United States: CFPB: Enforcement Manual And Stats

We recently received a response to several FOIA requests we had made to the Consumer Financial Protection Bureau (CFPB or Bureau) regarding various enforcement statistics and processes. Because the CFPB does not make these materials generally available to the public, we share them here. The materials include the Enforcement Policy and Procedures Manual and Consent Order template, and data regarding the number enforcement investigations, opened, closed and pending each fiscal year, and the number of matters referred from supervision to enforcement.

Documents

Enforcement Policy and Procedures Manual

The CFPB apparently updated its Enforcement Policy and Procedures Manual ("Manual") in September 2018. A copy is available here. Unlike other agencies, the CFPB does not regularly post this document on its website. (The prior version of the document is posted in the CFPB's online FOIA Reading Room, but you need to know to look for it there.) The Manual, which like many such documents states that it "does not bind the Bureau and does not create any rights, benefits or defenses . that are enforceable by any party," is largely unchanged from the prior version. The following are the key changes we identified:

• Voluntary requests: The Manual deletes the prior version's statement that Enforcement staff "may consider sending a voluntary request for information in lieu of a CID." Instead, it states that "[g]enerally, staff should require certifications and obtain testimony under oath even when seeking evidence voluntarily." In our experience, the CFPB rarely relied on voluntary requests, so this change should not result in much practical difference.
• Extensions of time for petitions to quash: The Manual deletes the prior version's statement that requests for extensions of time in which to file a petition to modify or set aside a civil investigative demand ("CID") "are disfavored." Given the short timeline (20 days) in which to file such petitions, this is a welcome change for companies that receive CIDs to the extent that the change reflects a true change in policy.
• Notifications of Purpose: Responding to adverse court rulings that held that CFPB Notifications of Purpose in civil investigative demands were not specific enough, the Manual changes the instructions for drafting such Notifications of Purpose. Rather than instructing staff to "describe the nature of the conduct and the potentially applicable law in very broad terms," the Manual now requires a description "in general terms" of the "potentially wrongful conduct" and directs staff to "provide specificity" in identifying the potentially applicable provisions of law. The broad model Notification of Purpose language that used to be included has also been deleted. These changes comport to the agency's April 2019 announcement of its change in policy. (Although the Manual is dated September 2018, it notes that certain sections, including this one, have been updated more recently).
• NORA process. The Manual has added language regarding how staff should handle calls as part of the CFPB's Notice and Opportunity to Respond ("NORA") process, which is the Bureau's way of informing an investigation subject that Bureau staff intends to recommend that charges be brought in the matter. The Manual now notes that such calls should include a general description of "key evidence uncovered in the investigation." This is a helpful clarification, as understanding the nature of the evidence that staff believes constitutes a violation is essential to preparing an effective NORA response. The Manual still provides, however, that it is Enforcement's general policy to deny requests to review portions of the staff's investigative file.

Consent Order Template

The CFPB also released its Consent Order Template, which staff use to prepare draft consent orders for matters that are settling. A copy is available here. While much of the content of the template is discernable from published consent orders, the Template is a comprehensive document that should prove helpful to companies and counsel negotiating terms with the CFPB.

Statistics

We requested two sets of statistics from the agency - regarding enforcement investigations and the Action Review Committee ("ARC").

Enforcement Investigations

The CFPB produced the following chart of enforcement investigations opened and closed each Fiscal Year ("FY"). Perhaps because of a change in the internal system used by Enforcement to track open matters, the reported number of matters pending and closed each year was substantially different than the numbers reported for those years in the past, raising questions about their reliability.

The number of investigations opened each fiscal year, however, is generally consistent with previously reported numbers for prior years, and shows a sharp drop in the number of investigations opened in FY 2018 and FY2019. The FY 2018 number is not surprising as that was Acting Director Mick Mulvaney's tenure. The FY 2019 number reflects roughly two months under Mulvaney and the first 10 months of Kathleen Kraninger's tenure. CFPB enforcement investigations often last as long as two years or more, so we would expect to see either a decline in the number of public enforcement matters in the coming year as a result of this shrinking pipeline, or more cases involving smaller matters that can be concluded more quickly.

It will be interesting to see the numbers for FY 2020 and whether they stayed in the 15-20 range or returned to their historic levels. It will also be interesting to see what impact the recent reorganization of the CFPB's Division of Supervision, Enforcement and Fair Lending (SEFL) (discussed here)-which moved the authority to open investigations from the Office of Enforcement to a newly created office in SEFL-has on the pace of opening new investigations.

Another noteworthy figure is the 228 pending investigations as of the end of FY 2019 (Sept. 30 2019). If that number stayed consistent through FY 2020, that would suggest a large number of pending investigations may be carried over into 2021 and a potential new administration.

Chart: Enforcement Investigations Opened/Closed/Pending by Fiscal Year

ARC

The ARC is the process by which the CFPB decides whether legal violations uncovered in the course of a supervisory examination should be resolved via supervision (non-public resolution with no civil money penalties) or enforcement (public resolution, typically involving civil money penalties). Matters are referred to the ARC by supervision staff according to criteria set out in separate CFPB policies. The CFPB produced statistics for FY 2017 (Richard Cordray's last year in office) and FY 2018 (Acting Director Mick Mulvaney's tenure) (we had previously obtained statistics for prior years). The statistics, reproduced below, show a sharp decline in the number of matters referred to the ARC in FY 2018, though a steady number of matters referring from the ARC to Enforcement. The sharp drop in referrals to the ARC is not surprising given the general slowdown in operations when Mulvaney took over. It is not clear why the CFPB did not produce statistics for FY 2019, which would be more instructive as to ongoing CFPB operations. We have requested statistics for FY 2019 and FY 2020 and will report on them when we obtain them.

Chart: ARC Resolutions by Fiscal Year

Conclusion

It is unfortunate that the CFPB does not regularly post updates to its Enforcement Manual on its website or make the above statistics publicly available on an annual basis. It took over two years to get a response to our FOIA request seeking this information. The Bureau should welcome such transparency regarding its operations, and the Manual in particular is a helpful resource for those subject to a CFPB investigation.

In terms of the statistics, the most striking numbers relate to the sharp drop off in new investigations in the two fiscal years after Richard Cordray's departure as Director. If there is a new Administration come January, and with it a new CFPB Director, one can expect those investigation opening numbers to return to their historic levels. But because of the time it takes for investigations to mature into public settlements or lawsuits, there likely won't be an immediate impact on the number of resolved matters.

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