CFPB Issues Final Rules (Part 3 of 4): Investigative Procedures and CIDs

18 June 2012 Consumer Class Defense Counsel Blog

On June 6, 2012  the Consumer Financial Protection Bureau (the “Bureau”) issued a final rule providing more on their investigative procedures. Codified in Section 1080, the rules have only further delineated the practices and processes already in use by the Bureau. Yet, the regulations provide further structure and clarity to the Bureau’s intended investigation procedures.

As noted in an earlier posting, the final investigation and adjudication rules are modeled heavily after those presently employed by the Federal Trade Commission (“the FTC”). Yet, the Bureau also reviewed the guidelines of other law enforcement agencies. The Director, Assistant Director, and the Deputy Assistant Director of the Office of Enforcement (“the Bureau leadership”) are authorized to issue civil investigative demands (CID’s). This authority is non-delegable. The Bureau has broad authority to request documentary material, tangible things, electronically stored material, written reports, answers to questions, or oral testimony from the target of an investigation pursuant to the investigative demands. Each type of evidentiary material is outlined and defined in the final rule. Additionally, the Bureau leadership has broad power to modify CID’s, to extend time (although disfavored) in order to cooperate with the parties.

In addition to outlining the Bureau’s authorities and the specific items that can be demanded, the rule also sets forth the rights of the persons being investigated. In particular, the Bureau must provide notification that includes both the conduct constituting the alleged violation and the specific laws that were potentially violated. Bureau investigators then proceed with the investigation.

Parties have the opportunity to express their concerns with the CID during the meet and confer session. Personnel with the necessary knowledge of the issues in the CID must meet with the Bureau investigator within 10 days after receipt of the CID or before the deadline for filing a petition for an order to modify or set aside the demand (“petition”). This meeting can occur in person or over the phone. While the final rule gives the Assistant Director or the Deputy Assistant Director the authority to waive this session, parties cannot file a petition unless they “meaningfully engage” in this process. Moreover, only issues raised during the meet and confer process can be challenged later.

The final rule also details the procedures for filing a petition. Within twenty days of the receipt of the CID, or before the deadline for responding if less than twenty days, the parties can send a petition setting forth all of their legal and factual objections along with any supporting materials. A petition must be accompanied by a statement from counsel acknowledging that they attempted to work with the Bureau to resolve the issues informally. The final decision resides with the Director, but Bureau investigators can provide the Director with a response to the petition, without notifying or serving the party.

Parties have the right to access the information provided to the Bureau and to have legal counsel at investigative hearings. Investigative hearings are not governed by the rules of evidence and counsel is only permitted to raise an objection or advise a witness in order to protect a constitutional or other legal right or privilege. However, an investigation target’s counsel can raise objections before the investigative hearing in a brief and can request to ask the witness follow up questions at the completion of their testimony. Again, this process is very similar to the role of counsel permitted at FTC hearings. 

Lastly, the final rule gives the Bureau the ability to initiate actions to enforce compliance with a CID and/or to prosecute violations. The Director, Assistant Director, and General Counsel are authorized to initiate enforcement proceedings or seek civil contempt for failure to comply. Moreover, if a violation seems credible, the same parties can initiate the Bureau’s administrative adjudicatory processes, initiate federal or state court actions, or refer the investigation to other federal, state, or foreign agencies.

In the end, the Bureau leadership has been given broad authority to investigate and, when necessary, prosecute violations of the consumer protection statutes. These final rules should not come as a surprise to those who have been working with the Bureau thus far, both because these rules are modeled after other administrative agencies and because they simply officially codify the policies and procedures that are presently in use.

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