United States: CFPB Requests Comments On Civil Investigative Demand Process

Last Updated: February 1 2018
Article by Ori Lev and Christa L. Bieker

On January 24, 2018, the Consumer Financial Protection Bureau ("CFPB" or "Bureau") announced that it is seeking public comment on all aspects of its civil investigative demand ("CID") process. This Request for Information ("RFI") is the first in a series of RFIs in which the Bureau plans to seek comment on its enforcement, supervision, rulemaking, market monitoring, and education activities.

The RFI comes on the heels of Acting Director Mick Mulvaney's announcement that the CFPB will no longer "push the envelope" when it comes to enforcement. Consistent with that sentiment, the RFI explains that the CFPB is "especially interested in better understanding how its processes related to CIDs may be updated, streamlined, or revised to better achieve the Bureau's statutory and regulatory objectives, while minimizing burdens." Because responding to the CFPB's CIDs has often proved to be an arduous and costly endeavor, this RFI is likely to be a welcome opportunity for many regulated entities.

The CFPB issues CIDs to gather information related to possible violations of consumer financial laws through a variety of methods including interrogatories, document requests, requests for written reports (essentially, data compilations) and testimony at investigational hearings. CIDs are judicially enforceable and entities and individuals who do not comply with a court's order may face contempt charges.

The Bureau is seeking comments on all aspects of the CID process, including the following topics:

Process for Initiating Investigations and Issuing CIDs. The RFI requests comments on how investigations are initiated and CIDs are issued, including who can take those actions. Under the CFPB's rules, an investigation can be opened by the Enforcement Director or a Deputy Enforcement Director (although as a matter of practice the Enforcement Director approves the opening of all investigations). CIDs can, and are, issued by Deputy Enforcement Directors. The CFPB may receive comments that higher-level approval (e.g., the CFPB Director or Deputy Director) should be required for each of these steps, particularly the opening of investigations, to help ensure that investigations are focused and not based on legal theories that would "push the envelope." The Federal Trade Commission, for example, requires that the Commission issue a resolution authorizing the use of compulsory process before CIDs can be issued and requires that CIDs be issued by a Commissioner.

Improving CID Recipients' Understanding of Investigations. The RFI requests comments on steps the CFPB could take to improve CID recipients' understanding of its investigations. When the CFPB issues a CID, it is required by statute to identify "the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation." As a matter of practice, the CFPB has typically provided this information in extremely broad terms, using boilerplate language that refers to "unlawful acts and practices" and provides investigation subjects with little insight into what conduct the CFPB believes may have violated the law. The sufficiency of the CFPB's Notification of Purpose has been the subject of judicial decision. The CFPB may receive comments suggesting that it craft more specific Notification of Purpose statements to better inform CID recipients of what conduct the agency is investigating. More narrowly drawn Notifications of Purpose may also lead to more narrowly drawn information requests in the CIDs or provide a basis to object to requests that are unduly broad

Nature and Scope of CID Requests. The RFI also requests comments on the nature and scope of CID requests. The Bureau frequently words its requests to require companies to produce "all documents relating to" a broad topic. In addition, the Bureau often seeks documents going back many years, including documents that were created or were in effect prior to the Bureau's establishment in 2011. Given the broad scope of the requests, it is not unusual for the recipient of a CID to produce hundreds of thousands of pages of responsive documents throughout the course of the investigation. It is not always clear whether all of this material is helpful to the CFPB or whether the CFPB even can digest such a large amount of material. The CFPB is likely to receive comments suggesting that it develop more targeted focuses for its investigations and then request an appropriately narrowed set of materials.

Rights Afforded Witnesses. In addition, the RFI requests comments on the rights afforded to witnesses, including the limitations on the role of counsel during investigational hearings. The CFPB's rules allow witnesses to have counsel present during investigational hearings but do not permit attorneys to make objections other than those made "for the purpose of protecting a constitutional or other legal right of privilege." CFPB attorneys often disapprove if defense counsel interjects in an effort to clarify the line of questioning. The CFPB's rule is grounded in a statutory provision governing the conduct of investigational hearings, but the statute is worded differently from the CFPB's rules and arguably does not require a prohibition on all other objections. Moreover, the RFI in general explains that the CFPB is interested in aligning its practices with those of other agencies with similar authorities, so it may be relevant that broader objections are allowed in investigational hearings conducted by the Federal Trade Commission.

Meet and Confer Process. The RFI requests comments about the meet and confer process, including negotiations regarding modifications to CIDs. The CFPB's rules require recipients of CIDs to meet and confer with the CFPB within 10 days after receipt of the CID. Line attorneys at the Bureau do not have authority to grant modification on the spot. Instead, the Bureau requires detailed written submissions supporting modification requests, and it often takes the Bureau time after receipt of such requests to appropriately escalate and discuss them. Given that the Bureau's rules provide CID recipients only 20 days after service of a CID to file a petition to set aside or modify a CID, subjects of an investigation sometimes find themselves in a difficult position in which they must draft a petition to set aside or modify a CID at the same time they are hoping to resolve their concerns through the meet and confer process.

Process for Petitioning to Modify or Set Aside CIDs. The RFI requests comments about the process by which CID recipients can formally seek to have the CID modified or set aside by the Director, including specifically whether petitioners should be entitled to see enforcement staff's response to the petition, whether petitions and orders should be made public, and the costs and benefits of the petition process. Under current CFPB rules, petitions become public once the Director issues a decision on the petition. This creates a substantial disincentive for companies to file petitions, as doing so has the consequence of publicizing an otherwise non-public investigation.

The CFPB also specifically asked for comments on the timeframes that apply to each step of the CID process; the rules that apply when the CFPB takes testimony from an entity; the process for handling inadvertent production of privileged information; and the CFPB's requirements for responding to CIDs, including certification requirements and the Bureau's document submission standards.

One topic not specifically flagged in the RFI is the confidentiality of CIDs and whether CID recipients are authorized to disclose their existence. Over one year ago, the CFPB proposed changes to the rules governing the confidentiality of CIDs. As we previously discussed, the CFPB's proposal raised substantial constitutional concerns. The CFPB has yet to revise its rules to address this issue; this is another topic on which we would expect the CFPB to receive comments.

The RFI requests that interested parties submit specific suggestions for changes to the CFPB's practices and identify aspects of the CID process that should not be modified. Comments are due by March 27, 2018 and can be submitted electronically, by mail, or by courier. We expect that the comments are likely to lead to substantial changes in the CFPB's enforcement process.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2018. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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