Source: https://www.bna.com/bna-insights-real-n57982072821/
Timestamp: 2019-04-23 06:20:55+00:00

Document:
Lucy Morris is a partner in the Washington, D.C., offices of Hudson Cook, LLP, where she heads the firm's Government Investigations, Examinations, and Enforcement Practice Group. Before joining Hudson Cook, Lucy worked at the Consumer Financial Protection Bureau for four years as a Deputy Enforcement Director for Litigation.
Erik Kosa is a Senior Associate at Hudson Cook and a member of the firm's Government Investigations, Examinations, and Enforcement Practice Group.
The Consumer Financial Protection Bureau (CFPB) believes that no statute of limitations applies when it sues parties in its administrative tribunal, as opposed to federal court.1 For the first time, a CFPB administrative law judge (ALJ) has held as such in an “unfair, deceptive, or abusive practices” case reaching conduct well beyond the three-year statute of limitations that would apply in federal court. This has dramatic repercussions for respondents subject to CFPB investigations. Administrative cases move quickly as it is, and now parties must prepare to defend more conduct than ever before.
The CFPB is using an increasingly important interpretation of its enabling statute to bring unfair, deceptive or abusive acts or practices (UDAAP) cases that may not be subject to any statute of limitations. The CFPB asserts that, while a three-year statute of limitations applies when it brings cases in federal court, no period of limitations applies in its own administrative tribunal, where it can seek the same remedies.
A recent decision by a CFPB ALJ demonstrates how important the CFPB views its potential power to avoid any statute-of-limitations defense by bringing enforcement actions in its administrative tribunal.
Recent developments in this case suggest that the bureau chose to pursue this case administratively because it believes that the three-year statute of limitations in the CFPA for UDAAP claims does not apply to that forum. This has important ramifications for anyone subject to the CFPB's enforcement powers because the CFPB may seek the same remedies administratively as it can in federal court, including large penalties for novel UDAAP theories.
The D.C. Circuit could change all this soon in a case involving a related issue, but for now, the ALJ's decision is the law of the land. Parties attempting to respond to civil investigative demands or settle threatened enforcement actions must grapple with this new reality.
What Does the CFPB's Ruling Say?
On April 22, the CFPB ALJ denied Integrity Advance's motion to dismiss on statute-of-limitations grounds. The ALJ noted that he is bound by CFPB Director Richard Cordray's decision from In the Matter of PHH Corp. et al., File No. 2014-CFPB-0002, in which the director ruled that the three-year statute of limitations in the Real Estate Settlement Procedures Act (RESPA) has no bearing in a CFPB administrative case. Although that ruling involved RESPA, and not UDAAP claims, the ALJ said he is bound by that decision because the same statutory analysis applies. Thus, for the first time, a CFPB tribunal has ruled that no statute of limitations applies to CFPB UDAAP claims filed in the bureau's administrative forum.
After explaining that he is bound by the director's PHH decision, the ALJ then proceeded to analyze why he believes that decision is correct.3 The ALJ's robust defense of the CFPB's position indicates the CFPB Office of Enforcement may increasingly choose this forum over federal district court because of the substantial leeway it gives the agency.
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 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. Given this reality, companies facing investigation should be proactive in putting together their defense before the bureau files a case. A “wait-and-see” approach in this environment could be costly.
The ALJ's rationale rests heavily on the structure of the statute. The ALJ adopted the bureau's theory that the CFPA essentially sets out two rules of the road: one section guiding court actions (12 U.S.C. § 5564, titled “Litigation Authority”) and another section guiding administrative proceedings (12 U.S.C. §5563, titled “Hearings and Adjudication Proceedings”).4 The fact that the two forums each get their own section indicated to the ALJ that they each get their own period of limitations: three years for court actions alleging UDAAP claims (because that is what is specified in “Litigation Authority”) and no limitation for administrative proceedings (because none is mentioned in “Hearings and Adjudication Proceedings”).
§ 5565(c) (entitled “Civil money penalty in court and administrative actions”).
While the CFPB continues to use its administrative powers to advance its reading of the statute of limitations provision, a federal appeals court is poised to rule on this issue in the PHH case that could have dramatic ramifications for the CFPB's enforcement powers. On April 12, the D.C. Circuit heard oral argument12 in PHH Corporation v. Consumer Financial Protection Bureau, and the panel seemed skeptical of the CFPB's argument that there is no statute of limitations whatsoever in its administrative forum.
The CFPB pointed to other federal agencies that seemingly have no limitations period in administrative actions, citing the Federal Trade Commission in particular. However, that agency does not have the enormous power the CFPB does, with the ability to impose large penalties for first-time UDAAP violations.
Given the importance of the RESPA issues in this case, PHH's challenge to the very constitutionality of the CFPB's structure, and the apparent skepticism of the appeals panel toward the CFPB's positions, the matter may be heard by the full D.C. Circuit after the current three-judge panel issues a ruling. Depending on the outcome, the case could conceivably end up in the Supreme Court. But unless and until the director's decision on the statute of limitations is overturned, expect to see the bureau file more cases in its administrative forum, with its many “home court” advantages.
The constantly changing definition of what constitutes an unfair, deceptive or abusive practice is already a compliance challenge. Today, the CFPB's ability to choose a forum where the bell tolls for no one gives it immense power over respondents. The Enforcement Office can take its time. Respondents cannot. Parties subject to investigation should prepare for longer and more burdensome investigations and be proactive about building a defense before the bureau files a case.
2 See Notice of Charges, In the Matter of Integrity Advance, 2015-CFPB-0029, Docket No. 001, ¶ 12.
3 See Order at pp. 19-29.
4 See id. at 26.
6 See Order at 23.
7 See id. at 23 (emphasis added).
8 See id. at 23-24.
9 See id. at 25.
10 See id. at 26.
11 See id. at 27.
12 Oral Argument, PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. Apr. 12, 2016).
28 U.S.C. § 2462. Importantly, when Director Cordray rendered his decision in PHH, he calculated disgorgement in a manner that suggests the CFPB may seek and impose an array of other monetary remedies — potentially going back many years — even if penalties appear to be foreclosed. See In the Matter of PHH Corp., 2014-CFPB-0002 (June 4, 2015), at 33-38. But because the director chose not to impose penalties in PHH, and instead ordered disgorgement, it is unclear whether this is even an issue before the court.
15 Oral Argument at 51:52, PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. Apr. 12, 2016).

References: § 5564
 §5563

§ 5565
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 § 2462
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