibility than the previous language provided
may be appropriate.
No comments opposed the amendment to Rule 115(b), and the Bureau is
retaining it.
1081.201(b) Content of Answer
12 CFR 1081.201(b) (Rule 201(b)) requires a respondent to file an
answer containing, among other things, any affirmative defense.
The Updated Rules of Practice amended Rule 201(b) to make clear
that the answer must include any avoidance, including those that may
not be considered ``affirmative defenses.'' As the Securities and
Exchange Commission (SEC) explained when it adopted a similar amendment
to its rules of practice, timely assertion of such theories should help
focus the use of prehearing discovery, foster early identification of
key issues and, as a result, make the discovery process more effective
and efficient.\10\
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\10\ 81 FR 50211, 50219-20 (July 29, 2016).
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The comment by a group of trade associations opposed the amendment
to Rule 201(b). The comment stated that the amendment would reduce
protections for respondent companies in a way that will lead to a
denial of due process. However, the comment did not articulate why a
duty to include avoidances in the answer would be a denial of due
process. The Bureau considers the amendment to Rule 201(b) to be a
reasonable requirement that promotes early identification of issues,
and the Bureau notes that the answer can later be amended in
appropriate circumstances under 12 CFR 1081.202(a) (Rule 202(a)). The
Bureau is retaining the amendment to Rule 201(b).
1081.203 Scheduling Conference
12 CFR 1081.203 (Rule 203) requires a scheduling conference with
all parties and the hearing officer for the purpose of scheduling the
course and conduct of the proceeding. Before that scheduling
conference, Rule 203 requires the parties to meet to discuss the nature
and basis of their claims and defenses, the possibilities for
settlement, as well as the matters that will be discussed with the
hearing officer at the scheduling conference. The Updated Rules of
Practice made certain changes to the details of Rule 203, including
renumbering its provisions. This discussion cites the provisions as
renumbered.
First, the Updated Rules of Practice amended Rule 203(b) to require
that the parties exchange a scheduling conference disclosure after that
initial meeting, but before the scheduling conference. That disclosure
must include a factual summary of the case, a summary of all factual
and legal issues in dispute, and a summary of all factual and legal
bases supporting each defense. The disclosure must also include
information about the evidence that the party may present at the
hearing, other than solely for impeachment, including (i) the contact
information for anticipated witnesses, as well as a summary of the
witness's anticipated testimony; and (ii) the identification of
documents or other exhibits.
The Updated Rules of Practice also made certain amendments to Rules
203(c), (d), and (e). Amended Rule 203(c) provides that a party must
supplement or correct the scheduling conference disclosure in a timely
manner if the party acquires other information that it intends to rely
upon at a hearing. Amended Rule 203(d) provides a harmless-error rule
for failures to disclose in scheduling conference disclosures. Finally,
the Updated Rules of Practice made certain minor clarifications to Rule
203(e), which governs the scheduling conference itself.
As the preamble to the Updated Rules of Practice stated, these
amendments to Rule 203 are intended to foster early identification of
key issues and, as a result, make the adjudication process, including
any discovery process, more effective and efficient. They are also
intended to, early in the process, determine whether the parties intend
to seek the issuance of subpoenas or file dispositive motions so that,
with input from the parties, the hearing officer can set an appropriate
hearing date, taking into account the time necessary to complete the
discovery or decide the anticipated dispositive motions.
The preamble to the Updated Rules of Practice recognized that, in
most cases, the deadline for making the scheduling conference
disclosure will also be the date the Office of Enforcement must
commence making documents available to the respondent under 12 CFR
1081.206 (Rule 206). The preamble reiterated a statement from the
preamble to the 2012 Rule, which was that the Bureau expects that the
Office of Enforcement will make the material available as soon as
possible in every case.\11\ And even in cases where the Office of
Enforcement cannot make those documents available within that time, a
respondent may request a later hearing date and can move the hearing
officer to alter the dates for either the scheduling conference or the
scheduling conference disclosure.
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\11\ 77 FR 39057, 39072 (June 29, 2012).
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No comments opposed the amendments to Rule 203, and the Bureau is
retaining them.
1081.204(c) Bifurcation
The Updated Rules of Practice added a new 12 CFR 1081.204(c) (Rule
204(c)) to address bifurcation of proceedings. It provides that the
Director may order that the proceeding be divided into two or more
stages, if the Director determines that it would promote efficiency in
the proceeding or for other good cause. For example, the Director may
order that the proceeding have two stages, so that at the conclusion of
the first stage the Director issues a decision on whether there have
been violations of law and at the conclusion of the second stage the
Director issues a final decision and order, including with respect to
any remedies. The Director may make an order under Rule 204(c) either
on the motion of a party or on the Director's own motion after inviting
submissions by the parties. The Director may include, in that order or
in later
[[Page 18384]]
orders, modifications to the procedures in the Rules of Practice in
order to effectuate an efficient division into stages, or the Director
may assign such authority to the hearing officer.\12\
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\12\ The new provision also clarifies that only the decision and
order of the Director after the final stage, and not a decision of
the Director after an earlier stage, will be a final decision and
order for purposes of specified provisions of the Rules of Practice
and section 1053(b) of the CFPA.
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The preamble to the Updated Rules of Practice noted that
bifurcation is a standard case-management tool available to Federal
district courts. It explained that Rule 204(c) will provide the Bureau
with the flexibility to use bifurcation in adjudication proceedings, if
warranted by particular cases, and to tailor its procedures to the
circumstances of those bifurcated cases.
The comment by a consumer advocacy organization supported Rule
204(c). According to the organization's comment, separating the
determination of whether there has been a violation of law from the
issue of remedies would help promote the development of legal precedent
and also save resources by the Bureau and respondents.
The comment by a group of trade associations opposed Rule 204(c).
This comment argued that assigning too much authority to the Director
risked depriving respondents of due process, because, in the
commenters' view, the Director is insufficiently impartial. However, it
is unclear why the decision to bifurcate a proceeding is any different
from the many other decisions that the Director makes in an
adjudication. The Director can and will adjudicate matters fairly,
whether in bifurcated or non-bifurcated proceedings. As courts have
consistently held, heads of executive agencies can perform adjudicative
functions, and such adjudications provide due process of law.
Accordingly, the Bureau is retaining Rule 204(c).
1081.206 Availability of Documents for Inspection and Copying
12 CFR 1081.206 (Rule 206) provides that the Bureau's Office of
Enforcement will make certain documents available for inspection and
copying. The Updated Rules of Practice amended Rule 206 to clarify
certain categories of documents that may be withheld or information
that may be redacted, as well as to make clear that the Office of
Enforcement may produce those documents in an electronic format rather
than making the documents available for physical inspection and
copying.
As the preamble to the Updated Rules of Practice explained, the
clarifying amendments regarding documents that may be withheld or
information that may be redacted are based on amendments the SEC
recently made to its rules of practice. Amended Rule 206(b)(1)(iv)
makes clear that the Office of Enforcement need not produce a document
that reflects only settlement negotiations between the Office of
Enforcement and a person or entity who is not a current respondent in
the proceeding. As the SEC explained when it amended its rules of
practice, this amendment is consistent with the important public policy
interest in candid settlement negotiations, will help to preserve the
confidentiality of settlement discussions, and help safeguard the
privacy of potential respondents with whom the Office of Enforcement
has negotiated.\13\ Amended Rule 206 also permits the Office of
Enforcement to redact from the documents it produces information it is
not obligated to produce (Rule 206(b)(2)(i)) and sensitive personal
information about persons other than the respondent (Rule
206(b)(2)(ii)). These amendments also track the SEC's recent amendments
to its rules of practice and are designed to provide further
protections for sensitive personal information and to permit the
redaction of information that is not required to be produced in the
first place.
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\13\ 81 FR 50211, 50222 (July 29, 2016).
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The Updated Rules of Practice also amended Rule 206(d) to change
the date by which the Office of Enforcement must commence making
documents available to the respondent, changing that date from seven
days after service of the notice of charges to fourteen. This
clarification harmonizes these timing provisions with 12 CFR 1081.119
(Rule 119), which protects the rights of third parties who have
produced documents under a claim of confidentiality. The previous Rule
119 required a party to give a third party notice at least ten days
prior to the disclosure of information obtained from that third party
subject to a claim of confidentiality. Under the previous Rules of
Practice, that meant that the Office of Enforcement had to provide
notice to third parties before it commenced the adjudication proceeding
because the Office of Enforcement had to give those third parties at
least ten days' notice before producing the documents and the Office of
Enforcement had to commence making documents available seven days after
filing. The Updated Rules of Practice amended Rule 119 to require
parties to notify the third parties at least seven days prior to the
disclosure of information the third party produced under a claim of
confidentiality. Together, Rules 119 and 206 now require the Office of
Enforcement to commence making documents available fourteen days after
service of the notice of charges and to notify third parties who
produced documents subject to that disclosure requirement under a claim
of confidentiality at least seven days before producing those
documents.
Under the 2012 Rule, Rule 206(e) provided that the Office of
Enforcement must make the documents available for inspection and
copying at the Bureau's office where they are ordinarily maintained.
The preamble to the 2012 Rule explained that the Bureau anticipated
providing electronic copies of documents to respondents in most
cases.\14\ Subsequently, the Updated Rules of Practice amended Rule
206(e) to recognize this practice and expressly provide that the Office
of Enforcement may produce those documents in an electronic format
rather than making the documents available for inspection and copying.
Under the amended Rule 206(e), the Office of Enforcement retains the
discretion to make documents available for inspection and copying.
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\14\ 77 FR 39057, 39070 (June 29, 2012).
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No comments opposed the amendments to Rule 206, and the Bureau is
retaining them.
1081.208 Subpoenas and 1081.209 Depositions
The Updated Rules of Practice made certain interrelated changes to
12 CFR 1081.208 and 1081.209 (Rules 208 and 209).
Under the 2012 Rule, Rule 209 permitted parties to take depositions
only if the witness was unable to attend or testify at a hearing. As
the Bureau noted in the preamble to the 2012 Rule, the Bureau's Rules
of Practice were modeled in part on the approach that the SEC took in
its rules of practice.\15\ Since that time, the SEC has amended its
rules of practice to permit discovery depositions.\16\
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\15\ 77 FR 39057, 39058 (June 29, 2012).
\16\ 81 FR 50211 (July 29, 2016).
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The Updated Rules of Practice amended Rule 209 to permit discovery
depositions--either by oral examination or written questions--in
addition to depositions of unavailable witnesses. If a proceeding
involves a single respondent, amended Rule 209(a)(1) allows the
respondent and the Office of Enforcement to each depose up to three
persons (i.e., up to three depositions per side). If a proceeding
involves multiple respondents, amended Rule 209(a)(2) allows
respondents to collectively
[[Page 18385]]
depose up to five persons and the Office of Enforcement to depose up to
five persons (i.e., up to five depositions per side). This approach is
consistent with the approach the SEC adopted when it amended its rules
of practice to allow depositions.\17\ Under Rule 209(a)(3), a party may
also move to take additional depositions, though that motion must be
filed no later than 28 days prior to the hearing date. Amended Rule
209(a)(3) also sets forth the procedure for requesting to taking
additional depositions.
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\17\ Id. at 50216.
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The preamble to the Updated Rules of Practice explained that the
above amendments to Rule 209 are intended to provide parties with
further opportunities to develop arguments and defenses through
deposition discovery, which may narrow the facts and issues to be
explored during the hearing. Allowing depositions should facilitate the
development of the case during the prehearing stage, which may result
in more focused prehearing preparations, with issues distilled for the
hearing and post-hearing briefing.
Under amended Rules 208(a) and 209(a), a party must request that
the hearing officer issue a subpoena for the deposition. If the
subpoena is issued, under amended Rule 209(d) the party must also serve
written notice of the deposition. New Rule 208(e) governs the standard
for issuance of subpoenas seeking depositions upon oral examination.
Under Rule 208(e), the hearing officer will promptly issue any subpoena
requiring the attendance and testimony of witnesses at a deposition
only if the subpoena complies with Rule 209 and if the proposed
deponent: (i) is a witness identified in the other party's scheduling
conference disclosure now required under revised Rule 203(b); (ii) a
fact witness; \18\ (iii) is a designated expert witness under 12 CFR
1081.210(b) (Rule 210(b)); or (iv) a document custodian.\19\ The
preamble to the Updated Rules of Practice explained that fact
witnesses, expert witnesses, and document custodians, whose knowledge
of relevant facts does not arise from the Bureau's investigation, the
Bureau's examination, or the proceeding, are the individuals most
likely to have information relevant to the issues to be decided.
Because the Bureau will also disclose to respondents the documents
described in Rule 206 as well as witness statements upon request under
12 CFR 1081.207 (Rule 207), deposing Bureau staff whose only knowledge
of relevant facts arose from the investigation, examination, or
proceeding is unlikely to shed light on the events underlying the
proceeding and will likely lead to impermissible inquiries into the
mental processes and strategies of Bureau attorneys or staff under
their direction. Not only does this implicate privileges or the work-
product doctrine, but deposition of Bureau staff in this manner can be
burdensome and disruptive because it embroils the parties in
controversies over the scope of those protections.
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\18\ Under amended Rule 208(e), this type of proposed deponent
must have witnessed or participated in any event, transaction,
occurrence, act, or omission that forms the basis for any claim
asserted by the Office of Enforcement, any defense, or anything else
required to be included in an answer pursuant to Rule 201(b), by any
respondent in the proceeding (this excludes a proposed deponent
whose only knowledge of these matters arises from the Bureau's
investigation, the Bureau's examination, or the proceeding).
\19\ This excludes Bureau officers or personnel who have custody
of documents or data that was produced from the Office of
Enforcement to the respondent. In most circumstances, the Bureau
officers or personnel were not the original custodian of the
documents. Where the Bureau was the original custodian of the
document--for example, a report of examination under 12 CFR
1081.303(d)(2) (Rule 303(d)(2))--there is no need to depose a
document custodian as that report is admissible without a sponsoring
witness.
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The Updated Rules of Practice also amended Rule 208(e)(2) to
provide a process for the hearing officer to request more information
about the relevance or scope of the testimony sought and to refuse to
issue the subpoena or issue it only upon conditions. The preamble to
the Updated Rules of Practice explained that this provision is intended
to foster use of depositions where appropriate and encourage meaningful
discovery, within the limits of the number of depositions provided per
side. The provision should encourage parties to focus any requested
depositions on those persons most likely to yield relevant information
and thereby make efficient use of time during the prehearing stage.
Under the 2012 Rule, Rule 208(a) permitted parties to request
issuance of subpoenas requiring the attendance and testimony of
witnesses at the designated time and place of the hearing, for the
production of documentary or other tangible evidence, or for the
deposition of a witness who will be unavailable for the hearing. Rule
210 also permitted the deposition of expert witnesses. The Updated
Rules of Practice kept these provisions, making conforming amendments
to account for the new provision permitting discovery depositions. A
subpoena seeking the deposition of a witness who will be unavailable
for the hearing does not count against the number of depositions
permitted under Rule 209(a).
As the preamble to the Updated Rules of Practice explained, the
above amendments expand the available legitimate mechanisms respondents
may use to conduct discovery, providing respondents a clearer
understanding of the bases of the Bureau's factual contentions while
reducing the costs and burdens of hearings on all parties.
Additionally, the grounds for a hearing officer denying a request to
issue a subpoena under Rule 208(e)--that it is ``unreasonable,
oppressive, excessive in scope, or unduly burdensome''--are consistent
with well-established judicial standards, and hearing officers will, in
their consideration of requests for subpoenas, act diligently and in
good faith to implement the standards for refusing or modifying
deposition subpoenas set forth under the amended rule. These combined
changes are overall less burdensome yet are equally effective in the
resolution of the case on the merits.
Amended Rule 209 also includes additional procedures governing the
taking of depositions. For example, once a subpoena for a deposition is
issued, the party seeking the deposition must serve written notice of
the deposition pursuant to Rule 209(d). That notice must include
several things, including the time and place of the deposition, the
identity of the deponent, and the method for recording the deposition.
The preamble to the Updated Rules of Practice explained that these
procedural provisions track the SEC's recent amendments to its rules of
practice.\20\ They govern the process for seeking depositions by
written questions and the taking of all depositions, including setting
forth the deposition officer's duties, the process for stating
objections, motions to terminate or limit the deposition, and the
process for finalizing a transcript.
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\20\ 81 FR 50211, 50215-17 (July 29, 2016).
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Finally, the Updated Rules of Practice added a new Rule 208(l),
which addresses the relationship of subpoenas to the scheduling of the
hearing. In the 2012 Rule, one reason why the Bureau did not--as a
general matter--permit discovery depositions was because the additional
time required for depositions before the hearing could be in tension
with the statutory timetable for hearings under section 1053(b) of the
CFPA.\21\ As the preamble to the 2012 Rule noted, prehearing
depositions would present extreme scheduling difficulties in those
cases in which respondents did not request hearing dates outside the
default timeframe under section 1053(b), which provides for the hearing
to be held 30
[[Page 18386]]
to 60 days after service of the notice of charges, unless an earlier or
a later date is set by the Bureau, at the request of any party so
served.\22\ The new Rule 208(l) addresses this scheduling obstacle to
depositions and other discovery, by specifying that a respondent's
request for issuance of a subpoena constitutes a request that the
hearing not be held until after a reasonable period, determined by the
hearing officer, for the completion of discovery.\23\ This is because a
request for discovery reasonably entails a delay for the discovery
process to be completed.
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\21\ 12 U.S.C. 5563(b).
\22\ 77 FR 39057, 39076 (June 29, 2012).
\23\ Rule 208(l) goes on to specify that the hearing officer
will decide whether to grant such a request. If the request is
granted, the hearing officer will set a deadline for the completion
of discovery and schedule the specific date of the hearing, in
consultation with the parties. Rule 208(l) does not apply to a
subpoena for the attendance and testimony of a witness at the
hearing or a subpoena to depose a witness unavailable for the
hearing.
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The preamble to the Updated Rules of Practice explained that, given
this resolution of the 2012 Rule's scheduling concern, the Bureau
believes that the benefits of discovery depositions under the amended
Rule 209, as described earlier, outweigh other concerns expressed in
the preamble to the 2012 Rule about the time, expense, and risk of
collateral disputes arising from depositions.\24\
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\24\ 77 FR 39057, 39076 (June 29, 2012).
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The comment that the Bureau received from a consumer advocacy
organization supported the amendments to Rules 208 and 209. The
consumer advocacy organization stated that discovery depositions would
allow respondents to further develop their cases, which should lead to
a more informed and deliberative process. It also stated that the
amendments should prevent disruption from surprise witnesses. No
comments opposed the amendments to Rules 208 and 209, and the Bureau is
retaining them.
1081.211 Interlocutory Review
12 CFR 1081.211 (Rule 211) governs interlocutory review by the
Director. Under the 2012 Rule, the provision included language stating
that interlocutory review is disfavored, and that the Director will
grant a petition to review a hearing officer's ruling or order prior to
the Director's consideration of a recommended decision only in
extraordinary circumstances. The Updated Rules of Practice simplified
this language to state only that interlocutory review is generally
disfavored. The preamble explained that, although interlocutory review
remains disfavored, the Bureau believes that there can be situations
where interlocutory review can contribute to the efficiency of
proceedings short of extraordinary circumstances.
No comments opposed the amendment to Rule 211, and the Bureau is
retaining it.
1081.212 Dispositive Motions
The Updated Rules of Practice relocated the previous 12 CFR
1081.212(g) and (h) (Rule 212(g) and (h)), which addressed oral
argument and decisions on dispositive motions, respectively, to form
part of 12 CFR 1081.213 (Rule 213). Rule 213 is discussed in the next
section of this section-by-section analysis.
Additionally, the Updated Rules of Practice added new Rule 212(g)
to address the relationship of dispositive motions to the scheduling of
the hearing. It is codified as Rule 212(g) but unrelated to the
previous Rule 212(g). It is analogous to Rule 208(l), discussed above.
It specifies that a respondent's filing of a dispositive motion
constitutes a request that the hearing not be held until after the
motion is resolved.\25\ This is because the filing of a dispositive
motion, whose purpose is to avoid or limit the need for a hearing,
reasonably entails a delay of that hearing so that the motion can be
resolved.
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\25\ Rule 212(g) goes on to state that the hearing officer will
decide whether to grant such a request. If the request is granted,
the hearing officer will schedule the specific date of the hearing,
in consultation with the parties.
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No comments opposed the amendments to Rule 212, and the Bureau is
retaining them.
1081.213 Rulings on Dispositive Motions
The Updated Rules of Practice amended Rule 213 to adopt a new
procedure for rulings on dispositive motions, based on a procedure used
by the Federal Trade Commission (FTC). The Bureau also made related
technical changes for clarity.
Under the 2012 Rule, the Director could, ``at any time, direct that
any matter be submitted to him or her for review.'' \26\ However, prior
to the Updated Rules of Practice, there was no specific procedure for
the Director to exercise this discretion in the context of dispositive
motions.
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\26\ 12 CFR 1081.211(a).
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As amended by the Updated Rules of Practice, Rule 213(a) provides
that the Director will either rule on a dispositive motion, refer the
motion to the hearing officer, or rule on the motion in part and refer
it in part. This is based on a similar process under the FTC's rules of
practice.\27\ The preamble to the Updated Rules of Practice noted that
Bureau agrees with the reasoning of the FTC when it adopted this
process a decade ago. The FTC explained that 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.\28\ As the FTC further noted, an erroneous decision by an
administrative law judge on a dispositive motion may lead to
unnecessary briefing, hearing, and reversal, resulting in substantial
costs and delay to the litigants.\29\ The preamble to the Updated Rules
of Practice explained that adopting this process will give the Director
the flexibility to decide whether a given dispositive motion would be
most efficiently addressed by the hearing officer, with ultimate review
by the Director, or simply by the Director.
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\27\ 16 CFR 3.22(a). This FTC provision does not specifically
discuss a situation where the agency head rules on the motion in
part and refers it in part. The Bureau has included language in Rule
213(a) to specifically discuss this situation.
\28\ 74 FR 1803, 1809-10 (Jan. 13, 2009).
\29\ Id. at 1809-10.
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Rule 213(b) was amended to provide that, if the Director rules on
the motion, the Director must do so within 42 days following the
expiration of the time for filing all responses and replies, unless
there is good cause to extend the deadline. If the Director refers the
motion to the hearing officer, the Director may set a deadline for the
hearing officer to rule. This was based on the parallel timing
requirements under the FTC's rules of practice.\30\ Under the 2012
Rule, Rule 212(h) provided a 30-day timeframe for the hearing officer
to decide dispositive motions, subject to extension.\31\ But the
preamble to the Updated Rules of Practice stated that the FTC's
somewhat more flexible approach to timing is warranted, given that the
Director must first decide whether or not to refer the motion to the
hearing officer and also has other responsibilities as the head of the
agency. The preamble stated that that the overall efficiency gains to
adjudication proceedings from the new process, as discussed above,
should generally compensate for any delays associated with a more
flexible deadline.
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\30\ 16 CFR 3.22(a). This FTC provision includes an interval of
45 days, but the Updated Rules of Practice generally adopted time
intervals in increments of seven days.
\31\ See 12 CFR 1081.115 (change of time limits).
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Rule 213(c) was amended to provide that, at the request of any
party or on the Director or hearing officer's own motion, the Director
or hearing officer
[[Page 18387]]
(as applicable) may hear oral argument on a dispositive motion. The
amended Rule 213(c) was identical to the previous Rule 212(g), except
that it was updated to reflect the fact that the Director would be the
appropriate official to hear oral argument, if any, to the extent the
Director is deciding the motion.
Finally, Rule 213(d) was amended to describe the types of rulings
that the Director or hearing officer may make on a dispositive motion.
It consolidated language from the previous Rules 212(h) and 213, with
updates to reflect the fact that the Director may be the official who
decides the motion, as well as other technical changes for clarity.
The comment by a group of trade associations opposed the amendments
to Rule 213. This comment argued that having the Director decide
dispositive motions is inconsistent with due process. It asserted that
the Director is not impartial, since the Director would have previously
authorized the Office of Enforcement to file the notice of charges. The
comment further argued that Directors can change depending on the
administration, so vesting authority in the Director would lead to
instability in legal doctrine.
The Bureau disagrees. The Director can and will act fairly in
performing his or her adjudicative functions. The Director's ability to
do so is unaffected by whether he or she decides that a dispositive
motion would be most efficiently addressed by the hearing officer, with
ultimate review by the Director, or simply by the Director. Also, as
noted, it was already the case under the 2012 Rule that the Director
could, ``at any time, direct that any matter be submitted to him or her
for review.'' The adoption of a specific process for review of
dispositive motions does not substantively change the Director's
adjudicative role. In sum, Rule 213 is entirely consistent with due
process principles.
The Bureau also disagrees with the suggestion that the changes to
Rule 213 will lead to instability in legal doctrine. Commenters'
observation that leadership of the agency will change over time,
including as presidential administrations change, is true regardless of
whether the Director or the hearing officer reviews a dispositive
motion in the first instance. It is also true of many other agencies
that use adjudication proceedings, including both single-head and
multimember agencies.
Accordingly, the Bureau is retaining the amendments to Rule 213.
1081.400(a) Time Period for Filing Preliminary Findings and Conclusions
12 CFR 1081.400(a) (Rule 400(a)) sets the deadline for the hearing
officer to file preliminary findings and conclusions. Under the 2012
Rule, subject to possible extensions, the hearing officer was required
to file a recommended decision (now known as ``preliminary findings and
conclusions'') no later than 90 days after the deadline for filing
post-hearing responsive briefs pursuant to 12 CFR 1081.305(b) (Rule
305(b)) and in no event later than 300 days after filing of the notice
of charges. The Updated Rules of Practice extended the latter, 300-day
interval to 360 days, in light of the amendments to Rule 209 that
expanded the opportunities for depositions. The Updated Rules of
Practice also changed terminology from ``recommended decision'' to
``preliminary findings and conclusions'' throughout the Rules of
Practice, as discussed later in this section-by-section analysis.
The comment by a consumer advocacy organization supported the
extension of the 300-day deadline to 360 days. It noted that the
extension would benefit respondents by giving them more time to develop
their cases and would provide for a more informed and deliberative
agency process. Other commenters did not address the amendments to Rule
400(a), and the Bureau is retaining them.
1081.408 Issue Exhaustion
The Updated Rules of Practice added a new 12 CFR 1081.408 (Rule
408), which addresses issue exhaustion.
As the Supreme Court has explained: ``Administrative review schemes
commonly require parties to give the agency an opportunity to address
an issue before seeking judicial review of that question.'' \32\ These
requirements can be ``creatures of statute or regulation'' or else are
``judicially created.'' \33\ It is ``common for an agency's regulations
to require issue exhaustion in administrative appeals. And when
regulations do so, courts reviewing agency action regularly ensure
against the bypassing of that requirement by refusing to consider
unexhausted issues.'' \34\ Consistent with the Court's case law, the
Administrative Conference of the United States has recommended that
agencies address issue exhaustion requirements in their
regulations.\35\
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\32\ Carr v. Saul, 141 S. Ct. 1352, 1358 (2021).
\33\ Id.
\34\ Sims v. Apfel, 530 U.S. 103, 108 (2000) (internal citation
omitted).
\35\ 86 FR 6612, 6619 (Jan. 22, 2021) (recommendation 2.k).
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The Updated Rules of Practice adopted Rule 408, which is an express
regulation on issue exhaustion. Section 1053 of the CFPA contemplates
that the Bureau will conduct a proceeding to decide whether to issue a
final order, and then parties may petition courts to review the
Bureau's decision, based on the record that was before the Bureau.\36\
But if parties do not adequately present their arguments to the Bureau,
it frustrates this statutory scheme. Accordingly, having procedures to
address issue exhaustion in adjudication proceedings is important to
carry out section 1053.\37\ Additionally, having express procedures on
this subject should benefit both the Bureau and the parties, by
avoiding any potential confusion about how parties must raise arguments
in adjudication proceedings.
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\36\ See generally section 1053(b), 12 U.S.C. 5563(b).
\37\ Section 1053(e), 12 U.S.C. 5563(e). The issue exhaustion
provision is also independently authorized by section 1022(b)(1), 12
U.S.C. 5512(b)(1), based on either of two grounds. First,
establishing orderly rules for issue exhaustion is appropriate to
enable the Bureau to ``administer and carry out the purposes and
objectives of'' section 1053, for the reasons discussed above and
below. Id. Second, these issue-exhaustion rules ``prevent evasions''
of section 1053 and the Rules of Practice by some parties, who
otherwise may not adequately present their arguments to the Bureau.
Id.; see Woodford v. Ngo, 548 U.S. 81, 90 (2006) (explaining that
``exhaustion requirements are designed to deal with parties who do
not want to exhaust'').
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Rule 408(a) defines the new Rule 408's scope. It applies to any
argument to support a party's case or defense, including any argument
that could be a basis for setting aside Bureau action under 5 U.S.C.
706 or any other source of law. This broad scope ensures that the
Bureau has the opportunity to consider any issue affecting its
proceedings.
Rule 408(b) provides, first, that a party must raise an argument
before the hearing officer, or else it is not preserved for later
consideration by the Director. Second, a party must raise an argument
before the Director, or else it is not preserved for later
consideration by a court. This is consistent with the roles of the
hearing officer and Director.\38\
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\38\ The Bureau notes that in cases where Rule 408(b) interacts
with the Bureau's revisions to Rule 213, it yields a common-sense
result. If the Director rules on a dispositive motion under Rule 213
rather than referring it to the hearing officer, then the first
sentence of Rule 408(b)--which normally requires parties to raise
arguments before the hearing officer in the first instance--would be
inapplicable to the Director's consideration of the motion. This is
because the Director's ruling on the motion would not be ``later''
consideration by the Director after the hearing officer. On the
other hand, the second sentence of Rule 408(b) would be applicable,
and arguments not properly raised before the Director in briefing on
the motion would not be preserved for later consideration by a
court.
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[[Page 18388]]
Rule 408(c) provides that an argument must be raised in a manner
that complies with the Rules of Practice and that provides a fair
opportunity to consider the argument.
Finally, Rule 408(d) clarifies that the Director has discretion to
consider an unpreserved argument, including by considering it in the
alternative. It also clarifies that, if the Director considers an
unpreserved argument in the alternative, the argument remains
unpreserved. Because issue exhaustion requirements serve to protect the
agency's processes, it is appropriate for the head of the agency to
retain discretion to waive those issue exhaustion requirements in
appropriate cases.\39\ If a party believes that there is good cause for
the issue exhaustion requirements to not be applied in a particular
context, the proper course is to timely request that the Director
exercise this discretion. The Director may also do so on the Director's
own initiative. On the other hand, if the Director merely considers an
unpreserved argument in the alternative, that should not be construed
as a waiver by the Director of the party's failure to appropriately
raise the argument.
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\39\ See, e.g., Am. Farm Lines v. Black Ball Freight Serv., 397
U.S. 532, 539 (1970) (It ``is always within the discretion of . . .
an administrative agency to relax or modify its procedural rules
adopted for the orderly transaction of business before it when in a
given case the ends of justice require it.'').
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Comments by the group of trade associations and by the legal
foundation opposed Rule 408. The trade associations stated that the
provision would reduce access to Federal courts. The legal foundation
argued that Rule 408 should not cover ``structural'' constitutional
claims. According to the legal foundation, Rule 408 strips courts of
the power to police the separation of powers and denies respondents any
forum to litigate structural constitutional claims.\40\
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\40\ The legal foundation's comment also cites Carr v. Saul, 141
S. Ct. 1352 (2021), a case where the Supreme Court held that social
security claimants were not required to exhaust Appointments Clause
claims before Social Security Administration ALJs. The comment
argues that this means that issue exhaustion does not apply to
structural constitutional claims. However, this reflects a
misreading of Carr. The Court emphasized that it was addressing a
situation where ``statutes and regulations are silent,'' and so the
question presented in Carr was whether the Court should ``impose a
judicially created issue-exhaustion requirement.'' Id. at 1358
(emphasis added). Even in that context, the Court relied on several
factors ``taken together,'' only one of which related to the
constitutional nature of the claims. See id. at 1358-62. Carr does
not stand for the proposition that an issue-exhaustion regulation
cannot address constitutional claims.
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However, Rule 408 does not foreclose respondents from raising any
claim in Federal court, including constitutional claims. Like any
issue-exhaustion regulation, it merely requires them to give the agency
a fair opportunity to address the issue first, before invoking it to
attack the agency's decision after the fact. For these reasons and the
reasons explained in the Updated Rules of Practice, the Bureau is
retaining Rule 408.
Global Technical Amendments
In addition to the specific changes outlined above, the Updated
Rules of Practice made certain technical amendments throughout the
Rules of Practice.
First, the Updated Rules of Practice retitled the hearing officer's
``recommended decision'' as ``preliminary findings and conclusions.''
The preamble explained that the new title is more descriptive of this
component of an adjudication proceeding. The preamble also emphasized
that this is a terminological change, and preliminary findings and
conclusions remain a recommended decision for purposes of the
Administrative Procedure Act.
Second, the Updated Rules of Practice made changes to ensure that
the language of the Rules of Practice is gender inclusive.
Third, consistent with the current Federal Rules of Civil
Procedure, the Updated Rules of Practice replaced used of the term
``shall'' with the terms ``must,'' ``may,'' ``will,'' or ``should,''
depending on the context, because the term ``shall'' can sometimes be
ambiguous.\41\
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\41\ Fed. R. Civ. P. 1, advisory committee's notes to 2007
amendment.
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Fourth, the Updated Rules of Practice replaced certain uses of the
term ``the Bureau'' with either ``the Director,'' ``the Office of
Administrative Adjudication,'' or ``the Office of Enforcement,'' in
order to avoid ambiguity about which Bureau organ is being referenced.
Fifth, as discussed in the section-by-section analysis for Rule
114(a), the Updated Rules of Practice adjusted various time periods in
the Rules of Practice.
Finally, the Updated Rules of Practice made technical changes to
requirements in 12 CFR 1081.111(a), 1081.113(d)(2), and 1081.405(e)
(Rules 111(a), 113(d)(2), and 405(e)) regarding filing of certain
papers by the hearing officer and Director and service of those papers
by the Office of Administrative Adjudication.
No comments opposed these technical amendments, and the Bureau is
retaining them.
V. Section 1022(b)(2) Analysis
In developing the Updated Rules of Practice and this rule, the
Bureau has considered the rule's benefits, costs, and impacts in
accordance with section 1022(b)(2)(A) of the CFPA.\42\ In addition, the
Bureau has consulted or offered to consult with the prudential
regulators and the FTC, including regarding consistency of the Updated
Rules of Practice and this rule with any prudential, market, or
systemic objectives administered by those agencies, in accordance with
section 1022(b)(2)(B) of the CFPA.\43\
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\42\ 12 U.S.C. 5512(b)(2)(A).
\43\ 12 U.S.C. 5512(b)(2)(B). Whether section 1022(b)(2)(A) and
section 1022(b)(2)(A)(B) are applicable to this rule is unclear, but
in order to inform the rulemaking more fully the Bureau performed
the described analysis and consultations.
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The Updated Rules of Practice included the below analysis of costs,
benefits, or impacts. No commenter addressed that analysis, and this
rule adopts the Updated Rules of Practice without change, so the Bureau
is adopting the same analysis for this rule.
As with the 2012 Rule, the Updated Rules of Practice neither impose
obligations on consumers, nor are expected to affect their access to
consumer financial products or services. For purposes of this
1022(b)(2) analysis, the Bureau compares the effect of the Updated
Rules of Practice against the baseline of the Rules of Practice as they
existed before the Updated Rules of Practice, as established by the
2012 Rule and amended by the 2014 Rule.
The Rules of Practice are intended to provide an expeditious
decision-making process. An expeditious decision-making process may
benefit both consumers and covered persons to the extent that it is
used in lieu of proceedings initiated in Federal district court. A
clear and efficient process for the conduct of adjudication proceedings
benefits consumers by providing a systematic process for protecting
them from unlawful behavior. At the same time, a more efficient process
affords covered persons with a cost-effective way to have their cases
heard. The 2012 Rule adopted an affirmative disclosure approach to fact
discovery, pursuant to which the Bureau makes available to respondents
the information obtained by the Office of Enforcement from persons not
employed by the Bureau prior to the institution of proceedings,
[[Page 18389]]
in connection with the investigation leading to the institution of
proceedings that is not otherwise privileged or protected from
disclosure. This affirmative disclosure obligation was intended to
substitute for the traditional civil discovery process, which can be
both time-consuming and expensive. By changing this process to allow
for a limited number of depositions by both the Office of Enforcement
and respondents, the Updated Rules of Practice increases the cost of
the process in both time and money, relative to the baseline. At the
same time, to the extent that a limited number of depositions makes
hearings proceed more efficiently, the rule may reduce costs. In
addition, since promulgating the 2012 Rule, the Bureau has only brought
two cases through the administrative adjudication process from start to
finish. As such, the Bureau expects there to be few cases in the future
that would have benefited from the more limited deposition procedure in
the 2012 Rule. The Bureau expects the amended procedure to still be
faster and less expensive than discovery through a Federal district
court. To the extent that adding additional discovery enables more
cases that would otherwise be initiated in Federal court to instead be
initiated through the administrative adjudication process, both
consumers and covered persons will benefit.
In addition, in the 1022(b)(2) analysis for the 2012 Rule, the
Bureau stated that a benefit of the Rule was its similarity to existing
rules of the prudential regulators, the FTC, and the SEC. The SEC has
since amended its rules, and many of the changes in these amendments
will align the Bureau's rules with the new SEC rules and those of other
agencies. The similarity of the Updated Rules of Practice to other
agencies' rules should further reduce the expense of administrative
adjudication for covered persons.
Further, the Updated Rules of Practice have no unique impact on
insured depository institutions or insured credit unions with less than
$10 billion in assets described in section 1026(a) of the CFPA.
Finally, the Updated Rules of Practice do not have a unique impact on
rural consumers.
VI. Regulatory Requirements
The preamble to the Updated Rules of Practice explained that, as a
rule of agency organization, procedure, or practice, it was exempt from
the notice-and-comment rulemaking requirements of the Administrative
Procedure Act.\44\ However, the Bureau accepted comments on the rule
and is issuing this rule after considering those comments.\45\
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\44\ 5 U.S.C. 553(b).
\45\ The comment by the group of trade associations requested
that the Bureau propose a new rule based on their objections to
aspects of the Updated Rules of Practice. However, the Bureau has
considered these objections and does not agree with them for the
reasons discussed in the section-by-section analysis, so the Bureau
is not issuing a new proposal based on them.
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Because no notice of proposed rulemaking was required, the
Regulatory Flexibility Act does not require an initial or final
regulatory flexibility analysis for this rule.\46\ Moreover, the
Bureau's Director certifies that this rule will not have a significant
economic impact on a substantial number of small entities. Therefore,
an analysis is also not required for that reason.\47\ The rule imposes
compliance burdens only on the handful of entities that are respondents
in adjudication proceedings or third-party recipients of discovery
requests. Some of the handful of affected entities may be small
entities under the Regulatory Flexibility Act, but they would represent
an extremely small fraction of small entities in consumer financial
services markets. Accordingly, the number of small entities affected is
not substantial.
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\46\ 5 U.S.C. 603, 604.
\47\ 5 U.S.C. 605(b).
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The Bureau has also determined that this rule does not impose any
new or revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\48\
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\48\ 44 U.S.C. 3501-3521.
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List of Subjects in 12 CFR Part 1081
Administrative practice and procedure, Banks, banking, Consumer
protection, Credit unions, Law enforcement, National banks, Savings
associations, Trade practices.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-04109 Filed 3-28-23; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.