Civil Money Penalties: Certain Prohibited Conduct, 61754-61757 [E8-24574]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 73, Number 202 (Friday, October 17, 2008)]
[Proposed Rules]
[Pages 61754-61757]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-24574]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 30

[Docket No. FR-5081-P-01]
RIN 2501-AD23


Civil Money Penalties: Certain Prohibited Conduct

AGENCY: Office of General Counsel, HUD.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This rule would revise HUD's regulations that govern the 
imposition of civil money penalties. Specifically, the rule would 
revise the definition of ``material or materially'' and add a 
definition of ``ability to pay,'' which is one factor used in 
determining the appropriateness of the amount of any civil money 
penalty. Additionally, the proposed rule would require respondents, in 
their responses to the prepenalty notice, to specifically address the 
factors used in determining the appropriateness and amount of civil 
money penalty. This rule would also allow Government Counsel to file 
complaints on behalf of the Mortgagee Review Board and departmental 
officials. Finally, this rule would make other minor clarifying 
changes.

DATES: Comment Due Date: December 16, 2008.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10276, Washington, DC 20410-0500. Interested persons also may submit 
comments electronically through The Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically in order to make them immediately available to 
the public. Commenters should follow the instructions provided on that 
site to submit comments electronically. Facsimile (FAX) comments are 
not acceptable. In all cases, communications must refer to the docket 
number and title. All comments and communications submitted to HUD will 
be available for public inspection and copying between 8 a.m. and 5 
p.m. weekdays at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at 202-
708-3055 (this is not a toll-free number). Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Dane Narode, Acting Associate General 
Counsel for Program Enforcement, Department of Housing and Urban 
Development, 1250 Maryland Avenue, SW., Suite 200, Washington, DC 
20024-0500; telephone number 202-708-2350 (this is not a toll-free 
number), or e-mail address Dane.M.Narode@hud.gov. Hearing- or speech-
impaired individuals may access the telephone number listed above by 
calling the toll-free Federal Information Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Proposed Rule

    HUD's civil money penalties regulations are located in 24 CFR part 
30. In general, 24 CFR part 30 outlines the procedures and requirements 
that concern violations, prepenalty notices, and complaints. This 
proposed rule would make several revisions in 24 CFR part 30.
    First, ``ability to pay'' is one of the factors used in determining 
the appropriateness of civil money penalties under Sec.  30.80(c). To 
provide more clarity with respect to this factor, HUD proposes to 
define ``ability to pay'' in Sec.  30.10. As defined, ``ability to 
pay'' would be determined based on the respondent's resources available 
presently and prospectively, from which the Department could ultimately 
recover the total award. The definition would also allow for the 
consideration of respondent's resources to be based on historical 
evidence. This would include an analysis of the resources available to 
the respondent from which the respondent could pay the judgment in one 
lump sum, over time, or at some point in the future. This analysis 
would also examine the resources from which the Department could obtain 
enforced collection or administrative offset. A second modification 
would revise the definition of ``Material'' or ``Materially'' to mean 
anything having the natural tendency or potential to influence, or, 
considering the totality of the circumstances, in some significant 
respect or to some significant degree. To rise to the level of 
material, acts or conduct would not be required to actually influence a 
decision or course of action by the Department, but merely to have the 
potential to do so. Therefore, this revised definition would not 
require ``but for'' or actual causation for an act or conduct to be 
material. Moreover, after revision, the definition of material would no 
longer require consideration of any factor listed in Sec.  30.80, which 
are generally to be used only to determine the amount of the civil 
money penalty imposed, if any, but would permit the Department to 
introduce evidence of the relevant factors to establish the 
significance of a violation in light of the totality of the 
circumstances.
    Additionally, this proposed rule would revise Sec.  30.35, the 
section that lists the actions authorized against a mortgagee or 
lender. Currently, Sec.  30.35(a)(14) includes failure to comply with 
``the terms of a settlement agreement with HUD'' among the list of 
actions for which the Mortgagee Review Board may initiate a civil money 
penalty action. The proposed revision would delete this provision as a 
basis upon which HUD may initiate a civil money penalty action against 
a mortgagee or lender.
    HUD is seeking to clarify some apparent ambiguity in Sec. Sec.  
30.45 and 30.68. First, this proposed rule would revise Sec.  30.45(d) 
to clarify that the violation of programmatic procedures and standards 
are indicators of unsatisfactory management. In addition, this proposed 
rule would modify Sec.  30.68(b) to clarify that any violation of a 
housing assistance payments contract may result in the imposition of a 
civil money penalty. HUD has learned that some confusion exists about 
whether the violations in Sec.  30.68(b)(1) and (b)(2) are exhaustive. 
The proposed rule

[[Page 61755]]

would establish that the specific violations listed are merely examples 
and not an exhaustive list.
    This proposed rule would revise section 30.70 to require the 
prepenalty notice to inform the respondent that if a determination is 
made to seek civil penalties and a complaint is issued under Sec.  
30.85, the respondent will have the ability to request a hearing. 
Additionally, this proposed rule would require both the Department and 
respondent to preserve documents related to the matters contained in 
the prepenalty notice, upon receipt of the notice by the respondent.
    In order to enable adequate consideration of the factors used in 
determining the appropriateness and amount of any penalty, this 
proposed rule would also revise Sec.  30.75, which establishes the 
procedures for responding to prepenalty notices. As revised, Sec.  
30.75 would require that a response to a prepenalty notice address the 
factors set forth in Sec.  30.80 and include any argument opposing the 
imposition of a civil money penalty. Additionally, this proposed rule 
would require the respondent to provide documentary support as part of 
its response in any case in which the respondent seeks to raise ability 
to pay as an affirmative defense or argument in mitigation.
    Further, Sec.  30.80 is revised to clarify that the factors listed 
are to be considered after a determination has been made that a knowing 
and material violation has occurred subjecting the respondent to 
liability for a civil money penalty. Additionally, Sec.  30.80 is 
revised to clarify that consideration may be given to any prior 
offenses and would delete references to the effective dates of specific 
sections of this part. The proposed rule would also clarify that the 
respondent's ability to pay need not be proven by the Department, but 
is presumed unless specifically raised by the respondent as an 
affirmative defense or mitigating factor. As such, the respondent bears 
the burden of proof for the affirmative defense or mitigating factor in 
accordance with the Department's regulations at 24 CFR 26.45(e).
    This proposed rule would also revise Sec.  30.85(b) and (d) and add 
subsection (e) to clarify the complaint requirements. First, Sec.  
30.85(b) would be revised to state that the complaint under Sec.  30.85 
will be issued by government counsel on behalf of the government 
officials authorized to issue such complaints. In addition, under 
section 536 of the National Housing Act (12 U.S.C. 1735f-14(b)(3)), HUD 
is required to inform the Attorney General before taking action to 
impose a civil money penalty under Sec. Sec.  30.35, 30.36, or 30.50. 
The requirement for notifying the Attorney General, currently in Sec.  
30.85(d), is being revised by codifying this provision at Sec.  
30.85(e). The revised Sec.  30.85(e) more closely conforms to the 
statutory requirement and adds a requirement that the complaint state 
that this action has been taken.
    This proposed rule would revise Sec.  30.90 to state that the 
respondent may request a hearing within 15 days of receipt of the 
complaint and that if such a hearing is requested, the respondent's 
answer to the complaint would be due 30 days from receipt of the 
complaint.
    Finally, this proposed rule would revise Sec.  30.100 to clarify 
that it applies only to the settlement of an action that could be 
brought under part 30 and to permit the execution of a settlement 
agreement by a designee of the Mortgagee Review Board.

II. Solicitation of Specific Comments

    HUD welcomes comments on all aspects of this proposed rule. HUD is 
also soliciting comments on whether to remove from the regulations the 
provisions concerning the issuance of a prepenalty notice, and to 
instead codify in this proposed rule only those procedures beginning 
with the issuance of a determination to seek civil money penalties. The 
authorizing statutes do not require the issuance of such prepenalty 
notices, and HUD is interested in commenters' views as to whether the 
formal codification of the issuance of prepenalty notices is necessary. 
Were the Department to remove the prepenalty provisions from any final 
regulation, the regulatory process would begin with the issuance of a 
notice of determination and complaint by the authorized official, as 
required by Sec.  30.85, notifying the respondent of the Department's 
intent to seek civil money penalties.
    Should the Department decide to remove the prepenalty notice 
provisions from any final rule, the Department still would be favorably 
disposed to utilizing a more informal pre-complaint process that, 
though not specifically set forth in regulation, would allow the 
Department to discuss allegations with respondents before moving to the 
formal issuance of a determination and complaint. HUD is, therefore, 
also requesting comments as to whether any type of prepenalty process, 
be it regulatory or informal in nature, is desirable or if it 
represents an unnecessary additional burden for respondents.

III. Findings and Certifications

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
All entities, small or large, will be subject to the same potential 
penalties as established by statute and implemented by this rule. The 
statute does not provide an exemption for small entities. Accordingly, 
the undersigned certifies that this rule will not have a significant 
economic impact on a substantial number of small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Environmental Impact

    In accordance with 24 CFR 50.19(c)(6) of HUD's regulations, this 
rule involves the Department's regulations implementing civil money 
penalty statutes. In accordance with 24 CFR 50.19(c)(1) of HUD's 
regulations, this proposed rule does not direct, provide for assistance 
or loan and mortgage insurance for, or otherwise govern or regulate, 
real property acquisition, disposition, leasing, rehabilitation, 
alteration, demolition, or new construction, or establish, revise, or 
provide for standards for construction or construction materials, 
manufactured housing, or occupancy. Therefore, this proposed rule is 
categorically excluded from the requirements of the National 
Environmental Policy Act (42 U.S.C. 4321 et seq.).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of Section 6 of the Executive Order are met. This rule 
affects only persons who fail to comply with the Department's 
requirements, does not have federalism implications, and does not 
impose substantial direct compliance costs on state and local

[[Page 61756]]

governments or preempt state law within the meaning of the Executive 
Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1531-1538) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This rule does not impose 
any federal mandate on any state, local, or tribal government or the 
private sector within the meaning of UMRA.

Small Business Concerns Related to Board Enforcement Actions

    With respect to enforcement actions undertaken by the Board against 
a mortgagee, and, as noted in the March 28, 2008, proposed rule, HUD is 
cognizant that section 222 of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121) (SBREFA) requires the Small 
Business and Agriculture Regulatory Enforcement Ombudsman to ``work 
with each agency with regulatory authority over small businesses to 
ensure that small business concerns that receive or are subject to an 
audit, on-site inspection, compliance assistance effort, or other 
enforcement related communication or contact by agency personnel are 
provided with a means to comment on the enforcement activity conducted 
by this personnel.'' To implement this statutory provision, the Small 
Business Administration has requested that federal agencies include the 
following language on agency publications and notices that are provided 
to small business concerns at the time the enforcement action is 
undertaken. The language is as follows:

Your Comments Are Important

    The Small Business and Agriculture Regulatory Enforcement 
Ombudsman and 10 Regional Fairness Boards were established to 
receive comments from small businesses about federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to 
small business. If you wish to comment on the enforcement actions of 
[insert agency name], you will find the necessary comment forms at 
www.sba.gov/ombudsman or call 1-888-REG-FAIR (1-888-734-3247).

    In accordance with its notice describing HUD's actions on the 
implementation of SBREFA, which was published on May 21, 1998 (63 FR 
28214), HUD will include the language cited above on notices 
implementing enforcement actions, to ensure that small entities have 
the full means to comment on the enforcement activity conducted by HUD.

List of Subjects in 24 CFR Part 30

    Administrative practice and procedure, Grant programs-housing and 
community development, Loan programs-housing and community development, 
Mortgages, Penalties.

    For the reasons discussed in the preamble, HUD proposes to amend 24 
CFR part 30 to read as follows:

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

    1. The authority citation for 24 CFR part 30 continues to read as 
follows:

    Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, 1735f-15; 
15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and 3535(d).

    2. Revise Sec.  30.1 to read as follows:


Sec.  30.1  Purpose and scope.

    Unless provided for elsewhere in this title or under separate 
authority, this part implements HUD's civil money penalty provisions. 
The procedural rules for hearings under this part are those applicable 
to hearings in accordance with the Administrative Procedure Act, as set 
forth in 24 CFR part 26.
    3. Amend Sec.  30.10 by adding, in alphabetical order, the 
definition of Ability to Pay and revising the definition of Material or 
Materially, to read as follows:


Sec.  30.10  Definitions.

* * * * *
    Ability to pay. Determined based on an assessment of the 
respondent's resources available both presently and prospectively from 
which the Department could ultimately recover the total award, which 
may be predicted based on historical evidence.
* * * * *
    Material or Materially. Having the natural tendency or potential to 
influence, or when considering the totality of the circumstances, in 
some significant respect or to some significant degree.
* * * * *


Sec.  30.35  [Amended]

    4. Amend Sec.  30.35 by removing paragraph (a)(14) and by 
redesignating paragraph (a)(15) as (a)(14).
    5. Revise Sec.  30.45(d) to read as follows:


Sec.  30.45  Multifamily and section 202 or 811 mortgagors.

* * * * *
    (d) Acceptable management. For purposes of this rule, management 
acceptable to the Secretary under 12 U.S.C. 1735f-15(c)(1)(B)(xiv) 
shall include:
    (1) Fiscal management in accordance with HUD regulations and 
requirements;
    (2) Handling of vacancies and tenanting in accordance with HUD 
regulations and requirements;
    (3) Handling of rent collection in accordance with HUD regulations 
and requirements;
    (4) Maintenance in accordance with HUD regulations and 
requirements;
    (5) Compliance with HUD regulations and requirements on tenant 
organization; and
    (6) Any other matters that pertain to proper management in 
accordance with HUD regulations and requirements.
* * * * *
    6. In Sec.  30.68, revise paragraph (b) introductory text to read 
as follows:


Sec.  30.68  Section 8 owners.

* * * * *
    (b) General. The Assistant Secretary for Housing--Federal Housing 
Commissioner, or his or her designee, or the Assistant Secretary for 
Public and Indian Housing, or his or her designee, may initiate a civil 
money penalty against any owner, any general partner of a partnership 
owner, or any agent employed to manage the property that has an 
identity of interest with the owner or the general partner of a 
partnership owner of a property receiving project-based assistance 
under section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f) for a knowing and material breach of a housing assistance 
payments contract. Examples of covered violations include, but are not 
limited to, the following:
* * * * *
    7. Revise Sec.  30.70 to read as follows:


Sec.  30.70  Prepenalty notice.

    (a) Prior to determining whether to issue a complaint under Sec.  
30.85, the official designated in subpart B of this part, or his or her 
designee (or the chairperson of the Mortgagee Review Board, or his or 
her designee, in actions under Sec.  30.35), shall issue a written 
notice to the respondent. This prepenalty notice shall include the 
following:
    (1) That HUD is considering seeking a civil money penalty;
    (2) The specific violations alleged;
    (3) The maximum civil money penalty that may be imposed;
    (4) The opportunity to reply in writing to the designated program 
official within 30 days after receipt of the notice;
    (5) That failure to respond within the 30-day period may result in 
issuance of a complaint under Sec.  30.85 without consideration of any 
information that

[[Page 61757]]

the respondent may wish to provide; and
    (6) That if a complaint is issued under Sec.  30.85, the respondent 
may request a hearing before an administrative law judge in accordance 
with Sec.  30.95.
    (b) Obligation to preserve documents. Upon receipt of the 
prepenalty notice, the respondent is required to preserve and maintain 
all documents or data, including electronically stored data, within his 
or her possession or control that may relate to the violations alleged 
in the prepenalty notice. The Department shall also preserve such 
documents or data upon the issuance of the prepenalty notice.
    8. Revise Sec.  30.75 to read as follows:


Sec.  30.75  Response to prepenalty notice.

    (a) The response shall be in a format prescribed in the prepenalty 
notice. The response shall address the factors set forth in Sec.  30.80 
and include any arguments opposing the imposition of a civil money 
penalty that the respondent may wish to present.
    (b) In any case where respondent seeks to raise ability to pay as 
an affirmative defense or argument in mitigation, the respondent shall 
provide documentary evidence as part of its response.
    9. Revise Sec.  30.80 to read as follows:


Sec.  30.80   Factors in determining amount of civil money penalty.

    After determining that a respondent has committed a violation as 
described in Subpart B of this part that subjects the respondent to 
liability under this part, the officials designated in subpart B of 
this part shall consider the following factors to determine the amount 
of penalty to seek against a respondent, if any.
    (a) The gravity of the offense;
    (b) Any history of prior offenses;
    (c) The ability to pay the penalty, which ability shall be presumed 
unless specifically raised as an affirmative defense or mitigating 
factor by the respondent;
    (d) The injury to the public;
    (e) Any benefits received by the violator;
    (f) The extent of potential benefit to other persons;
    (g) Deterrence of future violations;
    (h) The degree of the violator's culpability;
    (i) With respect to Urban Homestead violations under Sec.  30.30, 
the expenditures made by the violator in connection with any gross 
profit derived; and
    (j) Such other matters as justice may require.
    (k) In addition to the above factors, with respect to violations 
under Sec. Sec.  30.45, 30.55, 30.60, and 30.68, the Assistant 
Secretary for Housing--Federal Housing Commissioner, or his or her 
designee, or the Assistant Secretary for Public and Indian Housing, or 
his or her designee, shall also consider:
    (1) Any injury to tenants; and/or
    (2) Any injury to lot owners.
    (l) HUD may consider the factors listed in paragraphs (a) through 
(k) of this section to determine the appropriateness of imposing a 
penalty under Sec.  30.35(c)(2); however, HUD cannot change the amount 
of the penalty under Sec.  30.35(c)(2).
    10. In Sec.  30.85, revise paragraphs (b) introductory text, (c), 
and (d) and add paragraph (e) to read as follows:


Sec.  30.85   Complaint.

* * * * *
    (b) If a determination is made to seek a civil money penalty, 
government counsel shall issue a complaint to the respondent on behalf 
of the officials listed at subpart B of this part or the Mortgagee 
Review Board for violations under Sec.  30.35. The complaint shall be 
served upon respondent and simultaneously filed with the Office of 
Administrative Law Judges, and shall state the following:
* * * * *
    (c) A copy of this part and of 24 CFR part 26, subpart B, shall be 
included with the complaint.
    (d) Service of the complaint. The complaint shall be served on the 
respondent by first class mail, personal delivery, or other means.
    (e) Before taking an action under Sec. Sec.  30.35 for violation of 
12 U.S.C. Sec.  1735f-14(b)(1)(D) or (F), 30.36, or 30.50 for violation 
of 12 U.S.C. 1723i(b)(1)(G) or (I), the Secretary shall inform the 
Attorney General of the United States, which may be accomplished by 
providing a copy of the complaint. The Secretary shall include in the 
body of the complaint a statement confirming that this action was 
taken.
    11. In Sec.  30.90, revise paragraph (a), redesignate paragraph (b) 
as (c), and revise the new paragraph (b) to read as follows:


Sec.  30.90  Response to the complaint.

    (a) Request for a hearing. If the respondent desires a hearing 
before an administrative law judge, the respondent shall submit a 
request for a hearing to HUD and the Office of Administrative Law 
Judges no later than 15 days following receipt of the complaint, as 
required by statute. This mandated period cannot be extended.
    (b) Answer. In any case in which the respondent has requested a 
hearing, the respondent shall serve upon HUD and file with the Office 
of Administrative Law Judges a written answer to the complaint within 
30 days of receipt of the complaint, unless such time is extended by 
the administrative law judge for good cause. The answer shall include 
the admission or denial of each allegation of liability made in the 
complaint; any defense on which the respondent intends to rely; any 
reasons why the civil money penalty should be less than the amount 
sought in the complaint, based on the factors listed at Sec.  30.80; 
and the name, address, and telephone number of the person who will act 
as the respondent's representative, if any.
* * * * *
    12. Revise Sec.  30.95 to read:


Sec.  30.95   Hearings.

    Hearings under this part shall be conducted in accordance with the 
procedures applicable to hearings in accordance with the Administrative 
Procedure Act, set forth in 24 CFR part 26.
    13. Revise Sec.  30.100 to read as follows:


Sec.  30.100  Settlement of a civil money penalty action.

    The officials listed at subpart B of this part, or their designees 
(or the Mortgagee Review Board, or designee, for violations under Sec.  
30.35), are authorized to enter into settlement agreements resolving 
civil money penalty actions that may be brought under part 30.

    Dated: September 23, 2008.
Roy A. Bernardi,
Deputy Secretary.
 [FR Doc. E8-24574 Filed 10-16-08; 8:45 am]
BILLING CODE 4210-67-P