CFPB 101: What Kathy Kraninger Needs To Know About Administrative Adjudication

January 23, 2019

The CFPB Utilizes Administrative Adjudication Proceedings To Efficiently Evaluate Consumer Protection Violations.

The CFPB Uses Administrative Adjudication Proceedings—An Alternative To Court Cases—To Evaluate Allegations Of Consumer Protection Violations.  

Administrative Adjudication Proceedings Are Used To Evaluate Allegations By The CFPB Of A Violation of A Consumer Financial Protection And Are Proceeded Over By An Administrative Law Judge. “Administrative adjudication proceedings are formal adversarial proceedings conducted by an administrative law judge, who issues a recommended decision to the CFPB director. The Bureau initiates an administrative adjudication proceeding by filing a Notice of Charges alleging a violation of a consumer protection statute. […] These proceedings operate in a manner similar to bench trials in federal district courts, although administrative adjudication proceedings have some differences including their evidentiary rules.” [“Administrative adjudication proceedings,” Consumer Financial Protection Bureau, accessed 12/10/18]

• The CFPB Commonly Uses Administrative Adjudication In Order To Formalize Stipulation And Consent Orders Before Action Is Formally Filed.Administrative adjudication proceedings “follow certain truncated procedures as compared to federal court litigation. The most common use of the administrative adjudication procedure is to formalize and memorialize stipulation and consent orders that the CFPB negotiates with potential defendants before an action is formally filed.” [Oliver I. Ireland, Steven M. Kaufmann, and Donald C. Lampe, “CFPB Starts Review of Administrative Adjudications,” Morrison & Foerster, 02/02/18]

• To Conclude Administrative Adjudication Proceedings, An Administrative Law Judge Makes A Recommendation To The CFPB Director, Who Then Makes A Final Decision.After the administrative law judges issues a recommended decision, the CFPB “director issues a final decision, either adopting or modifying the administrative law judge’s recommended decision.” [“Administrative adjudication proceedings,” Consumer Financial Protection Bureau, accessed 12/10/18]

Administrative Cases Move Faster Than Federal Court Cases—A Judge’s Recommended Decision Must Come Within A Year Of Filing. 

After The CFPB Initiates Proceedings By Filing A Notice Of Charges, “A Trial Must Occur Within A Few Short Months And The [Administrative Law Judge’s] Recommended Decision Must Come Within A Year.” “Without a ticking clock forcing the CFPB to file its claims before they expire, Enforcement can take its time to investigate and file such cases. But while the CFPB has more time, respondents have less. Administrative cases move very fast: after the filing of the Notice of Charges, a trial must occur within a few short months and the ALJ’s [Administrative Law Judges’] recommended decision must come within a year. The bureau’s adjudication rules do not provide time and opportunity for discovery as in federal district court.” [Lucy Morris and Erik Kosa, “BNA INSIGHTS: Now It’s Real — No Statute of Limitations for CFPB UDAAP Claims,” Bloomberg BNA, 03/23/16]

Administrative Adjudication Is Under Threat

Mick Mulvaney’s CFPB Opened The Administrative Adjudication Process Up For Review, Claiming It Can Result In Undue Burdens For Industry.

Under Mick Mulvaney’s Leadership, The CFPB Issued A Request For Information (RFI) On Its Administrative Adjudication Process, Claiming It “Can Result In Undue Burdens” For Companies. 

In January 2018, Mick Mulvaney’s CFPB Issued A Request For Information (RFI) On The Bureau’s Administrative Adjudication Process, Seeking Comments On “How Its Existing Process May Be Improved.” On January 31, 2018, the Consumer Financial Protection Bureau (CFPB) “issued a Request for Information (RFI) about administrative adjudications. The Bureau is seeking to better understand the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved. This is the second in a series of RFIs announced as part of Acting Director Mick Mulvaney’s call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.” [“CFPB Issues Request For Information On Administrative Adjudications,” Consumer Financial Protection Bureau, 01/31/18]

• The CFPB Was “Especially Interested” In Comments About “Whether It Should Be Availing Itself Of The Administrative Adjudication Process,” Which It Claimed “Can Result In Undue Burdens, Impacts, Or Costs On The Parties Subject To These Proceedings.” The RFI claimed “that the administrative adjudication process can result in undue burdens, impacts, or costs on the parties subject to these proceedings. […] The Bureau is especially interested in receiving suggestions for whether it should be availing itself of the administrative adjudication process, and if so how its processes and Rules could be updated, streamlined, or revised to better achieve the Bureau’s statutory objectives; to minimize burdens, impacts, or costs on parties subject to these proceedings; to align the Bureau’s administrative adjudication Rules more closely with those of other agencies; and to better provide fair and efficient process to individuals and entities involved in the adjudication process, including ensuring that they have a full and fair opportunity to present evidence and arguments relevant to the proceeding. […] Whether, as a matter of policy, the Bureau should pursue contested matters only in Federal court rather than through the administrative adjudication process.” [Request for Information Regarding Bureau Rules of Practice for Adjudication Proceedings, Consumer Financial Protection Bureau, 01/31/18]

Kathy Kraninger Will Carry On Mick Mulvaney’s Legacy At The CFPB

Kathy Kraninger Supports Mick Mulvaney’s Actions As Acting CFPB Director.

During Her Confirmation Process, Kathy Kraninger Said That Mick Mulvaney Was Doing A Good Job At The CFPB And “Couldn’t Point To Any Actions He’d Taken With Which She Disagreed.” “Kraninger, 43, has been a deputy of Mulvaney at the White House Office of Management and Budget. She told senators at her confirmation hearing this summer that Mulvaney was doing a good job at the CFPB, and in written responses to questions later that she couldn’t point to any actions he’d taken with which she disagreed.” [Jim Puzzanghera, “Senate confirms new consumer financial protection chief: Kathy Kraninger, protege of industry-friendly Mick Mulvaney,” Los Angeles Times, 12/06/18]

Rhetoric Vs. Reality: Correcting The Record On Administrative Adjudication

RHETORIC: The CFPB’s Administrative Adjudication Process Is Not Truly Independent.

The U.S. Chamber Of Commerce Claimed That The CFPB’s “Flawed” Administrative Adjudication Process “Appears More Like An Extension Of The Bureau’s Enforcement Function Than An Independent Decision-Making Body.” The U.S. Chamber of Commerce criticized the CFPB’s “flawed” administrative adjudication process, claiming it “appears more like an extension of the Bureau’s enforcement function than an independent decision-making body” based on former Director Richard Cordray’s “remarkable intervention in the PHH Corporation matter.” The Chamber characterized the CFPB’s use of the process in the PHH Corp. case as a “breathtaking assertion of raw administrative power, if permitted to stand, would open the door to similarly unfair and unauthorized sanctions by the Bureau, under its broad enforcement authority, and by other agencies as well.”  [David Hirschmann, “Statement of the U.S. Chamber of Commerce,” U.S. Senate Committee on Banking, Housing and Urban Affairs, 04/05/16] 

REALITY: The CFPB’s Administrative Adjudication Process Is Based On The Processes Used By Other Federal Regulators Including The SEC And FTC.

The Codified “Rules Of Practice For Adjudication Proceedings,” Which Lay Out The CFPB’s Process Of Administrative Adjudication, Were Modeled On Those “Adopted By The Federal Banking Regulators And The Rules Of Practice Currently Used By The SEC And FTC.” The “Rules of Practice for Adjudication Proceedings,” codified at 12 CFR part 1081, “pertain to the general conduct of administrative adjudication proceedings, the initiation of such proceedings and prehearing rules, hearings, decisions and appeals, and temporary cease-and-desist proceedings. To date, there have been eight administrative adjudication proceedings under the Rules that were not immediately resolved by the issuance of a consent order pursuant to 12 CFR 1081.200(d). Six of these proceedings were settled during the course of the adjudication, one proceeding is pending, and one proceeding has resulted in a final decision.” [“Request for Information Regarding Bureau Rules of Practice for Adjudication Proceedings,” Consumer Financial Protection Bureau, 01/31/18]

• The Rules of Practice for Adjudication Proceedings were “modeled on the uniform rules and procedures for administrative hearings adopted by the federal banking regulators and the rules of practice currently used by the SEC and FTC.” [“CFPB ISSUES INTERIM FINAL RULE ON PRACTICES FOR ADJUDICATION PROCEEDINGS,” Goodwin Procter LLP, 08/09/11]

RHETORIC: The Administrative Adjudication Process Works To The CFPB’s Advantage And Does Not Give Respondents Enough Time To Comply.

Critics Argue That, Because “Administrative Cases Move Very Fast,” The Administrative Adjudication Process Works To The CFPB’s Advantage And Does Not Give Respondents Enough Time To Comply. “Without a ticking clock forcing the CFPB to file its claims before they expire, Enforcement can take its time to investigate and file such cases. But while the CFPB has more time, respondents have less. Administrative cases move very fast: after the filing of the Notice of Charges, a trial must occur within a few short months and the ALJ’s [Administrative Law Judges’] recommended decision must come within a year. The bureau’s adjudication rules do not provide time and opportunity for discovery as in federal district court. In addition, the CFPB’s rules of evidence are relaxed, giving the Enforcement staff even more leeway to introduce hearsay or other information to prove its case. Respondents facing that already intense pressure must now defend more conduct covering a longer time period.” [Lucy Morris and Erik Kosa, “BNA INSIGHTS: Now It’s Real — No Statute of Limitations for CFPB UDAAP Claims,”Bloomberg BNA, 03/23/16]

REALITY: The CFPB Can More Quickly Address Violations Of Consumer Protection Law Through The Speedy Administrative Adjudication Process, Compared To Federal Court.

The Speed Of Administrative Adjudication, Compared To Federal Court Litigation, Allows The CFPB To More Quickly Address Violations Of Consumer Protection Laws. The Process Provides “Cost Efficiency And Speedy Delivery Of Justice” – CFPB Administrative Law Judges “Are Required To Issue Recommended Decisions No Later Than 300 Days After Charges Are Filed, While It Might Take Years To Resolve A Comparable Case In Federal Court.” “Generally in administrative tribunals proceedings operate to the advantage of litigants due to cost efficiency and speedy delivery of justice.  With initiation of administrative tribunals, judicial courts are relieved of dealing with administrative matters from their files. Courts are exempted from time consuming hearing of cases in certain administrative matter. Administrative agencies can weigh and evaluate evidence with proper expertise in the matter. Moreover, it promotes uniform application of statute under which the agency operates.” [Advantages Of Administrative Process, US Legal, accessed 03/26/18]

• “The CFPB runs a ‘rocket docket’ and disposes of cases quickly, compared to the federal courts. By regulation, CFPB ALJs [Administrative Law Judges] are required to issue recommended decisions no later than 300 days after charges are filed, while it might take years to resolve a comparable case in federal court.” [“First Recommended Decision in Contested CFPB Adjudication issued by US Securities and Exchange Commission ALJ,” Mayer Brown, 12/16/14]