Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination, 40351-40380 [2013-15485]

Download as PDF Vol. 78 Wednesday, No. 128 July 3, 2013 Part V Bureau of Consumer Financial Protection tkelley on DSK3SPTVN1PROD with RULES3 12 CFR Part 1091 Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination; Final Rule VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\03JYR3.SGM 03JYR3 40352 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1091 [Docket No.: CFPB–2012–0021] RIN 3170–AA24 Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination Bureau of Consumer Financial Protection. ACTION: Final rule. AGENCY: The Bureau of Consumer Financial Protection (Bureau) is publishing a final rule that establishes procedures to implement requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. That statutory provision authorizes the Bureau to supervise a nonbank covered person when the Bureau has reasonable cause to determine, by order, after notice to the person and a reasonable opportunity to respond, that such person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The Bureau is authorized to, among other things, require reports from, and conduct examinations of, nonbank covered persons subject to supervision under the Act. DATES: Effective August 2, 2013. FOR FURTHER INFORMATION CONTACT: Christopher J. Young, Senior Counsel, Office of Supervision Policy, Bureau of Consumer Financial Protection; 1700 G Street NW., Washington, DC 20552, (202) 435–7408. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background tkelley on DSK3SPTVN1PROD with RULES3 On May 25, 2012, the Bureau of Consumer Financial Protection (Bureau) published a notice of proposed rulemaking (Proposed Rule) in the Federal Register 1 to establish procedures to implement section 1024(a)(1)(C) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) 2 (12 U.S.C. 5514(a)(1)(C)). Under this provision of the Dodd-Frank Act, the Bureau has the authority to supervise any nonbank covered person 3 that the 1 77 FR 31226 (May 25, 2012). 2 Public Law 111–203 (codified at 12 U.S.C. 5301 et seq.). 3 The provisions of 12 U.S.C. 5514 apply to certain categories of covered persons, described in subsection (a)(1), and expressly exclude from coverage persons described in 12 U.S.C. 5515(a) or 5516(a). ‘‘Covered persons’’ include ‘‘(A) any VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Bureau ‘‘has reasonable cause to determine, by order, after notice . . . and a reasonable opportunity . . . to respond . . . is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.’’ The Bureau must base such reasonable-cause determinations on complaints collected by the Bureau under 12 U.S.C. 5493(b)(3), or on information collected from other sources.4 The Bureau requested comments on all aspects of the Proposed Rule. The comment period ended on July 24, 2012, and the Bureau received 32 comments from industry trade associations, businesses, consumer groups, a regulatory association, and individuals. In addition to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C), the Bureau has the authority to supervise (1) nonbank covered persons of any size that offer or provide: (a) Origination, brokerage, or servicing of loans secured by real estate for use by consumers primarily for personal, family or household purposes, or loan modification or foreclosure relief services in connection with such loans, (b) private education loans, and (c) payday loans; 5 and (2) ‘‘larger participant[s] of a market for other consumer financial products or services, as [the Bureau defines] by rule.’’ 6 The person that engages in offering or providing a consumer financial product or service; and (B) any affiliate of a person described [in (A)] if such affiliate acts as a service provider to such person.’’ 12 U.S.C. 5481(6); see also 12 U.S.C. 5481(5) (defining ‘‘consumer financial product or service’’). Under 12 U.S.C. 5514(d), subject to certain exceptions, ‘‘to the extent that Federal law authorizes the Bureau and another Federal agency to . . . conduct examinations, or require reports from a [nonbank covered person] under such law for purposes of assuring compliance with Federal consumer financial law and any regulations thereunder, the Bureau shall have the exclusive authority to . . . conduct examinations [and] require reports . . . with regard to a [nonbank covered person], subject to those provisions of law.’’ 4 12 U.S.C. 5514(a)(1)(C). 5 12 U.S.C. 5514(a)(1)(A), (D), and (E). In addition, the Bureau has supervisory authority over very large depository institutions and credit unions and their affiliates. 12 U.S.C. 5515(a). Furthermore, the Bureau has certain authorities relating to the supervision of other depository institutions and credit unions. 12 U.S.C. 5516(c)(1), (e). 6 12 U.S.C. 5514(a)(1)(B). The Bureau has issued final rules establishing supervisory authority over larger participants of the consumer reporting and the consumer debt collection markets. See 77 FR 42874 (July 20, 2012) (consumer reporting); 77 FR 65775 (Oct. 31, 2012) (consumer debt collection). The larger participant rules are codified at 12 CFR part 1090. The Bureau has proposed a rule establishing supervisory authority over larger participants of the student loan servicing market. 78 FR 18902 (March 28, 2013). The Bureau’s supervision authority also extends to service providers of those covered persons that are subject PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 Bureau is authorized under the DoddFrank Act to ensure that ‘‘Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.’’ 7 The Bureau is authorized to supervise nonbank covered persons subject to 12 U.S.C. 5514 of the Dodd-Frank Act for purposes of: (1) Assessing compliance with the requirements of Federal consumer financial law; (2) obtaining information about such persons’ activities and compliance systems or procedures; and (3) detecting and assessing risks to consumers and to markets for consumer financial products and services.8 Pursuant to 12 U.S.C. 5514(b), the Bureau is authorized to conduct examinations of various scopes of supervised entities. In addition, the Bureau may, as appropriate, request information from supervised entities without conducting examinations.9 The Proposed Rule set forth proposed procedures by which the Bureau would bring a nonbank covered person under the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C), and did not propose to impose any new substantive consumer protection requirements on entities subject to the rule. Although a rule is not necessary to implement 12 U.S.C. 5514(a)(1)C), the final rule will establish a consistent procedure applicable to all affected entities for bringing a nonbank covered person under the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C) and thereby provide transparency regarding the procedures the Bureau intends to use prior to commencement of a proceeding under 12 U.S.C. 5514(a)(1)(C). Absent the final rule, the public would lack guidance regarding such procedures. Regardless of whether nonbanks offering or providing consumer financial products or services are subject to the Bureau’s supervisory authority, they are subject to the Bureau’s regulatory and enforcement authority and any applicable Federal consumer financial law. II. Summary of the Final Rule The final rule establishes the procedures by which a nonbank covered person may become subject to the to supervision under12 U.S.C. 5514. 12 U.S.C. 5514(e); see also 12 U.S.C. 5481(26) (defining ‘‘service provider’’). 7 12 U.S.C. 5511(b)(5). 8 12 U.S.C. 5514(b); see also 12 U.S.C. 5481(14) (defining ‘‘Federal consumer financial law’’). 9 See 12 U.S.C. 5514(b) (authorizing the Bureau both to conduct examinations and to require reports from entities subject to supervision). E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations supervisory authority of the Bureau pursuant to 12 U.S.C. 5514(a)(1)(C). The final rule is intended to provide an efficient, expeditious, and fair process by which the Bureau exercises its authority under 12 U.S.C. 5514(a)(1)(C). The final rule generally adopts the Proposed Rule, with certain modifications described in the sectionby-section analysis below. The final rule is divided into four subparts. Subpart A contains general provisions, including provisions regarding scope and purpose and definitions applicable to the entire final rule. Subpart B sets forth the procedures relating to the determination process, including: (1) Issuing a notice commencing a proceeding (Notice or Notice of Reasonable Cause), (2) contents of a Notice of Reasonable Cause, (3) service of a Notice, (4) response to a Notice, (5) conduct of a supplemental oral response, (6) manner of filing and serving papers, (7) issuance of recommended determinations, (8) determinations by the Director, (9) voluntary consent to Bureau’s authority, (10) notice and response included in an adjudication proceeding otherwise brought by the Bureau, and (11) relief available sought in a civil action or administrative adjudication. Subpart C sets forth a post-determination process whereby a respondent may petition the Director for the termination of supervision. Subpart D sets forth the rules for the construction of time limits, change of time limits, and effect of deadlines. Under the final rule, a Notice of Reasonable Cause does not constitute a notice of charges for any alleged violation of Federal consumer financial law or other law. The proceedings under the final rule are informal and do not constitute an adjudication proceeding with a hearing on the record under the Administrative Procedure Act (APA).10 Accordingly, no discovery is permitted, a supplemental oral response does not constitute a hearing on the record, and no witnesses may be called as part of a supplemental oral response. tkelley on DSK3SPTVN1PROD with RULES3 III. Legal Authority A. Rulemaking authority The Bureau is issuing this final rule pursuant to its authority under: (1) 12 U.S.C. 5512(b)(1), which grants the Bureau the authority to prescribe rules as may be necessary and appropriate to enable the Bureau to administer and carry out the purposes and objectives of Federal consumer financial law, and to 10 See 5 U.S.C. 554, 556, and 557 (setting forth APA procedures for adjudications determined on the record after opportunity for an agency hearing). VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 prevent evasions of those laws; (2) 12 U.S.C. 5514(a)(1)(C), which authorizes the Bureau to supervise a nonbank covered person when it has reasonable cause to determine, by order, after notice to the person, and a reasonable opportunity to respond, that such person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; and (3) 12 U.S.C. 5514(b)(7), which authorizes the Bureau to prescribe rules to facilitate the supervision of nonbank covered persons under 12 U.S.C. 5514(a)(1). B. Effective date The final rule relates solely to agency procedure and practice and thus is not subject to the 30-day effective date for substantive rules under the APA.11 Nevertheless, the Proposed Rule provided that the final rule would be effective 30 days after publication in the Federal Register. As discussed below, after considering the comments received, the Bureau adopts the proposed 30-day delayed effective date for the final rule. Request To Extend the Effective Date One commenter stated that the Bureau’s proposed 30-day delayed effective date did not provide a sufficiently long transition period for nonbanks not already subject to supervision to develop compliance and recordkeeping standards to prepare for potential supervision by the Bureau, and urged the Bureau to instead adopt an effective date of six months after publication. The Bureau appreciates that supervision by a Federal agency would be new to many nonbank covered persons potentially subject to the final rule but does not believe that this factor justifies a substantial delay of the effective date of the final rule. Although certain nonbank covered persons might choose to increase their compliance with Federal consumer financial law in response to the perceived possibility of supervision, entities offering or providing consumer financial products or services are already obligated to comply with applicable Federal consumer financial law. Therefore, nonbank covered persons potentially subject to the final rule should not require additional time to come into compliance with Federal consumer financial law. Moreover, as noted above, the final rule is not necessary to establish the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C). Rather, the final rule PO 00000 11 5 U.S.C. 553(d)(1). Frm 00003 Fmt 4701 Sfmt 4700 40353 merely provides transparency and ensures consistency regarding the procedures that the Bureau intends to use in connection with its preexisting supervisory authority under 12 U.S.C. 5514(a)(1)(C). Thus, delaying the effective date of the final rule would not actually delay the period before which entities may be subject to supervision under 12 U.S.C. 5514(a)(1)(C), and entities need not have waited for the issuance of the final rule to begin taking any measures they may wish to take in anticipation of potential supervision by the Bureau. The Bureau thus believes that a sixmonth postponement of the effective date as requested by the commenter is not warranted and adopts the effective date as proposed. Procedural Versus Substantive Rule Another commenter questioned the Bureau’s assertion in the supplementary information to the Proposed Rule that the rule is procedural, rather than substantive. The Bureau regards the final rule as procedural because, as discussed above, the final rule does not impose on nonbank covered persons any new substantive requirements. As noted above, nonbank covered persons already must comply with applicable Federal consumer financial law, and a final rule is not necessary to implement the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C). In any event, the question whether the final rule is procedural or substantive is generally without consequence because, as a matter of discretion, the Bureau undertook notice and comment rulemaking procedures in promulgating the final rule and is finalizing a 30-day delayed effective date. IV. Section-by-Section Analysis of the Final Rule Subpart A—General Section 1091.100 Scope and Purpose Proposed § 1091.100 set forth the scope and purpose of the Proposed Rule. It stated that proposed part 1091 establishes procedures to implement 12 U.S.C. 5514(a)(1)(C) and to facilitate the supervision of nonbank covered persons under 12 U.S.C. 5514(b)(7). The Bureau received a few comments that appear to have misinterpreted the scope and purpose of the Proposed Rule. A commenter asserted that Proposed Rule asserts an ‘‘extremely broad grant of jurisdiction’’ that ‘‘appears at odds’’ with the structure of the Dodd-Frank Act. The commenter argued that the Dodd-Frank Act lists under 12 U.S.C. 5514(a)(1)(A)-(E) five discrete categories of nonbank entities that the Bureau may E:\FR\FM\03JYR3.SGM 03JYR3 40354 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 supervise. According to the commenter, the Proposed Rule employed 12 U.S.C. 5514(a)(1)(C) to ‘‘supervise any nonbank entity if the [Bureau] determines on its own, and without appeal to any court, that a nonbank entity ‘poses a risk’ to consumers.’’ The commenter maintained that had ‘‘Congress intended to grant the [Bureau] such broad supervisory authority, it is unlikely it would have done so in the negative, limiting the authority to five discrete situations.’’ Another commenter stated that the Bureau should explain why the Bureau’s existing authorities relating to data collection, and regulatory and enforcement authority, are not sufficient to achieve the Bureau’s mission. The commenter also stated that the Bureau should make clear that the final rule will not pertain to mortgage lenders because they are already within the Bureau’s supervisory authority. This and another commenter asked the Bureau to clarify whether a law firm may be examined as a service provider. Assertions Relating to Jurisdiction The comment asserting that the Proposed Rule claims an extremely broad grant of jurisdiction in contravention of the Dodd-Frank Act misunderstands the purpose of the final rule and the structure of 12 U.S.C. 5514(a)(1). As noted above, the purpose of the final rule is to provide transparency and ensure consistency regarding the procedures the Bureau intends to follow in exercising its authority under 12 U.S.C. 5514(a)(1)(C), not to establish or to define the scope of the Bureau’s 12 U.S.C. 5514(a)(1)(C) authority. The Dodd-Frank Act, not the final rule, establishes and defines the scope of that authority. In addition, the commenter’s understanding of the Bureau’s supervisory authority appears at odds with the language of 12 U.S.C. 5514(a)(1)(C), which defines the covered persons subject to the Bureau’s authority under the provision not exclusively by reference to the category of activities in which they engage, but based on whether there is reasonable cause to believe that their conduct— whatever the particular activity involved—poses risks to consumers with regard to the offering or provision of consumer financial products or services. As to the commenter that requested the Bureau justify the need for 12 U.S.C. 5514(a)(1)(C) in light of the Bureau’s other authorities, the Bureau notes that Congress provided the Bureau with various complementing authorities to enable the Bureau to achieve its statutory purposes and objectives VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 relating to consumer financial protection. These authorities, which include supervision, as well as market research and data collection, regulation, and enforcement, are not mutually exclusive, but rather complement and reinforce each other. For example, where the Bureau issues a substantive rule under its regulatory authority, such as Regulation Z,12 it may also be appropriate to supervise a nonbank covered person to examine whether the person is in compliance with that regulation pursuant to 12 U.S.C. 5514(a)(1)(C), where the Bureau has reasonable cause to determine that the person is engaging, or has engaged, in conduct that poses risks to consumers regarding the offering or provision of consumer financial products or services. Relatedly, the Bureau notes that if an entity is subject to the Bureau’s supervisory authority, the Bureau may examine the entire entity for compliance with all Federal consumer financial law, assess enterprise-wide compliance systems and procedures, and assess and detect risks to consumers or to markets for consumer financial products and services posed by any activity of the entity, not just the activities that initially rendered the entity subject to Bureau supervisory authority. This authority results from the Dodd-Frank Act’s conferral of authority on the Bureau to supervise ‘‘covered person[s]’’ described in 12 U.S.C. 5514(a)(1)(A)–(E). In addition, the Dodd-Frank Act directs the Bureau to require reports and conduct examinations on a periodic basis of such persons for purposes of (a) assessing compliance with the requirements of Federal consumer financial law, (b) obtaining information about the activities and compliance systems or procedures of such persons, and (c) detecting and assessing risks to consumers and to markets for consumer financial products and services.13 By granting the Bureau supervisory authority over such ‘‘covered persons,’’ as opposed to over particular activities in which they engage, the Dodd-Frank Act establishes that the Bureau’s supervisory authority is not limited to the products or services that qualified a person for supervision, but also includes other activities of such a person that involve other consumer financial products or services or are subject to Federal consumer financial law.14 12 Regulation Z is codified at 12 CFR part 1026 and implements the Truth in Lending Act which is codified at 15 U.S.C. 1601 et seq. 13 12 U.S.C. 5514(b)(1). 14 For specific references in the Dodd-Frank Act to supervision authority over ‘‘persons’’ rather than particular activities see, e.g., 12 U.S.C. 5514(b)(1) PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 Applicability to Mortgage Lenders The procedures established by the final rule will be used only to assess whether a nonbank covered person will be made subject to the Bureau’s supervisory authority based on a reasonable-cause determination. There would ordinarily be no reason to make such a determination and thus invoke the procedures set forth in the final rule with respect to a nonbank covered person already subject to the Bureau’s supervisory authority. Potentially, however, if the Bureau believed that a nonbank entity qualified for supervision under another provision of 12 U.S.C. 5514(a), the entity disagreed, and the Bureau believed that there might be reasonable cause to determine that the entity was engaging, or had engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, the Bureau might use the procedures in the final rule to establish supervisory authority under 12 U.S.C. 5514(a)(1)(C). The Bureau would not be conceding the lack of supervisory authority on another basis by proceeding in this manner. Therefore, the Bureau declines to establish an exclusion from coverage for entities subject to supervision under another provision of 12 U.S.C. 5514. Attorneys as Service Providers The Proposed Rule did not address the scope or manner of the Bureau’s supervisory authority over service providers to nonbank covered persons pursuant to 12 U.S.C. 5514. The Proposed Rule simply proposed procedures for use by the Bureau to subject a nonbank covered person to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C), and observed that the Dodd-Frank Act vests the Bureau with supervisory authority over service providers to persons described in 12 U.S.C. 5514(a)(1).15 Consequently, comments regarding which service providers the Bureau may supervise, and how, are beyond the scope of the final rule.16 (‘‘The Bureau shall require reports and conduct examinations on a periodic basis of ‘persons’ described in subsection (a)(1) . . . .’’) (emphasis added); 12 U.S.C. 5514(a)(1) (‘‘[T]his section shall apply to any covered ‘person’ who . . . .’’) (emphasis added). 15 77 FR 31226, 31227 (May 25, 2012). A service provider is a person that provides a material service to a covered person in connection with a consumer financial product or service. 12 U.S.C. 5481(26)(A). The Dodd-Frank Act provides a non-exhaustive set of examples of such material services. 12 U.S.C. 5481(26)(A)(i)–(ii). 16 One commenter suggested that the Bureau publish a policy that it will not examine any service provider until after it has examined the entity E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 For the foregoing reasons, the Bureau adopts § 1091.100 as proposed with minor technical revisions for consistency. Section 1091.101 Definitions Section 1091.101 defines terms used in the final rule that are applicable to all of part 1091. If a term is defined in the Dodd-Frank Act, the final rule generally incorporates that definition, with clarifications and modifications as appropriate. The Bureau received comments on several definitions set forth in the Proposed Rule and discusses the comments below in the context of the definition to which they relate. Assistant Director. The Proposed Rule stated that the term ‘‘Assistant Director’’ means the Bureau’s Assistant Director for Nonbank Supervision or his or her designee. The proposed definition provided that, in the event there is no Assistant Director, the Director of the Bureau may designate an alternative Bureau employee to perform the functions of the Assistant Director under the rule. The Bureau did not receive any substantive comments on this definition. However, subsequent to the issuance of the Proposed Rule, the Bureau reorganized its supervision offices into the Office of Supervision Policy and the Office of Supervision Examinations, each headed by an Assistant Director. As a result of that restructuring, there is no longer an Office of Nonbank Supervision. The Bureau has therefore revised the Proposed Rule to delete the reference to Nonbank Supervision, but otherwise adopts the proposed definition with only minor technical revisions for consistency. As revised, the term ‘‘Assistant Director’’ means an Assistant Director for Supervision, and thus refers to the Assistant Directors for both the Offices of Supervision Policy and Supervision Examinations. The definition under the final rule further provides that if there is no Assistant Director, the Associate Director may designate an alternative Bureau employee to perform the functions of an Assistant Director under part 1091. Associate Director. The Proposed Rule did not define the term ‘‘Associate Director’’ in large part because at the time the Proposed Rule was issued, the Bureau did not have an Associate Director of Supervision, Enforcement, and Fair Lending. An Associate Director receiving the services. The Bureau notes that policies regarding the Bureau’s supervision of service providers are also beyond the scope of the final rule, which is limited to establishing procedures the Bureau intends to follow in implementing 12 U.S.C. 5514(a)(1)(C). VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 has since been appointed. The Bureau therefore is revising the Proposed Rule to formally include the Associate Director in the procedures established by the final rule and to provide the Bureau with more flexibility in assigning personnel to handle the key functions under such procedures. As described in greater detail in the section-by-section analysis of §§ 1091.102–.108 below, the functions of the Assistant Director under the Proposed Rule have been transferred to the Associate Director, or his or her designee, under the final rule. Similarly, under the final rule, the functions of the Deputy under the Proposed Rule have been transferred to the Assistant Director or his or her designee, and the term ‘‘initiating official’’ is used to identify the Assistant Director or his or her designee as discussed in the sectionby-section analysis for the definition of the term ‘‘initiating official’’ below.17 This modification does not change the basic structure of the Proposed Rule, which designated separate Bureau personnel to perform the functions of (1) issuing a notice, (2) considering written and oral responses and issuing a recommended determination, and (3) rendering a final determination. For the reasons discussed above, the final rule defines the term ‘‘Associate Director’’ to mean the Associate Director of the Bureau for Supervision, Enforcement, and Fair Lending, or his or her designee. The definition under the final rule provides that if there is no Associate Director, the Director of the Bureau may designate an alternative Bureau employee to perform the functions of the Associate Director under part 1091.18 Bureau. The Proposed Rule stated that that the term ‘‘Bureau’’ means the Bureau of Consumer Financial Protection. The Bureau did not receive any substantive comments on this section and adopts it as proposed with minor technical revisions for consistency. Consumer. The Proposed Rule incorporated the definition of the term ‘‘consumer’’ set forth in 12 U.S.C. 5481(4). That provision defines ‘‘consumer’’ as an individual or an agent, trustee, or representative acting on behalf of an individual. The Bureau 17 Unless otherwise noted herein, when discussing the Proposed Rule in this section-bysection analysis, the term ‘‘[initiating official]’’ will be used in place of the term ‘‘Deputy.’’ 18 Because the Assistant Director’s role in the process has been transferred to the Associate Director, this section-by-section analysis of the final rule refers to the ‘‘[Associate Director]’’ in place of the Assistant Director in discussing the functions of the Assistant Director under the Proposed Rule. PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 40355 did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Consumer financial product or service. The Proposed Rule incorporated the definition of the term ‘‘consumer financial product or service’’ set forth in 12 U.S.C. 5481(5). The Proposed Rule provided that the term ‘‘consumer financial product or service’’ means any financial product or service as defined in 12 U.S.C. 5481(15) that is described in one or more categories under: (1) 12 U.S.C. 5481(15) and is offered or provided for use by consumers primarily for personal, family, or household purposes; or (2) clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) 19 and is delivered, offered, or provided in connection with a consumer financial product or service referred to in (1). The Bureau received one comment recommending modification to the definition of the term ‘‘consumer financial product or service.’’ This commenter asserted that the definition of the term is ambiguous. The commenter stated that, as proposed, the definition fails to provide clear notice as to which products are subject to the definition and which products are not. The commenter explained that some of the financial products it offers are sold for both consumer and business uses. The commenter urged the Bureau to modify the definition of the term ‘‘consumer financial product or service’’ to make clear that the Bureau intends to base reasonable-cause determinations solely on risk associated with products that are used exclusively for personal, household, or family purposes. The Bureau declines to adopt the commenter’s request, because the commenter’s proposed definition of the term ‘‘consumer financial product or service’’ would be narrower than the definition in the Dodd-Frank Act. The definition of that term in the Act includes not only financial products or services ‘‘offered or provided ‘for use by’ consumers primarily for personal, family or household purposes’’ but also, for certain types of financial products or 19 Under these specified clauses, the term ‘‘financial product or service’’ is generally defined to include, subject to certain exclusions: (1) Extending credit and servicing loans, 12 U.S.C. 5481(15)(A)(i); (2) providing real estate settlement services or performing appraisals of real estate or personal property, 12 U.S.C. 5481(15)(A)(iii); (3) collecting, analyzing, maintaining, or providing consumer report information or other account information used or expected to be used in connection with any decision regarding the offering or provision of a consumer financial product or service, 12 U.S.C. 5481(15)(A)(ix); and (4) collecting debt related to any consumer financial product or service, 12 U.S.C. 5481(15)(A)(x). E:\FR\FM\03JYR3.SGM 03JYR3 tkelley on DSK3SPTVN1PROD with RULES3 40356 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations services, those ‘‘delivered, offered, or provided ‘in connection with’ a consumer financial product or service’’ of the first type.20 The Bureau is not aware of any reason that it should treat as less significant for purposes of determining the scope of its supervisory authority under 12 U.S.C. 5514(a)(1)(C) the risks to consumers that may arise in the offering or provision of the second type of consumer financial product or service. Accordingly, the Bureau adopts the definition of the term ‘‘consumer financial product or service’’ as proposed with minor technical revisions for consistency. Decisional employee. The Proposed Rule stated that the term ‘‘decisional employee’’ means any employee of the Bureau who has not engaged in: (1) Assisting the [initiating official] in either determining whether to issue a Notice of Reasonable Cause, or presenting the [initiating official’s] position in support of a Notice of Reasonable Cause, either in writing or in a supplemental oral response, to the [Associate] Director; or (2) assisting the [Associate] Director in the preparation of a recommended determination. The Bureau received one comment on this definition expressing appreciation for the Bureau’s efforts to separate the functional roles of Bureau employees with respect to the procedures the Bureau will follow under 12 U.S.C. 5514(a)(1)(C). The Bureau adopts the definition as proposed with minor technical revisions for consistency. Director. The Proposed Rule stated that the term ‘‘Director’’ means the Director of the Bureau or his or her designee. The Proposed Rule provided that if there is no Director the term shall mean a person authorized to perform the functions of the Director under part 1091, or his or her designee. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Executive Secretary. The Proposed Rule stated that the term ‘‘Executive Secretary’’ means the Executive Secretary of the Bureau. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Initiating official. As noted in the section-by-section analysis of the term ‘‘Associate Director’’ above, the Proposed Rule defined the term ‘‘Deputy,’’ which in the final rule is replaced with the term ‘‘initiating official.’’ 20 12 U.S.C. 5481(5). VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 The final rule further revises the definition of the term ‘‘initiating official’’ to provide the Bureau with more flexibility in staffing the key functions of the rule with Bureau personnel. As revised, the term ‘‘initiating official’’ means an Assistant Director of the Office of Supervision or Office of Examinations, or a Bureau employee designated to act as an ‘‘initiating official’’ by an Assistant Director. The final rule states that if there is not an Assistant Director, the Associate Director may designate a Bureau employee to perform the functions of an initiating official under part 1091. The Bureau adopts the proposed definition with the revisions described above and with other minor technical revisions for consistency. Nonbank covered person. The provisions of 12 U.S.C. 5514 relate to ‘‘covered persons’’ as defined in 12 U.S.C. 5481(6) that are not insured depository institutions or credit unions, or, in the case of such entities with assets of more than $10 billion, their affiliates, as set forth in 12 U.S.C. 5515 and 5516. The Proposed Rule therefore excluded from the definition of the term ‘‘nonbank covered persons,’’ persons described in 12 U.S.C. 5515(a) and 5516(a), and provided that the term ‘‘nonbank covered person’’ means, except for persons described in 12 U.S.C. 5515(a) and 5516(a): (1) Any person that engages in offering or providing a consumer financial product or service; and (2) any affiliate of a person described in (1) if such affiliate acts as a service provider to such person. The Bureau received a comment asserting that the Bureau’s authority to supervise based on reasonable-cause determinations under 12 U.S.C. 5514(a)(1)(C) should not extend to affiliates of nonbank covered persons that act as service providers. The commenter expressed concern about the potential for affiliated service providers being unaware of the possibility that they could be brought under the Bureau’s supervisory authority. The commenter asserted that affiliate service providers that do not themselves offer or provide consumer financial products or services would not anticipate that their work for their affiliated nonbank entities could subject them to Bureau supervision. The Bureau believes that it is appropriate to include affiliated service providers under the definition of the term ‘‘nonbank covered person.’’ This definition derives from the definition of the term ‘‘covered person’’ provided in 12 U.S.C. 5481(6). By including PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 affiliated service providers in the definition of the term ‘‘covered person,’’ Congress expressed its intention that these particular service providers be subject to the Bureau’s supervisory authority over covered persons as set forth in the Act.21 Accordingly, the Bureau declines to revise the definition of ‘‘nonbank covered person’’ to exclude affiliated service providers and adopts the definition as proposed with minor technical revisions for consistency. Notice of Reasonable Cause and Notice. The Proposed Rule stated that the terms ‘‘Notice of Reasonable Cause’’ and ‘‘Notice’’ mean a Notice issued under § 1091.102. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Person. The Proposed Rule incorporated the definition of the term ‘‘person’’ set forth in 12 U.S.C. 5481(19). The Proposed Rule therefore stated that the term ‘‘person’’ means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Respondent. The Proposed Rule stated that the term ‘‘respondent’’ means a person who has been issued a Notice of Reasonable Cause by the [initiating official] under § 1091.102. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Response. The Proposed Rule stated that the term ‘‘response’’ means the response to a Notice of Reasonable Cause filed by a respondent with the [Associate] Director under § 1091.105. The Bureau did not receive any substantive comments on this definition and adopts it as proposed with minor technical revisions for consistency. Subpart B—Determination and Voluntary Consent Procedures Subpart B sets forth the procedures relating to the Bureau’s process for determining, after notice to a person and a reasonable opportunity to respond, 21 The Bureau also notes that the treatment of service providers affiliated with nonbank covered persons under the final rule for purposes of 12 U.S.C. 5514(a)(1)(C) is consistent with the treatment of such affiliated service providers for purposes of 12 U.S.C. 5514(a)(1)(A), (B), (D), and (E). The same rationale that applies to treating affiliated service providers as covered persons under 12 U.S.C. 5514(a)(1)(A), (B), (D) and (E) applies equally to the treatment of affiliated service providers under 12 U.S.C. 5514(a)(1)(C). E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 whether there is reasonable cause to determine, based on complaints and information from other sources, that the respondent is a covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, and therefore subject to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C). The Bureau received several comments on the Proposed Rule that are generally applicable to subpart B. The Bureau addresses these comments prior to its analysis of the specific sections of subpart B. A number of commenters urged the Bureau to define the type of ‘‘risks’’ posed to consumers that could give rise to supervision under 12 U.S.C. 5514(a)(1)(C). Other commenters asked the Bureau to define what constitutes ‘‘reasonable cause’’ for purposes of the rule. A number of commenters requested that the Bureau revise the Proposed Rule to require the Bureau to verify complaints. A few commenters asked the Bureau to identify what ‘‘information from other sources’’ it would consider in issuing a Notice of Reasonable Cause. One commenter asserted that the Dodd-Frank Act requires a formal hearing under the Administrative Procedure Act (APA) because determinations under 12 U.S.C. 5514(a)(1)(C) are to be made by ‘‘order’’ of the Bureau. Define Risk As noted above, several commenters asserted that the Proposed Rule failed adequately to define the types of conduct that pose risks to consumers within the meaning of 12 U.S.C. 5514(a)(1)(C). For example, two commenters urged the Bureau to clarify that prohibited ‘‘risks’’ include only inappropriate or undisclosed financial risks to consumers. Another commenter asserted that, although it may be ‘‘impracticable to provide a laundry list’’ of products, services, or actions that might pose risks, even a nonexhaustive list would allow businesses to evaluate not only their compliance with existing law, but also compliance with the Bureau’s expectations. This commenter stated that, unlike other consumer protection laws and regulations that are codified, the Bureau will be creating new law as it goes along. The commenter argued that, without a clear understanding of what conduct is prohibited under the rule, it will be difficult to understand what conduct would subject nonbank covered persons to supervision. In a similar vein, another commenter stated that the ‘‘utilization of consumer VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 financial products and services inherently involves risk’’ and that to avoid acting in an arbitrary and capricious manner, the Bureau must set forth clear and detailed descriptions of the process that it will follow and the factors that it will consider to determine whether a covered person’s conduct poses more risks to consumers than is inherently present in the product or transaction without that conduct. In objecting to the Bureau’s decision not to define or ask for comments regarding whether to define the terms ‘‘risk determination’’ or ‘‘risk’’ in the Proposed Rule, a commenter asserted that any ‘‘risk paradigm’’ must be clarified with respect to the unfair, deceptive, or abusive acts or practices (UDAAP) provisions of the Dodd-Frank Act. This commenter asserted that because the hearing prescribed in this part may deem actions that do not violate Federal law to be risky, the Bureau must define the terms ‘‘unauthorized,’’ ‘‘deceptive,’’ and ‘‘abusive’’ before issuing a final rule. Regarding a related issue, one commenter requested that the Bureau define the term ‘‘risk’’ to include a safe harbor from a reasonable-cause determination under the final rule where a respondent can demonstrate reliance upon written reports or judgments issued by the Bureau. First, the Bureau notes that the phrase ‘‘risks to consumers’’ is taken directly from 12 U.S.C. 5514(a)(1)(C). The phrase is not defined by that or any other provision of the Dodd-Frank Act, and neither the Dodd-Frank Act nor any other law requires the Bureau to define the phrase before implementing 12 U.S.C. 5514(a)(1)(C). Second, the Bureau notes that the final rule is not a substantive conduct rule. The final rule neither prohibits any conduct nor requires any disclosures. It merely sets forth the procedures the Bureau intends to use in connection with the exercise of its existing authority under 12 U.S.C. 5514(a)(1)(C). Among other things, the final rule establishes procedures for issuing Notices of Reasonable Cause, responding to such Notices, considering responses, and rendering determinations. Consistent with the narrow purpose of the Proposed Rule, it is beyond the scope of the final rule to establish substantive standards for what constitutes ‘‘risks to consumers.’’ The Bureau also believes that the procedures established by the final rule provide sufficient opportunity for respondents to address, and for the Bureau to evaluate, whether, consistent with 12 U.S.C. 5514(a)(1)(C), any particular covered person is subject to the Bureau’s risk-based supervision PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 40357 authority. As discussed below, a Notice under the final rule is required to contain a description of the basis for the Bureau’s assertion that there may be reasonable cause to determine that a respondent is engaging, or has engaged, in conduct that poses risks to consumers. A reasonable opportunity to respond to such Notice does not necessitate that the Bureau identify in advance of the issuance of a Notice the types of conduct that the Bureau has determined may pose risks to consumers. Accordingly, the Bureau declines commenters’ requests that the Bureau define the term ‘‘risks to consumers’’ for purposes of the final rule. For similar reasons, the Bureau declines the commenter’s request to include a safe harbor in the final rule from a reasonable-cause determination where a respondent can demonstrate reliance upon written reports or judgments issued by the Bureau. The Bureau believes that the final rule, consistent with 12 U.S.C. 5514(a)(1)(C), provides respondents with a reasonable opportunity to present to the Bureau, in a response, information supporting any asserted reliance on Bureau decisions or guidance. The Bureau observes that a covered person’s reliance on written reports or judgments issued by the Bureau would likely be a relevant consideration in evaluating risk. The Bureau notes that in evaluating risks to consumers for purposes of 12 U.S.C. 5514(a)(1)(C), it expects to consider, consistent with the objectives set forth in the Dodd-Frank Act,22 whether a nonbank covered person has engaged in conduct that would pose risks to consumers because, for example, it involves potentially unfair, deceptive, or abusive acts or practices, or because the conduct otherwise potentially violates applicable Federal consumer financial law. Define Reasonable Cause Several commenters requested that the Bureau define the term ‘‘reasonable cause.’’ One commenter asserted that without such a definition, nonbank covered persons would have no guidance on how to comply with the law or how to protect consumers. Another commenter complained that although the term ‘‘reasonable cause’’ is vital to a full understanding of the Bureau’s authority to subject a nonbank to its supervision authority, this term is not defined by the rule. The Bureau does not believe that it is necessary to define the term ‘‘reasonable cause’’ in the final rule for three 22 12 E:\FR\FM\03JYR3.SGM U.S.C. 5511(b). 03JYR3 40358 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations reasons. First, the Bureau notes that the term ‘‘reasonable cause’’ is adopted in the final rule without revision from 12 U.S.C. 5514(a)(1)(C). The term is not defined by that or any other provision of the Dodd-Frank Act, and neither the Dodd-Frank Act nor any other law requires the Bureau to define the term to implement 12 U.S.C. 5514(a)(1)(C). Second, the Bureau disagrees with the commenter that the lack of a definition of the term ‘‘reasonable cause’’ results in nonbank covered persons having ‘‘no guidance for compliance with the law and protection of consumers.’’ Nonbank covered persons and other persons are required, irrespective of the final rule, to comply with applicable Federal consumer financial law. Third, the purpose of the final rule is not to establish or describe the supervisory authority of the Bureau as it relates to nonbank covered persons described in 12 U.S.C. 5514(a)(1)(C). The Bureau’s supervisory authority in this regard is established by 12 U.S.C. 5514(a)(1)(C), and a rule is not necessary to further delineate that authority. Rather, the purpose of the final rule is to provide transparency and ensure consistency regarding the procedures the Bureau intends to follow in exercising its authority under 12 U.S.C. 5514(a)(1)(C). tkelley on DSK3SPTVN1PROD with RULES3 12 U.S.C. 5514(b)(2)(A)–(E) Risk Criteria A couple of commenters argued that in making reasonable-cause determinations, the Bureau must consider the criteria enumerated in 12 U.S.C. 5514(b)(2)(A)–(E) relating to riskbased supervision, something these commenters felt the Proposed Rule failed to do.23 One commenter asserted that the Proposed Rule did not adequately explain the interrelatedness of these criteria to each other and to the Proposed Rule. Another commenter noted that the Proposed Rule made no mention of these factors which, the commenter argued, Congress clearly intended to limit the exercise of the Bureau’s authority by focusing the Bureau’s efforts on the most problematic issues. The Bureau believes that these commenters have misinterpreted the scope and purpose of 12 U.S.C. 5514(b)(2). That subsection describes 23 The factors for exercising the Bureau’s supervisory authority on a risk basis include: ‘‘the asset size of the covered person,’’ ‘‘the volume of transactions involving consumer financial products or services in which the covered person engages,’’ ‘‘the risks to consumers created by the provision of such consumer financial products or services,’’ ‘‘the extent to which such institutions are subject to oversight by State authorities for consumer protection,’’ and ‘‘any other factors that the Bureau determines to be relevant to a class of covered persons.’’ 12 U.S.C. 5514(b)(2). VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 how the Bureau must ‘‘exercise its authority under paragraph [(b)](1),’’ 24 which in turn authorizes the Bureau to supervise ‘‘persons described in subsection (a)(1).’’ The final rule does not address the exercise of the Bureau’s supervisory authority under subsection (b)(1). Rather, the final rule establishes procedures for implementing subsection (a)(1)(C) to bring a nonbank covered person under the Bureau’s supervisory authority. Nevertheless, although not expressly applicable to an (a)(1)(C) proceeding, the Bureau may consider the (b)(2) factors to the extent applicable in making a reasonable-cause determination. For the reasons discussed above, the Bureau declines to revise the Proposed Rule to define the term ‘‘reasonable cause’’ in the final rule. Consideration of Past Conduct in Risk Determinations A commenter stated that any assertion of supervisory authority by the Bureau based upon past (but not ongoing) riskposing activity should be required clearly to state the basis for the Bureau’s belief that such conduct is likely to recur. This commenter also recommended that there should be something akin to a ‘‘statute of limitations’’ where past conduct cannot be the basis for a Notice, and that activity more than three years in the past should not be a permissible basis for reasonable cause. Contrary to the commenter’s assertion, the Bureau does not believe that requiring the Bureau to state its belief that the risk-posing conduct giving rise to a proceeding is likely to recur is consistent with the Dodd-Frank Act. The plain language of 12 U.S.C. 5514(a)(1)(C) covers conduct that a nonbank covered person ‘‘is engaging, or has engaged, in’’ that poses risks to consumers. The Bureau further believes that past conduct may pose risks to consumers, even if the identical conduct is not likely to recur, to the extent that such conduct indicates weak compliance systems that might lead to other potential law violations or harms to consumers. Additionally, the DoddFrank Act does not require, and the Bureau does not believe it is appropriate to adopt, the equivalent of a statute of limitations. Accordingly, the Bureau declines to revise the Proposed Rule to add the language suggested by the commenter regarding recurring activity or to impose a statute of limitations as requested by commenters. The Bureau notes that it intends to consider both past and present conduct of nonbank PO 00000 24 12 U.S.C. 5514(b)(2). Frm 00008 Fmt 4701 Sfmt 4700 covered persons in evaluating whether there is reasonable cause to proceed under 12 U.S.C. 5514(a)(1)(C), but that in considering past conduct, it expects to take into account, among other factors, the length of time since conduct occurred. Verify Complaints and Describe Information From Other Sources The Bureau received a number of comments requesting that the Bureau verify any complaints used as the basis for issuing a Notice of Reasonable Cause or reaching a final determination under 12 U.S.C. 5514(a)(1)(C). In expressing concerns about the use of complaints, a commenter stated that complaints provide ‘‘anecdotal, unverified, and incomplete accounts of consumer satisfaction with financial products and services.’’ This commenter asserted that ‘‘complaints are an unreliable means of targeting supervision of financial institutions, particularly given the small number of complaints typically generated by smaller providers of financial services.’’ Another commenter stated that the Proposed Rule does not contain any ‘‘mechanism to ensure that only legitimate and verifiable complaints are considered.’’ The commenter stated that without a mechanism to systematically root out ‘‘baseless complaints from legitimate ones,’’ businesses will be left defenseless against baseless complaints, and the Bureau will leave itself vulnerable to making decisions based on inaccurate information. The commenter specifically requested that the Bureau revise the Proposed Rule to state that in making reasonable-cause determinations, the Bureau will consider only complaints that, after ‘‘reasonable inquiry’’ by the Bureau, are found to have merit. The Bureau received similar comments questioning the Bureau’s reliance on complaints as a basis for issuing reasonable-cause determinations on the ground that complaints do not accurately reflect an entity’s compliance with applicable law. A trade association for the debt collection industry stated that reviewing ‘‘consumer inquiries and complaints about the debt collection industry is not a proper, reasonable, or accurate gauge of the industry’s level of compliance with consumer protection laws, such as the [Fair Debt Collection Practices Act (FDCPA)].’’ This commenter was also concerned that complaints would be treated the same by the Bureau, regardless of their nature. The commenter noted the importance of providing adequate procedural and training measures to ensure that any data gathered at the outset clearly E:\FR\FM\03JYR3.SGM 03JYR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations distinguishes between complaints of FDCPA violations and complaints that do not assert law violations or simply inquire into the rights and responsibilities of collectors and consumers during the collection process. The commenter urged the Bureau to clarify how consumer complaints will be used in determining ‘‘reasonable cause’’ under the rule. Similar comments expressed concern that that the Proposed Rule would not require the Bureau to consider the nature and severity of complaints. A commenter urged the Bureau to look not just at the number of complaints regarding a company, but also at the nature of the complaints submitted against a company. Voicing a related concern, another commenter asserted that there is a danger that consumers might equate the number of complaints against a nonbank covered person with the risks the person actually poses to consumers. The Bureau also received comments expressing concern that third parties may submit complaints to the Bureau on behalf of consumers. In this regard, a commenter stated that because the Bureau’s complaint system permits the submission of complaints by third parties on behalf of consumers, the system runs the risk of being inundated with complaints from ‘‘credit repair organizations, debt settlement companies, advocacy groups, politicians, competitors, and even blog sites dedicated to airing gripes about specific companies.’’ In emphasizing the potential for meritless complaints, a commenter noted that ‘‘the federal financial agencies estimated in the Accuracy and Integrity Rule that the percentage of frivolous or irrelevant disputes could range from 25 percent to 94 percent of all disputes [referring to complaints under the Fair Credit Reporting Act].’’ The commenter asserted that the procedure the Bureau uses to verify complaints it receives is insufficient, and therefore that the Bureau should not make a determination that a covered person is engaging, or has engaged, in conduct that poses risks to consumers based solely on the number of complaints or on unverified information from other sources. This commenter recommended that, instead, the Bureau should consider risks associated with specific products and acknowledge that the strong financial performance of some products during the recent crisis indicates lower consumer risks. Several commenters also expressed concern that the Proposed Rule did not adequately describe what may be used as ‘‘information from other sources’’ and VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 requested the Bureau to describe these other sources of information, and/or provide examples of such sources. One commenter asked whether information from ‘‘other sources’’ might include privileged information. Another raised concern about using internet blogs, which the commenter deemed unreliable. As with complaints, commenters requested that the Proposed Rule be revised to require that information from other sources be verified by the Bureau. Lastly, the Bureau received a comment requesting guidance on how the Bureau will use data sources. In response to these comments, the Bureau notes that it intends to look at many factors relating to complaints and information from other sources in deciding whether there is a sufficient basis to initiate a proceeding under 12 U.S.C. 5514(a)(1)(C). These factors may include, among others, the nature of the conduct relating to the complaints or other information, the severity of risk alleged, the number of consumers potentially affected, and the number of complaints or amount of information from other sources received. The Bureau is committed to using its limited resources where most needed and intends to consider complaints and information from other sources with the efficient use of Bureau resources in mind. At the same time, the Bureau notes that the purpose of the final rule is to establish procedures that the Bureau intends to use to exercise its authority under 12 U.S.C. 5514(a)(1)(C) through which a nonbank covered person might become subject to the Bureau’s supervisory authority. This process is not intended to determine whether a nonbank covered person has, in fact, violated applicable Federal consumer financial law or harmed consumers. The level of inquiry necessary to make a finding of a violation of law would instead occur, where consistent with Bureau prioritization and resources, in the course of supervisory activity such as an examination. It is not required under, and would defeat the purpose of, 12 U.S.C. 5514(a)(1)(C), to mandate that the Bureau make a finding of a law violation before concluding that there is ‘‘reasonable cause to determine’’ that a nonbank covered person’s conduct poses risks to consumers with regard to the offering or provision of consumer financial products or services. Finally, the Bureau notes that ‘‘information from other sources’’ may, as the phrase suggests, come from a variety of places. Such information sources might include, among others, judicial opinions and administrative PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 40359 decisions. Given the potential range of sources, the Bureau does not believe it would serve a useful purpose to provide a list (even a nonexclusive list) of such sources in the final rule. For the reasons stated above, the Bureau declines to revise the Proposed Rule to require the Bureau to verify complaints or to identify ‘‘other sources of information’’ that form the basis for a Notice or a determination of reasonable cause. Request for Formal Adjudication Under the Administrative Procedure Act In response to the comment that determinations under 12 U.S.C. 5514(a)(1)(C) require a hearing on the record, the Bureau notes that there is no statutory requirement that the process to exercise the Bureau’s authority under 12 U.S.C. 5514(a)(1)(C) be a formal adjudication with a hearing on the record under the APA. Rather, 12 U.S.C. 5514(a)(1)(C) states only that the Bureau must provide to a respondent ‘‘notice’’ and a ‘‘reasonable opportunity to respond.’’ Nor does Due Process necessitate formal adjudication with a hearing on the record in this context. As stated above, the sole consequence of a determination that an entity is a covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of a consumer financial product or service under 12 U.S.C. 5514(a)(1)(C) is that such person becomes subject to Bureau supervisory authority. Supervision alone does not impose any penalty on a person, does not deprive it of any property, and does not restrict its ability to engage in a viable business. The Bureau has wide discretion in establishing the procedures it will adopt to implement 12 U.S.C. 5514(a)(1)(C). The Bureau has sought to establish a process that meets the statutory requirement of providing a respondent with a notice and a reasonable opportunity to respond and that is also fair and efficient. The Bureau believes that a formal adjudication with a hearing on the record would unnecessarily add complexity to, lengthen, and add to the cost of, the process established by the final rule and declines to revise the Proposed Rule to require a formal adjudication with a hearing on the record. Confidentiality of Proceedings The Bureau received several comments regarding the confidentiality of the process established by the final rule. Some commenters expressed the view that all aspects of a proceeding should be confidential, while others urged the Bureau to make information E:\FR\FM\03JYR3.SGM 03JYR3 40360 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations regarding the entire process available to the public. Preliminarily, the Bureau notes that proposed § 1091.105 relating to responses, stated that ‘‘documents, records or other items submitted by a respondent with a response shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1)(iv).’’ After consideration of the comments regarding confidentiality, the Bureau agrees that all aspects of a proceeding under the final rule relate to the Bureau’s supervisory process and should be deemed confidential supervisory information under 12 CFR 1070.2(i)(1).25 As noted below, the Bureau therefore revises proposed § 1091.115 26 to add a new paragraph (c), which states: ‘‘In connection with a proceeding under this part, including a petition for termination under § 1091.113, all documents, records or other items submitted by a respondent to the Bureau, all documents prepared by, or on behalf of, or for the use of the Bureau, and any communications between the Bureau and a person, shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1).’’ Section 1091.102 Issuance of Notice of Reasonable Cause tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.102 relates to the issuance of a Notice of Reasonable Cause, which initiates a proceeding that culminates in a determination by the Director under § 1091.109 of the final rule, or a respondent’s voluntary consent to supervision by the Bureau.27 Section 1091.102 of the Proposed Rule provided that the [initiating official] is authorized to issue a Notice of Reasonable Cause stating that the Bureau may have reasonable cause to determine that a nonbank covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services and, consistent with 12 U.S.C. 5514(a)(1)(C), that such Notice shall be based on complaints collected by the Bureau, or on information from other sources. The Bureau received several comments on proposed § 1091.102 discussed below. 25 See also 12 CFR 1070.2(q) (defining ‘‘supervised financial institution’’ to mean a ‘‘financial institution that is ‘or may become’ subject to the CFPB’s supervisory authority’’). 26 Section 1091.115 of the final rule appeared as § 1091.112 in the Proposed Rule. 27 A final determination may result in an order bringing a person under the Bureau’s supervisory authority based on a reasonable-cause determination, or may result in a notice indicating that a person will not be so brought under the Bureau’s supervisory authority. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Concerns Regarding Use of ‘‘May Have’’ Reasonable Cause To Determine Statement in Notice The Bureau received a few comments expressing concern that, under the Proposed Rule, a Notice of Reasonable Cause would state that the Bureau ‘‘may have’’ reasonable cause to determine that a nonbank covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. One commenter interpreted this language in the Proposed Rule as not requiring the Bureau to articulate a ‘‘reasonable cause’’ in a Notice. This commenter asserted that under the Proposed Rule it is enough that Bureau staff merely ‘‘suppose, surmise, or conjecture’’ that there might possibly be a ‘reasonable cause’ to assume risky conduct.’’ Similarly, another commenter argued that the ‘‘may have reasonable cause’’ standard is vague and not in accordance with the statute. In response, the Bureau notes that these commenters appear to be confusing the Bureau’s basis for issuing a Notice with the reasonable cause necessary to support a final determination of reasonable cause under 12 U.S.C. 5514(a)(1)(C). The Bureau clarifies that the initiating official issues a Notice indicating that there ‘‘may’’ be reasonable cause to determine that a person’s activities pose risks to consumers but that a reasonable-cause determination will not be made until the Director makes a final determination. At the final stage of the process set forth in the final rule, the Director will issue a final determination indicating that there ‘‘is’’ reasonable cause to determine that a nonbank covered person’s activities pose risks to consumers, or a notice stating that the person will not be made subject to the Bureau’s authority. The Dodd-Frank Act provides that the Bureau’s reasonablecause determinations under 12 U.S.C. 5514(a)(1)(C) must follow notice and a reasonable opportunity to respond.28 Accordingly, the Bureau believes it would not be appropriate to state unequivocally in a Notice that the Bureau ‘‘has reasonable cause to determine’’ that the respondent’s conduct poses risks to consumers. The Bureau therefore declines to revise the proposed content of the Notice to state that the Bureau ‘‘has,’’ as opposed to ‘‘may have,’’ reasonable cause to 28 12 U.S.C. 5514(a)(1)(C) (‘‘[T]he Bureau has reasonable cause to determine, by order, ‘after’ notice to the covered person and a reasonable opportunity for such covered person to respond. . . .’’ (emphasis added)). PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 determine that an entity’s conduct poses risks to consumers. The Bureau also received a comment requesting that the Bureau meet with a respondent prior to issuing a Notice to that respondent. The commenter recognized that this may not be feasible in every instance. The Bureau agrees with the commenter that meeting with a potential respondent prior to sending out a Notice may not be feasible in some, and perhaps many, instances, and as stated above, one of the purposes of the final rule is to establish uniform procedures applicable to all persons potentially subject to the final rule that the Bureau intends to follow in implementing its authority under 12 U.S.C. 5514(a)(1)(C). Moreover, the Bureau believes that the commenter’s suggestion would add an additional layer to the process established by the final rule that would unnecessarily lengthen and complicate the process. Accordingly, the Bureau declines to revise the Proposed Rule to adopt a provision requiring the Bureau to meet with a prospective respondent prior to issuing a Notice. For the reasons discussed above, the Bureau adopts § 1091.102 as proposed with minor technical revisions for consistency. Section 1091.103 Contents of Notice Section 1091.103 details the required contents of a Notice of Reasonable Cause. To ensure that a respondent would have a reasonable opportunity to address the substance of a Notice, proposed § 1091.103 provided that a Notice must set forth, among other things, the basis for the assertion that the Bureau may have reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. Proposed § 1091.103 further stated that a Notice must contain a statement informing a respondent of how to file a timely response, and of the required contents of a response. Under proposed § 1091.103, a Notice would be required to inform a respondent that he or she may request a supplemental oral response, and that a respondent may, in lieu of filing a response, voluntarily consent to the Bureau’s supervisory authority under 12 U.S.C. 5514 by filing an executed form of consent agreement attached to a Notice served on a respondent. Proposed § 1091.103 further provided that a Notice shall inform a respondent that failure to respond, as set forth in a Notice, may result in a determination by the Director without E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 further opportunity for the respondent to respond. As set forth in proposed § 1091.103, a Notice would also inform a respondent of the various timelines associated with the process. The Bureau received a number of comments on the proposed contents of a Notice and related issues discussed below. Information in, and Items Accompanying, a Notice Several commenters recommended that a Notice should include copies of the complaints collected by the Bureau and/or the information from other sources that were used in the decision to issue the Notice. One commenter stated that the Bureau should include in the Notice a statement detailing what specific risk to consumers is under consideration, what conduct the respondent is engaging in, or has engaged in, that the Bureau alleges poses risks to consumers, and how those risks are increased by the respondent’s alleged conduct. This commenter asked the Bureau to release a model Notice. Another commenter recommended that the Bureau provide copies of underlying complaints with a Notice, asserting that without a copy of the underlying complaint, ‘‘a respondent wishing to object or to accede to the notice will have limited information upon which to make a reasonably informed decision.’’ Some other commenters asked the Bureau to revise the Proposed Rule to provide greater detail regarding the items relied on to issue a Notice of Reasonable Cause. One commenter recommended that the Bureau include detailed information regarding any consumer complaints, in addition to copies of the complaints, together with the Notice of Reasonable Cause. Another commenter urged the Bureau to require that the Notice state with specificity the basis for the Bureau’s assertions and include an inventory of any complaints and other information relied upon by the Bureau. This commenter asserted that such a showing is crucial to a respondent’s ability to prepare adequately its response and assemble ‘‘documents, records or other evidence’’ in support of its position. Similarly, a commenter requested that the Bureau explain how much detail it expects to provide in the Notice, as well as the level of detail it expects to receive in response. The commenter asked the Bureau to clarify whether it intends to include in the Notice detailed information regarding the consumer complaints, if any, on which the Bureau bases its assertions, and whether it will provide copies of any such complaints together with the Notice of Reasonable VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Cause. The commenter further asked whether the Bureau expects respondents specifically to address each complaint and any resolution thereof in its response. The Bureau also received several comments taking issue with proposed § 1091.103(c), which stated that ‘‘[n]othing in this section shall be construed as requiring the Bureau to produce any documents or information to a respondent other items than as set forth in this section.’’ One commenter stated that this provision ‘‘seems unreasonable,’’ and ‘‘in the interest of open and honest communication,’’ urged the Bureau to ‘‘be willing to share any and all relevant information with respondents.’’ Another commenter asserted in connection with this provision that the good faith efforts of nonbank covered persons will continue to be frustrated by the lack of clearly defined requirements and expectations in the rule. Similarly, the Bureau received a comment suggesting a specific revision to § 1091.103(c) to require the Bureau to produce to a respondent documents or information ‘‘as otherwise relevant, material and necessary for respondent to prepare its response to the Notice.’’ This commenter encouraged the Bureau to include in the final rule a process by which a respondent, upon receiving a Notice of Reasonable Cause, may request additional relevant information from the Bureau and requested the establishment of a reasonable time frame in which the Bureau must provide such additional information or, conversely, state with specificity the reason for its denial of the request. The Bureau does not believe that a reasonable opportunity to respond requires the Bureau to provide copies of all complaints or information from other sources relied on by the Bureau in issuing a Notice along with a Notice. Respondents should typically already have, or have access to, copies of any complaints, pleadings, judicial opinions, or independent studies on which the initiating official may rely in issuing a Notice.29 Other information that the initiating official might rely on in issuing a Notice could contain confidential or other personally identifiable information regarding consumers or others. For the same reasons, the Bureau does not believe it is necessary or appropriate 29 It is the Bureau’s policy to place complaints in the public database 15 days after forwarding the complaint to the company in question. 77 FR 37558, 37568 (June 22, 2012). Thus, typically the company should already have copies of the complaints that the Bureau might rely on in issuing a Notice. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 40361 to provide respondents with the right to request additional information from the Bureau. The final rule, moreover, prohibits discovery and permitting such requests would not be consistent with the informal, expeditious nature of the proceedings. Thus, the Bureau rejects the commenter’s request that the Bureau add language to § 1091.103(c) requiring the Bureau to produce items ‘‘as otherwise relevant, material and necessary for respondent to prepare its response to the Notice.’’ Nevertheless, after consideration of the comments received, the Bureau agrees that it may be helpful to respondents to include in a Notice more information on items that the initiating official relied on in issuing a Notice than was required under the Proposed Rule. Thus, the Bureau revises the Proposed Rule to require under the final rule that the Notice set forth not just a ‘‘description of the basis’’ for, but also a ‘‘summary of the documents, records, or other items relied on,’’ by the initiating official in issuing a Notice. Accordingly, as finalized, § 1091.103(a)(1) reads: ‘‘A Notice of Reasonable Cause shall contain the following: A description of the basis for the assertion that the Bureau may have reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, including a summary of the documents, records or other items relied on by the initiating official to issue a Notice. Such summary will be consistent with the protection of sensitive information, including compliance with federal privacy law and whistleblower protections.’’ Statement of Verification Another commenter suggested that a Notice include a ‘‘statement of verification undertaken by the Bureau . . . of . . . the specific harms and risks that the Bureau believes the entity’s activities pose to consumers,’’ which should also ‘‘state the basis for the Bureau’s belief that such conduct will recur if the assertion is based upon past but not ongoing activities.’’ Under the final rule, the Notice must describe the basis for the assertion that the Bureau may have a ‘‘reasonable cause to determine’’ that the conduct of a nonbank covered person poses risks to consumers and provide a summary of the documents, records, or other items relied on by the initiating official in issuing a Notice. Accordingly, the Notice would describe the risks the Bureau believes the respondent’s E:\FR\FM\03JYR3.SGM 03JYR3 40362 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations conduct poses to consumers as requested by the commenter. However, for the reasons discussed in the sectionby-section analysis of § 1091.102 above, the Bureau declines to include provisions in the final rule requiring the Bureau to verify specific harms and risks on which a Notice is based, or to conclude where past conduct forms the basis for a Notice that such conduct is likely to recur. Notice Regarding Parallel Proceedings Another commenter mistook the Proposed Rule’s Notices of Reasonable Cause for notices that might be given at the outset of a civil investigation or examination. Accordingly, this commenter claimed that the Bureau should, in accordance with the commenter’s interpretation of the Fifth Amendment and understanding of the approach taken by the SEC, revise the Proposed Rule to require that a Notice of Reasonable Cause ‘‘inform civil investigative targets of their Constitutional rights.’’ Contrary to the commenter’s assumption, a Notice would not be used to initiate a civil investigation or an examination. A Notice, rather, would commence a proceeding solely to determine whether a nonbank covered person would be made subject to the Bureau’s supervisory authority on the basis of a reasonable-cause determination. Moreover, a person receiving a Notice would not be compelled to respond or otherwise act in response to such a Notice. Accordingly, the Fifth Amendment concerns raised by the commenter are not relevant to the issuance of Notices of Reasonable Cause under the Proposed Rule. In any event, nothing in the Proposed Rule would preclude the Bureau from providing additional information to those persons who receive a Notice of Reasonable Cause.30 The Bureau therefore declines to revise the Proposed Rule as recommended by the commenter. tkelley on DSK3SPTVN1PROD with RULES3 Revision to Address Confidentiality of Proceedings As discussed above, after consideration of the comments regarding confidentiality, the Bureau agrees that all aspects of a proceeding under the final rule relate to the Bureau’s supervisory process and therefore qualify as confidential supervisory information under 12 CFR 30 The Bureau takes no position here whether and in what circumstances it would be obligated under the Fifth Amendment to provide additional information to recipients of notices initiating a civil investigation or supervisory activity. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 1070.2(i)(1).31 Consistent with new § 1091.115(c), the Bureau has therefore revised proposed § 1091.103(a) to add a new subparagraph (vii), which states: ‘‘In connection with a proceeding under this part, including a petition for termination under § 1091.113, all documents, records or other items submitted by a respondent to the Bureau, all documents prepared by, or on behalf of, or for the use of the Bureau, and any communications between the Bureau and a person, shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1).’’ Section 1091.104 Service of Notice Section 1091.104 sets forth the procedures governing service of a Notice of Reasonable Cause. Proposed § 1091.104 provided that a Notice of Reasonable Cause shall be served pursuant to methods including electronic transmission (where a respondent has consented), personal service, First Class U.S. Mail, or commercial courier or express delivery service. Proposed § 1091.104 further required that the [initiating official] submit a copy of a Notice and any attached documents, records or other items to the [Associate] Director, who shall proceed as set forth in the Proposed Rule. Rule 4 of the Federal Rules of Civil Procedure The Bureau received several comments pertaining to the proposed service requirements. One commenter recommended that the Bureau use the rules for service set forth in Rule 4 of the Federal Rules of Civil Procedure (FRCP 4). Specifically, this commenter objected to service of notice on an administrative employee or other person at a respondent’s office, or through Certified Mail or a third-party commercial carrier. This commenter also asserted that the Bureau should enable entities to designate agents and officers to receive service of notice, which is allowed under FRCP 4. The Bureau believes that service by the methods set forth in proposed § 1091.104 is reasonably calculated to provide to a respondent the Notice commencing a proceeding under the Proposed Rule. The manner of service proposed incorporates many of the provisions of FRCP 4. For example, in the case of a corporation or other business entity, the Proposed Rule incorporates the provision of FRCP 4 that permits service by delivery to an 31 See also 12 CFR 1070.2(q) (defining ‘‘supervised financial institution’’ to mean a ‘‘financial institution that is ‘or may become’ subject to the CFPB’s supervisory authority’’). PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 officer, managing or general agent, or other agent authorized by appointment or law to receive such a notice. In most instances this will mean serving an entity’s registered agent. Where the Proposed Rule differs from FRCP 4, such as by permitting service by Registered Mail or next-day courier, the Proposed Rule is consistent with the procedural rules of practice of other Federal bank regulators.32 For example, the Federal Deposit Insurance Corporation (FDIC) Rules of Practice and Procedure permit service on a person that has not appeared in a proceeding by the following methods: ‘‘(i) By personal service; (ii) If the person to be served is an individual, by delivery to a person of suitable age and discretion at the physical location where the individual resides or works; (iii) If . . . a corporation or other association, by delivery to an officer, managing or general agent, or to any other agent authorized by appointment or by law to receive service . . . and the statute so requires, by also mailing a copy to the party; (iv) By registered or certified mail addressed to the party’s last known address; or (v) By any other method reasonably calculated to give actual notice.’’ 33 Service on Persons Registered With the Bureau Additionally, two commenters requested clarification on what it meant to be registered with the Bureau under § 1091.104(a)(3). The Bureau notes that the provision in the Proposed Rule stating that ‘‘[n]otice may be served on a person currently registered with the Bureau’’ by using ‘‘the most recent business address shown on the person’s registration form,’’ was included to permit such service if the Bureau adopts a rule requiring nonbank covered persons to register with the Bureau. The Bureau anticipates that to the extent a registration rule is adopted, a person required to register with the Bureau would be required to have its business address on file with the Bureau. In such a case, the Bureau believes that it should be able to rely on the address provided by a registrant in serving a Notice. Although a registration rule has not been adopted, the Bureau is including this provision in the final rule to avoid the need to revise the final rule 32 In some instances, FRCP 4, by reference to applicable state law, may allow service by Registered Mail, next-day courier, or other means not explicitly provided for in FRCP 4. 33 12 CFR 308.11(c). See also 12 CFR 263.11(c)(2) (Federal Reserve System, Rules of Practice); 12 CFR 19.11(c)(2) (Office of the Comptroller of the Currency (OCC), Uniform Rules of Practice and Procedure); 12 CFR 1081.113(d) (Bureau Rules of Practice for Adjudication Proceedings). E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations to add such a provision should the Bureau adopt a registration rule in the future. Waiver of Service The same two commenters also requested clarification on what a waiver of service under § 1091.104(a)(6) would entail and requested that the Bureau require waivers to be in writing and given by persons ‘‘upon whom the Notice would be served.’’ First, to clarify what waiver entails under proposed § 1091.104(a)(6), a waiver of service would permit the Bureau to provide a Notice by ‘‘First Class Mail or other reliable means.’’ There may be a number of ‘‘other reliable means’’ to provide a Notice, but one example would be delivering it to a designated person not otherwise authorized to accept service. Second, the Bureau agrees with the commenters’ suggestion that service should be waived only in writing, and by the person ‘‘upon whom the Notice would be served.’’ Accordingly, to make this explicit, the Bureau has revised proposed § 1091.104(a)(6) to read: ‘‘In lieu of service as set forth in paragraph (a)(1) or (a)(2) of this section, the person may be provided a copy of a Notice by First Class Mail or other reliable means if a written waiver of service is obtained from the person to be served. In the case of a respondent that is not a natural person, a written waiver may be provided by an officer, managing or general member, or partner authorized to represent the respondent.’’ For the reasons discussed above, the Bureau adopts § 1091.104 as proposed, other than the revisions to subsection (a)(6) relating to waiver of service as discussed above and other minor technical revisions for consistency. tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.105 Response Section 1091.105 sets forth the requirements for responding to a Notice of Reasonable Cause, including the time limit to respond, content of a response, default for failure to respond, and waiver of the right to submit items or make arguments not included in the response. The Bureau received a number of comments on proposed § 1091.105. Time Limit Proposed § 1091.105 provided that any response must be filed within 20 days of service of a Notice. The Bureau received several comments requesting a longer time period to file a response, ranging from a response deadline of 30 to 120 days. Generally these commenters asserted that a 20-day response deadline is not sufficient for a VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 respondent to respond to a Notice. One commenter suggested either using the Federal Rules of Civil Procedure as a model for setting deadlines, or the method prescribed by the Bureau for contesting consumer complaints (20 days to provide notice that the entity will challenge a complaint, and 60 days to provide a complete response). Another commenter stated that 20 days is an unreasonably short time limit given that there is no limit on the content, accuracy, and/or length of a Notice of Reasonable Cause. Another commenter asserted that responding to a Notice of Reasonable Cause would require engaging counsel, locating and reviewing potentially relevant documents, interviewing personnel, drafting a written response, compiling documents to accompany the response, internally approving the response, and submitting the response—activities that the commenter asserted could not be completed in 20 days. One commenter proffered that an extended period is needed to facilitate collection of data and material from remote locations. A few commenters implied that it would be unfair if the Bureau could review a response for longer than a respondent had to prepare the response. One commenter asserted that 20 days is too short given that this period of time would include any intermediate Saturday, Sunday, and Federal holiday. Still other commenters asserted that it would be unfair to set a time limit shorter than the limits for responding to government subpoenas, pre-examination audits, civil discovery requests, or notices of proposed rulemaking. Finally, one commenter asserted that the 20-day window did not provide for an opportunity to be heard at a meaningful time and in a meaningful manner. In a related comment, a commenter requested a mechanism by which the response time could be restarted if the Bureau raised a new material issue or assertion after issuance of a Notice. In proposing a 20-day response time, the Bureau attempted to ensure a fair process that provides respondents a reasonable opportunity to respond, but that is also efficient and streamlined. The Bureau notes that a 20-day response period is consistent with the rules of practice of other Federal banking regulators for certain administrative actions that impose similar burdens on the respondent in terms of consultation with counsel, review and compilation of documents, and preparation of a written response.34 The Bureau, however, 34 See 12 CFR 308.19(a) (FDIC Rules of Practice and Procedure); 12 CFR 263.19(a) (Federal Reserve System Rules of Practice for Hearings); 12 CFR PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 40363 understands the commenters’ concerns that 20 days to respond to a Notice may not be sufficient in some instances and believes that the response time can be moderately increased without undermining the goal that the process be streamlined and efficient. Thus, the Bureau is adopting a revision to the Proposed Rule extending the response time from 20 to 30 days. The Bureau believes that 30 days should generally provide a respondent sufficient time to respond.35 Moreover, the final rule provides certain flexibility in response time. Section 1091.115(a) of the final rule adopts the proposed provision stating that an extension of a time limit may be granted at the discretion of the Associate Director or Director, as applicable, for good cause shown, and the Bureau has deleted a provision in the Proposed Rule that directed the Associate Director or Director to strongly disfavor extension requests. The Bureau believes that the increase in the response deadline from 20 to 30 days, coupled with the increased flexibility for the Associate Director or Director to grant an extension for good cause shown, should address the commenters’ concerns and provide respondents sufficient time to respond to a Notice without undermining the goal of establishing a streamlined and efficient process for making determinations under 12 U.S.C. 5514(a)(1)(C). Finally, the Bureau agrees with the comment that additional time would be warranted were the Bureau to raise a new material basis for issuing a Notice that was not fairly within the scope of the initial Notice. The Bureau believes, however, this result was evident under the Proposed Rule, which contemplates that a response be responsive to the Notice. Thus, the Bureau does not believe that a revision to the Proposed Rule is necessary to address this comment. Content of Response Section 1091.105(b) sets forth the requirements relating to the content of a response. Proposed § 1091.105(b) provided that a respondent could 19.19(a) (OCC Rules of Practice) see also 12 CFR 1081.201(a) (Bureau’s Rules of Practice for Adjudication Proceedings, providing a 14-day deadline to submit an answer to a notice of charges). 35 The Bureau notes for example that, as distinguished from its rules of practice, the Board of Governors of the Federal Reserve provides 30 days for submitting a written response to a preliminary ‘‘control’’ determination under the Bank Holding Company Act. Control determinations often involve complex issues of fact and law. See 12 CFR 225.31(b) (providing that if a person wishes to contest a preliminary control determination the person may file a response within 30 days). E:\FR\FM\03JYR3.SGM 03JYR3 tkelley on DSK3SPTVN1PROD with RULES3 40364 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations respond to a Notice of Reasonable Cause either by contending that it is not a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services (proposed § 1091.105(b)(1)–(2)), or by voluntarily consenting to the Bureau’s supervisory authority under 12 U.S.C. 5514 (proposed § 1091.105(b)(5)). Where a respondent wished to contest the assertions in a Notice, proposed § 1091.105(b) required that the response: (1) Set forth the basis for a respondent’s contention that the respondent should not be subject to supervision pursuant to 12 U.S.C. 5514(a)(1)(C); (2) include all records, documents, or other items upon which a respondent relies; (3) include any request for a supplemental oral response to present oral arguments; and (4) include an affidavit signed by the respondent attesting that the information contained in the response is true, accurate, and without any omission that would cause the response to be materially misleading. One commenter requested that the Bureau permit entities to request a supplemental oral response after submitting the written response but within 14 days of that submission. The Bureau believes that the extension of the written response period from 20 to 30 days sufficiently satisfies the commenter’s request for an extension of time to request a supplemental oral response. Under the commenter’s requested time frame, a respondent would have 34 days to determine whether it wanted a supplemental oral response, while under the final rule, the respondent will have 30 days to make this determination. Therefore the Bureau declines to revise the final rule to allow respondents to submit a request for a supplemental oral response after submitting a written response. Additionally, in response to comments relating to the confidentiality of the overall process established by the final rule, as discussed in the sectionby-section analysis of § 1091.103(a), the Bureau has added § 1091.115(c), which addresses the issue of confidentiality for the entire rule. Consequently, the Bureau has deleted from the final rule the second sentence of proposed § 1091.105(b)(2) relating to confidential supervisory information, which has been rendered superfluous by the addition of § 1091.115(c) to the final rule. Further, the Bureau notes that it is revising proposed § 1091.105(b)(3) to permit respondents to request either an in-person or telephonic supplemental oral response in the written response. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 The Proposed Rule had provided only for a telephonic supplemental oral response unless the [Associate] Director directed that it be conducted in some other manner. The Bureau is making this revision to address comments received regarding proposed § 1091.106 discussed below. Waiver of Right To File Response Proposed § 1091.105(c) provided that the failure of a respondent to file a response within the required time period would constitute a waiver of the respondent’s right to file a response and would authorize the Director to issue a decision and order. One commenter asserted that the compressed 20-day time frame to respond and the provision for default for failing to respond could unduly disadvantage persons or entities that least expect to be subject to federal financial services regulation. This commenter urged the Bureau to give appropriate regard to procedural fairness. The Bureau has carefully considered procedural fairness and believes that the waiver provision is appropriate. A key purpose of establishing procedures to implement 12 U.S.C. 5534(a)(1)(C) is to set appropriate deadlines to allow for an efficient resolution of a matter. The Bureau believes that a reasonable and fair way to enforce the Notice-response deadline is to make the consequence of failing to respond within the allotted time the waiver of the right to respond. Moreover, the removal of the waiver provision from the final rule could undermine the process established by the rule by effectively rendering the timing requirements unenforceable. The Bureau further believes that the increase in the response time period under the final rule from 20 to 30 days, as well as the revision to the final rule to give the Associate Director or Director increased flexibility to grant an extension for good cause shown, as discussed above, should alleviate the commenter’s concern. Waiver of Right To Raise an Issue or Submit Items Proposed § 1091.105(d) stated that the failure to raise timely an issue in, or submit records, documents, or other items with, the response constitutes a waiver of a respondent’s right to raise the issue, or submit the records, documents, or other items, at any future stage of consideration of the matter and in any petition for judicial review. Several commenters objected to this waiver provision; one stated that the provision ‘‘violates fundamental fairness,’’ another stated that it is ‘‘not PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 equitable.’’ A few commenters expressed concern that this provision, coupled with the 20-day response time limit, was too onerous and could have serious consequences for respondents. One commenter, while generally agreeing with the need for a waiver provision, stated that it is possible that information relevant to the Bureau’s evaluation may come to the respondent’s attention subsequent to submitting the initial response even when the respondent has, for example, conducted appropriate due diligence in compiling documents, searching electronic databases, and conducting interviews. This commenter urged the Bureau to revise § 1091.105(d) by including a provision stating that ‘‘a respondent shall not be deemed to have waived its right to submit relevant information when a respondent can demonstrate to the satisfaction of the [Associate] Director or the Director that such information could not have reasonably been discovered at the time that petitioner submitted its [response to a Notice].’’ Another commenter asked the Bureau to extend the time period for responding and/or permit extensions of time or allow respondents to submit supplemental materials within a reasonable time after a supplemental oral response, if requested. Similarly, one commenter expressed the concern that a respondent failing to raise an issue within the proposed 20-day response deadline would risk waiving the ability to defend itself on the issue. This commenter requested a longer process that would require four, instead of two, steps: the Notice of Reasonable Cause, the response, a Bureau answer setting forth its analysis of the response, and a respondent’s reply to that subsequent Bureau answer—together with an additional 20 or 30 days added to the deadline. As stated earlier, the final rule sets forth a process only for determining whether the Bureau has supervisory authority over a person pursuant to 12 U.S.C. 5514(a)(1)(C). A determination resulting in an order for supervision under the final rule does not constitute a finding of a violation of Federal consumer financial law. As such, the ramifications of the waiver provision are limited. By failing to raise an issue or argument in a response, covered persons do not waive under the final rule any right to use arguments or evidence to rebut a claim of a violation of law during the supervision process or any potential collateral enforcement action. As stated in the supplementary information to the Proposed Rule, the Bureau continues to believe that the proposed waiver provision is necessary E:\FR\FM\03JYR3.SGM 03JYR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations to remove any incentive for a respondent to wait until after filing a response, such as at a supplemental oral response or during judicial review, to raise an argument or present documents or other information for the first time. The waiver is intended to help ensure that the Bureau is aware of all relevant issues upon which a respondent wishes to rely at the earliest opportunity before reaching a determination.36 Including the waiver provision is within the Bureau’s broad discretion in formulating the informal procedures set forth in the final rule. Consequently, the Bureau declines to delete the waiver provision. The Bureau believes, however, that by increasing the response time limit under the final rule from 20 to 30 days and by revising the final rule to provide increased flexibility for the Associate Director or Director to grant an extension for good cause shown, it has reasonably addressed the commenters’ core concerns. Nor is the Bureau persuaded by the commenters’ contention that an exception to the waiver provision is necessary where information relevant to the Bureau’s evaluation purportedly could not have reasonably been discovered until after the initial response is provided. The documents, records, or other items that respondents may wish to rely on are types that should reasonably be available to respondents, such as product or service information, promotional materials, transactional, account, or financial information, and policies or procedures. Additionally, the Bureau believes that the recommended additional layers of procedure requested by commenters (i.e., a Bureau answer to a response and a respondent’s reply to such answer) is not necessary to reduce the risk of waiver and would needlessly complicate and lengthen the informal process set forth in the final rule. Expressing a different concern, a commenter stated that the waiver provision incentivizes respondents to submit more information than is necessary to preserve arguments, frustrating efficiency. The Bureau believes that the commenter overstates the risks that the waiver provision will cause respondents to submit extraneous or unnecessary information in response to a Notice. The Bureau believes that respondents generally will include with their responses such records, documents, or other items that they believe relevant to supporting their substantive positions; the Bureau believes that documents pertaining to arguments a respondent wishes to preserve will generally be relevant to a 36 77 FR 31230 (May 25, 2012). VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 determination under the final rule. Also, the Bureau notes that respondents that wish to frustrate the process under the final rule by supplying unnecessary or extraneous information in response to a Notice may do so even in the absence of a waiver provision. Moreover, the Bureau believes that on balance the waiver provision will enhance, rather than frustrate, the efficiency of the process established by the final rule. It would be highly inefficient and disruptive to the process to permit the introduction of additional evidence or arguments at any point during a proceeding. Another commenter asserted that the waiver provision conflicts with the exhaustion of administrative remedies doctrine because, according to that doctrine, courts deem arguments waived on judicial review that have not first been raised before an administrative agency on ‘‘administrative appeal,’’ and the waiver provision under § 1091.105(d) might result in waiver of an argument ‘‘prior to an administrative review of the underlying merits of the claim, well before appeal.’’ Contrary to the commenter’s contention, the proposed waiver provision is fully consistent with the doctrine of exhaustion of administrative remedies. This doctrine generally requires that ‘‘[o]ne challenging an agency decision must exhaust all administrative remedies before seeking judicial review.’’ 37 Moreover, ‘‘[r]elated is the requirement, often included under the exhaustion doctrine, that one must raise issues with the agency or lose the right to challenge those issues on review.’’ 38 The doctrine of exhaustion of administrative remedies does not preclude an agency from specifying the time and manner in which issues must be raised before the agency, including prior to any administrative appeal, or from deeming arguments waived that are not raised consistent with such rules, even if this waiver precludes consideration of the issue in any administrative or subsequent judicial review process.39 Rather, the doctrine provides that any administrative remedy that is available must be exhausted in the manner specified by the agency— and consistent with any rules of that 37 33 Charles Alan Wright & Charles H. Koch, Jr., Federal Practice and Procedure § 8398 (2d ed.). 38 33 Charles Alan Wright & Charles H. Koch, Jr., Federal Practice and Procedure § 8398 (2d ed.). 39 The Bureau notes that the procedures set forth in the final rule do not provide for an administrative appeal process, and that such a process is neither required under the APA nor necessary to provide respondents a reasonable opportunity to respond. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 40365 agency—before a litigant resorts to the courts. The Bureau therefore declines the commenter’s request that the waiver provision be deleted or revised. No Discovery Proposed § 1091.105(e) stated that there shall be no discovery in connection with the response. A few commenters requested that the Bureau provide for discovery at this point in the process. The Bureau notes that neither the Dodd-Frank Act nor the APA requires discovery as part of the informal process established by the final rule. There are many informal agency procedures that do not allow for discovery. For example, the FDIC’s informal exemption hearings under Section 12(H) of the Securities and Exchange Act of 1934 do not permit discovery.40 Indeed, the final rule provides greater procedural rights to respondents than required by the DoddFrank Act, which mandates only that the Bureau provide respondents with notice and a reasonable opportunity to respond.41 Among other procedural enhancements, the final rule permits a respondent to request a supplemental oral response in addition to filing a written response. The final rule also permits a respondent to petition for termination of supervision after two years, whereas 12 U.S.C. 5514(a)(1)(C) does not expressly provide for termination. The Bureau believes that permitting discovery would unnecessarily protract the process established by the final rule and increase its costs to the Bureau. A longer process would be contrary to the Bureau’s goal of establishing efficient and streamlined procedures. Instead, a Notice under the final rule must contain a description of the basis for the assertions giving rise to the Notice. As revised, under the final rule, a Notice will also include a summary of the consumer complaints and information from other sources relied on by the Bureau in issuing the Notice, as described in the section-by-section analysis of § 1091.103. The Bureau believes that this process will afford a respondent a reasonable opportunity to evaluate the assertions in a Notice and formulate an appropriate response. For the reasons discussed above, the Bureau adopts § 1091.105 as proposed, other than revisions to: subsection (a), which increases the response time limit from 20 to 30 days, and subsection (b)(3), which provides that a respondent may specify whether it prefers an in40 12 41 12 E:\FR\FM\03JYR3.SGM CFR 308.142(b)(2). U.S.C. 5514(a)(1)(C). 03JYR3 40366 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations person or telephonic supplemental oral response. Additionally, the Bureau deletes the second sentence of proposed § 1091.105(b)(2) relating to confidential supervisory information because this sentence is redundant in light of new § 1091.115(c) of the final rule. tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.106 Supplemental Oral Response Section 1091.106 sets forth the procedures relating to a supplemental oral response. Proposed § 1091.106 provided that a respondent may request in its written response under § 1091.105 to present a supplemental oral response in support of its assertion that it is not a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. Proposed § 1091.106 also set forth procedures for the conduct of a supplemental oral response. Option for In-Person Supplemental Oral Response Proposed § 1091.106(b)(1) provided that a supplemental oral response would be conducted by telephone unless the [Associate] Director directed that it be conducted in some other manner. The Bureau received several comments requesting that the Bureau also grant respondents an option for an in-person supplemental oral response. These commenters asserted that respondents should have the option to take on any level of burden that they wish, and that in-person responses facilitate better communication. The Bureau proposed that a supplemental oral response generally be held by telephone to minimize burdens on both respondents and the Bureau. The Bureau provided some flexibility in the Proposed Rule to allow for the conduct of supplemental oral responses by other means if directed by the [Associate] Director. In light of the comments received and on further consideration, however, the Bureau agrees that it would be reasonable to provide a respondent with an opportunity for an in-person supplemental oral response where the respondent wishes to take on the additional burden of traveling to the Bureau’s headquarters. Thus, the Bureau revises proposed § 1091.106(b)(1) to allow a respondent to request an inperson supplemental oral response to be held at the Bureau’s headquarters in Washington, DC. Under the final rule, if a respondent requests in its written response a supplemental oral response but does not specify whether such response shall be conducted via VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 telephone or in person, the supplemental oral response will be conducted by telephone unless otherwise directed by the Associate Director. Alternatives to Supplemental Oral Response Raising a different issue, a commenter asserted that it is unclear whether, as proposed, a supplemental oral response would provide any material benefit to a respondent because no discovery is allowed in connection with the response and respondents cannot raise issues in the supplemental response that were not raised in the written response. This commenter recommended that the Proposed Rule be revised either to: (1) permit limited discovery, or (2) replace a supplemental oral response with a supplemental written response that would allow a respondent to present additional relevant issues or documentation related to a matter. The Bureau notes that a supplemental oral response is optional under the final rule. A respondent that does not believe a supplemental oral response would be beneficial need not request such a response. Contrary to the commenter’s contention, however, the Bureau believes that in many instances a supplemental oral response would benefit a respondent by, for example, providing a respondent with the opportunity to present arguments orally directly to the Associate Director and to highlight particular aspects of its written response. Moreover, as discussed above, the Bureau believes that it would unnecessarily lengthen and complicate the final rule to allow for discovery or provide a respondent the opportunity to submit a supplemental written response, and that such measures are not necessary to ensure that respondents have a reasonable opportunity to respond to a Notice. Accordingly, the Bureau declines the commenter’s suggestion to replace a supplemental oral response with discovery or a supplemental written response. Limitations on Conduct of Supplemental Oral Response Proposed § 1091.106(b)(2) provided that the [Associate] Director may impose limitations on the conduct of a supplemental oral response and set forth a non-exhaustive set of such limitations. The Bureau received several comments pertaining to the [Associate] Director’s discretion to set restrictions on the supplemental oral response. Two commenters argued that the [Associate] Director should not be able to set a time limit on the presentation of a PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 supplemental oral response. One of these commenters stated that no time limit was necessary given the Bureau’s proposed limitation on subjects that may be addressed. The other stated that there should be no limitation on the submission of additional records, documents, or other items, in addition to no limitation on presentation time. Another commenter requested that the respondent be provided an opportunity to file a written dissent when it believes that the [Associate] Director is imposing unreasonable limitations on the supplemental oral response. Two commenters proffered that the Bureau should set uniform guidelines, similar to the guidelines for a written response that all respondents must follow. One of these commenters asserted that if the previous recommendation is not adopted, limitations should be developed on a case-by-case basis in consultation with the respondent. The Bureau believes that permitting the Associate Director to impose limitations on the conduct of a supplemental oral response is appropriate in an informal proceeding of the type established by the final rule and will help ensure that a supplemental oral response focuses on a respondent’s and initiating official’s arguments supporting their respective assertions in the matter. It is important, for example, that the Associate Director have the flexibility to set time limits for these proceedings so that they do not become unwieldy or cumbersome and are appropriate in relation to the issues presented. At the same time, it would not be consistent with the informal nature of the proceedings under the final rule, or the Bureau’s objective to establish an efficient and streamlined process, to permit written dissents or objections on limitations imposed by the Associate Director in connection with a supplemental oral response, or in connection with any other issue relating to the proceedings. The informal procedures under the final rule do not contemplate motions practice or objections, and such motions and objections would undermine the efficiency of the procedures under the final rule. The Bureau also believes that it would not best serve the interests of the Bureau or respondents to establish uniform guidelines governing the supplemental oral response because the facts and circumstances relating to proceedings— such as the size of the respondents or the complexity of matters under consideration—may vary significantly between matters. The Bureau is concerned that a single approach to E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations supplemental oral responses would not permit the flexibility needed to efficiently and fairly accommodate the particular circumstances of a matter. The Bureau, however, recognizes the need to ensure that respondents understand what the process of a supplemental oral response will entail. Thus, the Bureau included in proposed § 1091.106(d) a requirement that a notice for a supplemental oral response include ‘‘general information relating to the conduct of an oral response.’’ Such information would include, for example, time limitations for presenting a supplemental oral response. tkelley on DSK3SPTVN1PROD with RULES3 No Discovery or Witnesses Proposed § 1091.106(b)(3) stated that no discovery will be permitted, and no witnesses will be called, in connection with a supplemental oral response. Several commenters objected to these restrictions. However, as discussed above, the Bureau believes that this limitation is appropriate given the informal nature of the procedures set forth in this Proposed Rule and the Bureau’s objective to establish an efficient and streamlined process for making determinations under 12 U.S.C. 5514(a)(1)(C). The prohibition on discovery in this section is consistent with, and supported by, the same considerations as those underlying the prohibition on discovery in connection with the response under § 1091.105, which is discussed in detail in the section-by-section analysis above. The prohibition on the calling of witnesses in connection with a supplemental oral response is consistent with the overall prohibition on submitting additional evidence in connection with a supplemental oral response. If a respondent wishes to submit testimony, it may submit written testimony under affidavit as part of its response under § 1091.105. Timing and Waiver for Failure To Participate Proposed § 1091.106(d) prescribed the timing of a supplemental oral response. Under this proposed section, within 14 days of receiving a respondent’s request for a supplemental oral response, the [Associate] Director shall serve on a respondent a notice advising the respondent of the date, time, and general information relating to the conduct of a supplemental oral response, with a copy to the [initiating official]. To allow a respondent and the [initiating official] sufficient time to prepare for a supplemental oral response, and to make arrangements to participate, proposed § 1091.106(d) provided that a supplemental oral VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 response shall be scheduled not less than ten days after the date of such service. Finally, proposed § 1091.106(g) stated that if a respondent fails to participate in a scheduled supplemental oral response, such a failure would constitute a respondent’s waiver of the opportunity to present a supplemental oral response. The Bureau received a few comments pertaining to the timing of a supplemental oral response. Several commenters requested that the time and date of the supplemental oral response be scheduled at a time that is convenient for both the Bureau and the respondent. One commenter stated that a respondent that fails to participate in a scheduled supplemental oral response due to extenuating circumstances should not be deemed to have waived the opportunity to participate in a supplemental oral response. The Bureau believes that it is important that the final rule grant the Associate Director discretion to make final decisions pertaining to the scheduling of a supplemental oral response. To provide otherwise might necessitate burdensome and unwieldy negotiations and would infringe unnecessarily on Bureau prioritization. However, the Bureau notes that under the final rule, in exercising his or her discretion to schedule a supplemental oral response, the Associate Director will take into consideration the availability and convenience of a respondent. A respondent that is unable to participate in a scheduled supplemental oral response for good cause may request an extension. The Associate Director may, at his or her discretion, grant an extension ‘‘for good cause shown.’’ Recording of Supplemental Oral Response Proposed § 1091.106(b)(6) provided that a recording of the supplemental oral response will be made, and that a respondent may purchase a copy or transcript of the recording. The Bureau received a few comments regarding recordings and transcripts of the supplemental oral response. One commenter asked the Bureau to use a court stenographer to reduce the supplemental oral response to writing. Another commenter suggested that the Bureau afford respondents the opportunity to record the supplemental oral response themselves. Additionally, a commenter requested confirmation that the recording of the supplemental oral response would be treated as confidential supervisory information. In response to the comments received, the Bureau notes that it intends to use PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 40367 court reporters to record supplemental oral responses and has revised § 1091.106(b)(6) of the Proposed Rule to make this explicit. The Bureau does not, however, anticipate that it will have these recordings transcribed in each instance. Under the final rule, if a respondent wishes to purchase a copy of the recording or a transcript from the court reporter, it may do so at its own expense. The Bureau believes that it is important to have only one official recording (and, if produced, transcript) of a supplemental oral response. Thus the Bureau declines to revise the Proposed Rule to permit a respondent to create its own recording of a supplemental oral response. Finally, the Bureau notes that under new § 1091.115(c), transcripts and recordings of supplemental oral responses are deemed confidential supervisory information. Other Issues The Bureau also received comments requesting clarification on whether the supplemental oral response will include a question and answer period, or whether the oral responses will simply be a monologue performed by the respondent. The Bureau considers a supplemental oral response an opportunity for a respondent to present oral arguments in support of the respondent’s written response. The initiating official may also participate in a supplemental oral response to present oral arguments supporting the assertions set forth in the Notice of Reasonable Cause. The Associate Director may, at his or her discretion, ask questions of the respondent and/or initiating official during the proceeding. Finally, the Bureau received a comment from a consumer group expressing its concern that, unlike in the written response, there would be no requirement of truthfulness with respect to the supplemental oral response. The Bureau notes that an affidavit or declaration of truthfulness as required under § 1091.105(b)(4) is not warranted in connection with a supplemental oral response because no new evidence or witnesses are permitted as part of such response. Rather, during a supplemental oral response, a respondent is limited to making oral arguments in support of the respondent’s written response. Thus, it is sufficient that, under the final rule, only the written response must be submitted pursuant to § 1091.105(b)(4), under affidavit or declaration that it is true and accurate and does not contain any omissions that would cause the response to be materially misleading. For the reasons discussed above, the Bureau adopts § 1091.106 as proposed, E:\FR\FM\03JYR3.SGM 03JYR3 40368 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations other than the revisions to 1091(b)(1) and (6) as described above and other minor technical revisions for consistency. tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.107 Manner of Filing Papers Proposed 1091.107 provided for filing of papers other than a Notice in a proceeding under the Proposed Rule by electronic transmission under such conditions as specified by the [Associate] Director or Director. Proposed 1091.107 also authorized other methods of filing and service if a respondent demonstrated electronic filing was not practicable and the [Associate] Director or Director permitted an alternative method of filing or service. The Bureau did not receive any substantive comments on this proposed provision and adopts § 1091.107 as proposed with minor technical revisions for consistency. Section 1091.108 Recommended Determination Section 1091.108 sets forth the procedures relating to the issuance of a recommended determination by the [Associate] Director. Proposed § 1091.108 provided that the [Associate] Director shall make a recommended determination and submit to the Director either a proposed order that would bring a respondent within the Bureau’s supervisory authority under 12 U.S.C. 5514, or a proposed notification containing a determination that a respondent is not subject to the Bureau’s supervisory authority under 12 U.S.C. 5514 on the basis of the proceeding. Under proposed § 1091.108(a), if a respondent had not voluntarily consented to the Bureau’s supervisory authority, and had not requested the opportunity to present a supplemental oral response, a recommended determination would be required to be made not later than 45 days from the receipt of a timely-filed response, or not later than 45 days after the service of a Notice of Reasonable Cause when a respondent failed to file a timely response. If a respondent requested the opportunity to present a supplemental oral response, a recommended determination would be required to be made not later than 90 days after the service of a Notice of Reasonable Cause. Proposed § 1091.108(c)–(e) further set forth the required content of the [Associate] Director’s recommended determination, and the records, documents, and other items that were required to accompany the recommended determination sent to the Director by the [Associate] Director. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Proposed § 1091.108 also provided that if the [Associate] Director recommended that the respondent should not be subjected to the Bureau’s supervisory authority based on the proceedings, such recommendation would not have precedential effect and would not prevent the issuance of another Notice of Reasonable Cause or a determination subjecting the respondent to the Bureau’s supervisory authority. Provision of Recommended Determination to Respondent Several commenters requested that the Bureau provide the respondent with an exact copy of the recommended determination and all accompanying documentation. Some of these commenters recommended that the Bureau allow respondents to file objections to a recommended determination before the Director makes a final determination. Commenters stated that allowing for objections would provide a fairer process, provide the Director with the respondent’s position before he or she makes a final determination, resolve claims in advance of judicial review, and correspond with common practice in other informal adjudicatory processes. The Bureau believes that the procedures for issuing a recommended determination set forth in the proposed rule strike the appropriate balance between fairness and efficiency. In the Bureau’s view, if the final rule were to allow a respondent to submit a written objection to a recommended determination for the Director’s consideration, as requested by commenters, then to ensure a fair process, the final rule would also need to afford the initiating official the opportunity to rebut the objection. The Bureau believes that such a procedure would be unwieldy and unnecessarily lengthen and increase the costs of the process set forth in the Proposed Rule. The Bureau therefore declines to revise the Proposed Rule to require such a procedure. In addition, given the limited purpose of the Associate Director’s recommended determinations under the final rule to guide the final determination of the Director, the Bureau believes that it would serve no purpose to require the Associate Director to provide a respondent with an exact copy of a recommended determination together with all accompanying documents at the time these items are submitted to the Director, or to allow respondents to object to a recommended determination on the record. Accordingly, the Bureau declines to revise the Proposed Rule to include such requirements. However, PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 the Bureau believes that a respondent should receive a copy of the recommended determination (excluding other documents or items transmitted to the Director) at the end of the determination process. Therefore, as discussed in the section-by-section analysis of § 1091.109(b) below, the Bureau is revising that section to add a new subparagraph (5) stating that the Director will send to the respondent a copy of the recommended determination issued by the Associate Director. Bureau Deadlines One commenter requested clarification regarding the consequences of a failure by the Bureau to meet the deadlines set forth in proposed § 1091.108. The Bureau addressed this issue in § 1091.112(c) of the Proposed Rule (§ 1091.115 in the final rule), which states that ‘‘[d]eadlines for action by the [initiating official], [Associate] Director, or the Director established in this part confer no substantive rights on respondents.’’ This provision reflects the Bureau’s desire to balance its commitment to establish an efficient and streamlined process, with the need to maintain flexibility in meeting internal prioritization goals. Findings of Fact and Conclusions of Law A commenter stated that the Proposed Rule should be revised to require that recommended determinations set forth specific findings of fact and conclusions of law. Although the Proposed Rule did not mandate the inclusion of findings of fact and conclusions of law in the [Associate] Director’s recommended determination, proposed § 1091.108(d)(2) would have required that a recommended determination provide the ‘‘basis’’ for a recommendation that the Director issue a final determination that there is reasonable cause to determine that the respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The Bureau believes that this proposed requirement is sufficient to achieve a fair process and ensure that the recommended determination contains sufficient information to facilitate a final determination of the Director. On the other hand, the Bureau does not believe that revising the Proposed Rule to impose a requirement that a recommended determination include proposed findings of fact and conclusions of law would be consistent with the informal nature of the E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations procedures set forth in the final rule, or with the limited purpose of the Associate Director’s recommended determinations under the rule to facilitate the final determination of the Director. Such a requirement also is not warranted in light of the limited purposes of a determination of reasonable cause by the Director under the final rule. A proceeding under the final rule would not result in a determination that a person violated the law or is subject to penalty, but would merely subject such person to the Bureau’s supervisory authority. For the reasons discussed above, the Bureau adopts § 1091.108 as proposed with minor technical revisions for consistency. tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.109 Determination by the Director Section 1091.109 governs the procedures relating to the Director’s issuance of a final determination. Proposed § 1091.109(a) provided that, not later than 45 days after receipt of the [Associate] Director’s recommended determination, the Director shall make a final determination by either adopting without revision, modifying, or rejecting the [Associate] Director’s recommended determination. Under the proposed subsection, the Director shall issue to a respondent, with copies to the [Associate] Director and [initiating official], a decision and order bringing a respondent within the Bureau’s supervisory authority under 12 U.S.C. 5514, or a notification containing the determination that a respondent is not subject to the Bureau’s supervisory authority under 12 U.S.C. 5514 on the basis of the proceeding. Proposed § 1091.109(b) described what a decision and order must set forth. Proposed § 1091.109(c) provided that the Director may rely on the assistance and advice only of decisional employees in reaching a final determination. Written Analysis Relating to Decision One commenter requested that proposed § 1091.109 be modified to require the Director to include a written and detailed analysis of the reasons supporting his or her final determination, and that the Director’s determinations should include a description of how the risky product or practice can be changed in order to conform with Bureau requirements. First, the Bureau notes that proposed § 1091.109(b)(3) already requires the Director to provide the basis for the Director’s decision in his or her final determination. The Bureau does not believe that it is necessary to revise the Proposed Rule to further require the VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Director to include in a final determination a written and detailed analysis of the reasons supporting his or her decision as requested by the commenter. To the extent the commenter is suggesting that the final rule should be revised to mandate that the Director include in a final determination findings of facts and conclusions of law, the Bureau declines the recommendation for the reasons discussed above with respect to the Associate Director’s recommended determination. For the foregoing reasons, the Bureau declines to revise the Proposed Rule to require a final determination to include the level of detail requested by the commenter. Second, the Bureau notes that, as stated above, the purpose of the final rule is to provide transparency and ensure consistency regarding the procedures the Bureau intends to follow in determining whether to subject a nonbank covered person to supervision under 12 U.S.C. 5514(a)(1)(C). As discussed above, it is beyond the scope of this procedural rule to define ‘‘risks to consumers’’ or to establish conduct standards. For similar reasons, it would exceed the scope of the final rule to require the Director to include in a final determination a description of how a risky product or practice can be changed in order to conform to the Bureau’s requirements. Moreover, to the extent that the Bureau were to provide guidance to a particular nonbank covered person regarding its activities, it would do so in the context of supervision, not in an order issued by the Director bringing a nonbank covered person under the Bureau’s supervisory authority. The Bureau therefore declines to revise the Proposed Rule to require the Director to provide in a final determination a description of how a risky product or practice should be changed. Deferring to State or Other Federal Determinations The same commenter also recommended that the final rule allow the Director to defer to State or other official determinations on the same issue addressed by a Notice of Reasonable Cause, or require the Director to explain how the Bureau’s position is consistent or inconsistent with such outside determinations. The Bureau does not believe that requiring the Director to justify a final determination in relation to State or other official determinations on the same issue is in accord with 12 U.S.C. 5514(a)(1)(C), which confers on the Bureau the sole authority to make reasonable-cause determinations. The PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 40369 Bureau notes, however, that under 12 U.S.C. 5514(a)(1)(C), the Bureau may base a final determination on complaints, as well as on ‘‘information from other sources.’’ Such information may include, among other things, State or other Federal administrative, civil, or criminal actions taken in connection with a nonbank covered person. The Bureau further observes that in exercising its supervisory authority under 12 U.S.C. 5514(a)(1)(C), it will coordinate with State and other Federal agencies as set forth in 12 U.S.C. 5514(b)(3) and will consider the extent to which the nonbank covered person is subject to oversight by State authorities for consumer protection pursuant to 12 U.S.C. 5514(b)(2). Final Agency Action and Judicial Review Another commenter recommended that the Bureau expand on proposed § 1091.109(d), which stated that a determination by the Director is final agency action under 5 U.S.C. 704, and add a separate section to the final rule delineating a respondent’s opportunities for review of an order and decision issued by the Director. The commenter further asserted that deeming the final determination of the Director final agency action under proposed § 1091.109(d) was in tension with the Bureau’s assertion that the action was informal. The Bureau included proposed § 1091.109(d) to make clear that a decision and order issued by the Director pursuant to the informal process described in the rule is a final agency action for purposes of judicial review. The Bureau does not believe that the informal nature of the proceedings conflicts in any way with deeming a final determination of the Director final agency action under § 1091.109(d). Also, in the Bureau’s view, inclusion of a section in the final rule of procedures relating to judicial review, as requested by the commenter, is unnecessary and beyond the scope of the final rule. Precedential Effect Two commenters argued that proposed § 1091.109(a)(2), which provided that the issuance of a notification that the respondent will not be made subject to the Bureau’s supervisory authority ‘‘shall have no precedential effect and shall not prevent the issuance of another Notice of Reasonable Cause,’’ appears to constitute ‘‘double jeopardy.’’ The Bureau disagrees with the commenters’ characterization of § 1091.109(a)(2). First, the double jeopardy clause is E:\FR\FM\03JYR3.SGM 03JYR3 40370 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations wholly inapplicable to the proceedings under the final rule, which are informal administrative proceedings rather than criminal in nature, and do not result in a punitive action against the respondent, but rather merely subject the respondent to Bureau supervision. Second, the Bureau believes that there are good reasons to allow an initiating official to issue a Notice of Reasonable Cause to a respondent even after the Director has issued a final determination not to subject it to supervision under 12 U.S.C. 5514(a)(1)(C) on the basis of a prior Notice. For example, the second Notice may be based on new complaints or sources of information, or while the conduct at issue in the second Notice might be similar to that in the first, the severity of risk to consumers may have significantly increased because of the number of consumers alleged to be affected. Although such circumstances may be rare, the Bureau believes, consistent with the Dodd-Frank Act, that it is necessary and appropriate to preserve the possibility of invoking the procedures under 12 U.S.C. 5514(a)(1)(C) should such circumstances arise. The Bureau therefore declines to revise the Proposed Rule to delete the no precedential effect provision. tkelley on DSK3SPTVN1PROD with RULES3 Making Information Regarding a Proceeding Publicly Available The Bureau received one comment requesting that the Bureau publicly release information on the entities that receive a Notice of Reasonable Cause, the entities under the Bureau’s supervision, and the reasoning underlying the Bureau’s final determinations. The commenter argued that such publicity would mitigate the risk that a future Director could neglect the obligations of the Bureau. As set forth in § 1091.115(c), information relating to a proceeding shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1), and the Bureau declines to depart from the limitations on public disclosure set forth in that provision of the final rule. For the reasons discussed above, the Bureau adopts § 1091.109 as proposed with a revision to specify that the Director will provide the Associate Director’s recommended determination along with the Director’s final determination to a respondent, as explained in the section-by-section analysis of § 1091.108 above, and with minor technical revisions for consistency. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Section 1091.110 Voluntary Consent to Bureau’s Authority 42 Proposed § 1091.113(a) provided that nothing in the Proposed Rule shall affect a person’s ability to voluntarily consent, at any time, to the Bureau’s supervisory authority under 12 U.S.C. 5514 as mutually agreed to by the parties. As proposed, voluntary consent under this provision would be an alternative to consenting voluntarily to the Bureau’s supervision under proposed § 1091.103(b), which provided that a respondent could execute and file a consent-agreement form in lieu of filing a written response to a Notice. The Bureau did not receive any substantive comments on proposed § 1091.113(a) and therefore adopts § 1091.113(a) as proposed with minor technical revisions for consistency, including renumbering this section as § 1091.110(a). Length of Supervision Period Under Consent Agreement; Waiver of Judicial Review Proposed § 1091.113(b) provided that a person entering into a consent agreement waives any right to judicial review of that agreement. Additionally, proposed § 1091.113(b) provided that a consent agreement that specifies the period during which the person will be subject to the Bureau’s supervisory authority precludes such a person from petitioning for the termination of the consent order during the agreed-to supervisory period. The Bureau received several comments regarding proposed § 1091.113(b). A few commenters addressed the appropriate length of the supervision period required under a voluntary consent, or similarly, how much time should pass before a consenting nonbank may petition to terminate supervision. One commenter stated that consent agreements should require a supervision period lasting at least two examination cycles. Another commenter asserted that respondents entering into consent agreements should have the right to petition for termination of supervision after two years. A commenter asked that nonbanks be able to reconsider and void consent agreements upon discovering additional evidence. The Bureau received one comment stating that requiring respondents to waive their right to judicial review of a voluntary consent agreement is not equitable or reasonable. Finally, two commenters suggested that proposed § 1091.113 be 42 Proposed § 1091.113 has been renumbered § 1091.110 in the final rule. All references to proposed § 1091.113 in this analysis correspond to § 1091.110 of the final rule. PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 revised to require the inclusion of a confidentiality provision and correctiveaction plans that, if adhered to, would allow for early termination of supervision. First, the Bureau notes that a consent agreement is voluntary and that, under proposed § 1091.113, most terms of such agreements are negotiable. Respondents do not have to enter into a consent agreement if they do not wish to accept its terms. Benefits of consent agreements include, among others, providing certainty of outcome to the parties and reducing the potential burden of going through the full informal process established by the final rule. Second, proposed § 1091.113 is intended to provide flexibility to allow the parties to establish terms acceptable to each. One of the negotiable terms under proposed § 1091.113 is the length of the supervision period to which a respondent will be subject. This differs from the consent agreement form described in § 1091.103(b), which automatically establishes a two-year supervision period. The Bureau does not believe that it is appropriate to limit this flexibility by mandating under proposed § 1091.113 a minimum supervision period, such as requiring two examination cycles, or by mandating that a respondent be permitted to petition for termination of supervision earlier than agreed. For the same reason, the Bureau declines to revise proposed § 1091.113 to require correction action plans that, if adhered to, would allow for early termination of supervision. Third, as discussed above, the Bureau has added § 1091.115(c) to the final rule, which provides that information relating to a proceeding shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1). The Bureau believes that this provision adequately addresses the issue of confidentiality and therefore declines to revise the Proposed Rule to require the inclusion of a confidentiality provision in a consent agreement. Fourth, since one of the purposes of entering into a consent agreement is to provide certainty to the parties and reduce potential burden, the Bureau believes that it is reasonable to require that the respondent waive the right to judicial review of the terms of a consent agreement, thereby ensuring that the parties do not litigate an agreement after it is executed. A respondent that does not want to relinquish any possible opportunity for judicial review need not enter into a consent agreement. For clarity, the Bureau revises proposed § 1091.113(b) to add that a consent agreement ‘‘shall state’’ that a E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations respondent entering into a consent agreement waives any right to judicial review of such consent agreement. For the reasons discussed above, the Bureau adopts § 1091.113 as proposed with the revision to proposed § 1091.113(b) to clarify the waiver provision described in the preceding paragraph and with other minor technical revisions for consistency, including renumbering this section as § 1091.110(b). tkelley on DSK3SPTVN1PROD with RULES3 Section 1091.111 Notice and Response Included in Adjudication Proceeding Otherwise Brought by the Bureau 43 Proposed § 1091.114 provided that if the Bureau issues a notice of charges against a person under 12 CFR 1081.200,44 the Bureau may, in its discretion, also provide the notice and opportunity to respond required by 12 U.S.C. 5514(a)(1)(C) in the notice of charges. In such a circumstance, the procedures set forth in § 1091.102– § 1091.110 would not apply to the proceedings. Under the Proposed Rule, the Bureau could use the administrative adjudication proceedings set forth in 12 CFR 1081.200 to provide notice and a reasonable opportunity to respond as required by 12 U.S.C. 5514(a)(1)(C) only in certain cases where the Bureau has otherwise brought an administrative action against a respondent. The Bureau believes that the flexibility provided by this section would enhance efficiency and reduce burdens on respondents and the Bureau by allowing a determination under 12 U.S.C. 5514(a)(1)(C) and an adjudicative proceeding to be handled in a single forum. The Bureau received two comments suggesting that supervision authority should be established before bringing an enforcement action. One commenter asserted that simultaneous riskdetermination proceedings and enforcement actions could penalize a company for conduct that it previously had no reason to know was illegal. This commenter recommended that the risk determinations set forth in this rule be used to put a company on notice that certain activities are deemed to pose risks to consumers before any enforcement action is initiated. The other commenter asserted that simultaneous risk determinations and enforcement actions would give rise to 43 Proposed § 1091.114 has been renumbered § 1091.111 in the final rule. All references to proposed § 1091.114 in this analysis correspond to § 1091.111 of the final rule. 44 12 CFR 1081.200 sets forth the procedures for the commencement of an adjudicative proceeding by the Bureau under 12 U.S.C. 5563, and also the contents of the notice of charges in such a proceeding. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 enforcement actions regarding otherwise lawful conduct that poses risks to consumers, which the commenter believed would be an expansion of Bureau authority. The Bureau believes that the commenters may have misconstrued the purpose of proposed § 1091.114. Under this provision, the Bureau would provide the notice required under 12 U.S.C. 5514(a)(1)(C) in a notice of charges only when the Bureau has ‘‘otherwise’’ brought an administrative action against a respondent.45 The Bureau further notes that, under the Dodd-Frank Act, supervision is not a necessary precursor to an enforcement action. The Bureau may, however, wish to bring a person subject to an enforcement action under the Bureau’s supervisory authority, in addition to seeking other relief through an administrative action. Proposed § 1091.114 is intended to provide administrative convenience and efficiency both for respondents and the Bureau by handling what would otherwise be two separate processes in a single administrative forum. For the reasons discussed above, the Bureau adopts proposed § 1091.114 substantially as proposed with minor technical revisions for consistency, including renumbering this section as § 1091.111. The Bureau has also made one change to proposed § 1091.114 to clarify that a person may submit to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C) by agreeing to a consent order in connection with an adjudication proceeding or civil action. Section 1091.112 No Limitation on Relief Sought in Civil Action or Administrative Adjudication 46 Proposed § 1091.115 clarified that nothing in proposed part 1091 shall be construed to limit the relief the Bureau may seek in any civil action or administrative adjudication, including seeking an order to have a person deemed subject to the Bureau’s supervisory authority under 12 U.S.C. 5514, for the reasons set forth in 12 U.S.C. 5514(a)(1)(C) or otherwise. Two commenters discussing this proposed section recommended that the Bureau provide respondents the option to proceed using a formal adjudication, instead of the informal hearing process prescribed in this part. In response, the Bureau notes that proposed § 1091.115 does not relate to the procedures established by the final rule, but rather FR 31231. § 1091.115 has been renumbered § 1091.112 in the final rule. All references to proposed § 1091.115 in this analysis correspond to § 1091.112 of the final rule. PO 00000 40371 merely makes clear that the final rule does not limit the relief the Bureau might seek in another forum. The Bureau’s authority to adopt informal procedures rather than formal adjudication procedures, as requested by the commenter, and its rationale for so doing is discussed in the introductory paragraphs to subsection B above. The Bureau therefore adopts proposed § 1091.115 as proposed with minor technical revisions for consistency, including renumbering to § 1091.112. Subpart C—Post-Determination Procedures Section 1091.113 Petition for Termination of Order 47 Proposed § 1091.110 provided that a respondent may petition the Director for the termination of an order bringing a respondent within the Bureau’s supervisory authority under 12 U.S.C. 5514, and set forth the required contents of such a petition. Under proposed § 1091.110, a respondent could petition for termination no sooner than two years after the issuance of the order, and no more frequently than annually thereafter, except that in the case of a voluntary consent to supervision, a respondent could not petition for early termination of the supervisory authority period set forth in the consent agreement. A petition is a respondent’s opportunity to inform the Bureau of the actions taken and the progress made to reduce risk to consumers after the issuance of an order subjecting the entity to supervision under 12 U.S.C. 5514(a)(1)(C). Under proposed § 1091.110(b), a petition was required to set forth the reasons supporting a termination of an order, including any actions taken by a respondent since issuance of an order to address the conduct that led to the order. Under proposed § 1091.110(d), the [initiating official] would be permitted to file a response to a petition for termination setting forth the [initiating official’s] recommendation to terminate or modify the order, or to deny the petition, and the reasons supporting such a recommendation, within 30 days of his or her receipt of a copy of a petition. Proposed § 1091.110(e) further provided that within 90 days of a respondent’s submission of a petition for termination, the Director could either terminate or modify the order, or deny the petition. This proposed section also specified the 45 77 46 Proposed Frm 00021 Fmt 4701 Sfmt 4700 47 Proposed § 1091.110 has been renumbered § 1091.113 in the final rule. All references to proposed § 1091.110 in this analysis correspond to § 1091.113 of the final rule. E:\FR\FM\03JYR3.SGM 03JYR3 40372 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 manner in which a petition for termination must be filed. Time Periods Related to Petitions To Terminate The Bureau received a number of comments discussing the terminationpetition process generally and the prohibition on filing a petition prior to two years after an order establishing supervisory authority under 12 U.S.C. 5514(a)(1)(C) has been issued. Several commenters believe that allowing petitions to terminate an order only after two years is excessively harsh, and that respondents should either be allowed to petition for termination of the order immediately after the respondent has remedied the behavior that the Bureau deemed risky, or respondents should be allowed to petition after one year. One commenter asserted that orders should automatically terminate after one year unless the Bureau can show good cause for continuation, eliminating the need to petition for termination of an order. Many of these commenters argued that supervision would be unfair or unnecessary if the respondent terminated the practice for which the Bureau established supervisory authority. Taking a different view, one commenter asserted that the two-year period was not long enough because the Bureau might only finish one examination cycle within the two-year period. This commenter suggested setting a time limit for the first petition to terminate an order after two examination cycles. After consideration of the comments, the Bureau continues to believe that allowing a respondent to petition for termination of supervision no sooner than two years after the issuance of a decision and order by the Director subjecting an entity to supervision under 12 U.S.C. 5514(a)(1)(C) is appropriate. This period is intended to provide the Bureau with sufficient time to conduct an initial set of supervision activities, such as requesting reports and/or undertaking an examination, and to conduct follow-up supervision activities so the Bureau can assess whether a nonbank covered person corrected any deficiencies identified by the Bureau and maintained any required corrective actions. A minimum two-year supervision period reflects the reality that after supervisory jurisdiction is established, it will take two years to meaningfully examine, and possibly reexamine, an entity. In essence, the Bureau believes that the proposed supervision period will permit two examination cycles as one commenter asserted was necessary. Allowing termination after one year or VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 immediately after a nonbank covered person purportedly remediated any deficiencies would not permit enough time for the needed follow-up supervision activity. Permitting termination on an ad hoc basis at any time would engender a disorderly supervision program where a supervised person could demand an evaluation of its activities at any time, regardless of Bureau resource constraints or supervision priorities. For all of the foregoing reasons the Bureau declines to revise the Proposed Rule to alter the process for petitioning for termination of supervision. Administrative Appeal A few commenters suggested that the Bureau adopt an administrative appeals process instead of the petition process. The Bureau believes that an administrative appeals process is not necessary and would significantly add to the complexity and length of the process established by the final rule. Require Initiating Official To File a Recommendation Regarding a Petition To Terminate A commenter argued that the Bureau should revise proposed § 1091.110(d)(1) to require the [initiating official] to file a response to a petition to terminate. The Bureau made the filing of a recommendation regarding a petition by the initiating official permissive rather than mandatory because the Bureau recognized that the initiating official may not feel the need to provide a recommendation in all instances. If the initiating official were to choose not to file a response to a petition to terminate, the result would be that the petition would be unopposed. The Bureau does not believe that this result would prejudice a petitioner. Moreover, the Bureau believes that it is important that under the final rule the initiating official have flexibility in determining how to expend Bureau resources. The Bureau does not believe that it would be appropriate to require the initiating official to prepare and file a recommendation where the initiating official has determined that this is not a necessary or useful allocation of Bureau resources. The Bureau therefore declines to revise the Proposed Rule to require the initiating official to file a response to a petition to terminate. Add Requirement That the Director Terminate Supervision Under Certain Circumstances Another commenter requested that the Bureau include a requirement that the Director approve petitions to terminate where the respondent PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 provides clear and convincing evidence that the respondent has eliminated any reasonable prospect of consumer risk. The purpose of proposed § 1091.110 was to permit the Director to grant a petition and terminate supervision if the Director believed that it was appropriate to do so. The Bureau believes that adding to the final rule a requirement that the Director grant a petition as recommended by the commenter would impose a standard not consistent with 12 U.S.C. 5514(a)(1)(C), which does not require that the Bureau consider petitions to terminate. Therefore the Bureau declines to revise the Proposed Rule as suggested by the commenter. Clarification on Whether Petitions To Terminate Are Public Information Another commenter urged the Bureau to make the Bureau’s response to a petition for termination publicly available. The Bureau has added to the final rule § 1091.115(c), which provides that ‘‘[i]n connection with a proceeding under this part, including a petition for termination under § 1091.113, all documents, records or other items submitted by a respondent to the Bureau, all documents prepared by, or on behalf of, or for the use of the Bureau, and any communications between the Bureau and a person, shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1).’’ In light of this provision, a petition to terminate supervision is confidential supervisory information, subject to the confidentiality requirements of 12 CFR part 1070. For the reasons discussed above, the Bureau is adopting § 1091.110 as proposed with minor technical revisions for consistency, including renumbering that section as § 1091.113. Subpart D—Time Limits and Confidentiality Section 1091.114 Construction of Time Limits 48 Proposed § 1091.111(a) provided common rules for computing time limits, taking into account the effect of weekends and holidays on time periods that are ten days or less. This section also sets forth when filing or service is effective. Proposed § 1091.111(b) established when papers are deemed to be served. With regard to time limits for responsive papers, proposed § 1091.111(c) incorporated a three-day extension for mail service, and a one48 Proposed § 1091.111 has been renumbered § 1091.114 in the final rule. All references to proposed § 1091.111 in this analysis correspond to § 1091.114 of the final rule. E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 day extension for overnight delivery and electronic transmission. A one-day extension for service by electronic transmission reflects that electronic transmissions may result in delays in actual receipt by the person served. The Bureau received two comments pertaining to the construction of time limits. Both of these comments requested the Bureau to provide clear deadline dates in the Notice of Reasonable Cause, asserting that the time limit framework provided may be confusing to respondents. The Bureau adopted the language used in § 1091.111 from the Bureau’s rules for adjudication proceedings in 12 CFR 1081.114, which in turn incorporates rules similar to the Federal Rules of Civil Procedure and some agencies’ existing rules.49 The Bureau understands the commenters’ desire for exact dates on which filings are required, but is concerned that providing specific dates as requested would be difficult in many circumstances and might result in increased operational costs or inaccuracy. For example, the Bureau may need to put Notices into production sometime in advance of when they will be served and might not know the exact date that a Notice will be served. The Bureau believes that it is important to specify dates in the Notice in relation to the date of service to ensure the accuracy of the time periods disclosed. For the reasons discussed above, the Bureau adopts § 1091.111 as proposed with minor technical revisions for consistency, including renumbering this section as § 1091.114. Section 1091.115 Change of Time Limits and Confidentiality of Proceedings 50 Proposed § 1091.112(a) provided that requests for an extension of time may be granted where good cause is shown. Proposed § 1091.112(b) provided that requests for extensions of time are strongly disfavored and may be granted only when a party makes a strong showing that the denial of the request would substantially prejudice the party. Finally, proposed § 1091.112(c) stated that deadlines for action by the [Associate] Director or Director established in this Proposed Rule confer no substantive rights on respondents. The Bureau received several comments requesting a more flexible extension policy. One commenter suggested allowing time extensions where it would prevent prejudice and 49 77 FR 39058, 39065 (June 29, 2012). § 1091.112 has been renumbered § 1091.115 in the final rule. All references to proposed § 1091.112 in this analysis correspond to § 1091.115 of the final rule. 50 Proposed VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 do substantial justice. Another commenter asserted that providing Bureau staff the discretion to grant extensions would alleviate its concerns regarding the abbreviated response time of 20 days provided in the Proposed Rule. A few commenters objected to the language used in proposed § 1091.112(b), which stated that extensions are ‘‘strongly disfavor[ed].’’ Additionally, one commenter asserted that granting extensions only to prevent substantial prejudice was excessively stringent and requested instead that the Bureau decide requests for extensions based on the ‘‘good cause shown’’ standard set forth in proposed § 1091.112(a). Although many of the concerns regarding time limits should be alleviated with the extension of the written-response deadline in § 1091.105(a) from 20 to 30 days, the Bureau agrees that the [Associate] Director and Director should have reasonable flexibility to permit extensions of time limits at their discretion and for good cause shown. The Proposed Rule granted some flexibility in this regard—permitting extensions for good cause shown—but, as noted above, it also stated a policy of strongly disfavoring requests for extensions and permitting them only where a denial would substantially prejudice a requesting party’s case. The Bureau is concerned that the language in the Proposed Rule stating that extensions are strongly disfavored and should be permitted only where there would be substantial prejudice may result in less flexibility to allow extensions than the Bureau intended. The Bureau therefore revises the Proposed Rule by deleting proposed § 1091.112(b). The Bureau believes that this will provide the Associate Director and Director with greater flexibility to permit, at their discretion, extensions of time limits where good cause is shown. One commenter requested that the Bureau provide an automatic extension where a respondent did not receive a Notice. Such a revision to the Proposed Rule is unnecessary, however, because the 30-day time limit begins upon service of a Notice. The Bureau adopts § 1091.112 with the revision deleting proposed § 1091.112(b), and adding a new paragraph (c) on confidentiality of proceedings (for the reasons discussed in the section-by-section analysis of subpart B above) and with other minor technical revisions for consistency, including renumbering this section as § 1091.115. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 40373 V. Section 1022(b)(2) of the Dodd-Frank Act A. Overview In developing the final rule, the Bureau has considered the potential benefits, costs, and impacts, and has consulted or offered to consult with the prudential regulators and the Federal Trade Commission, including with regard to consistency with any prudential market, or systemic objectives administered by such agencies.51 Under 12 U.S.C. 5514(a)(1)(C), the Bureau has the authority to supervise any nonbank covered person that it ‘‘has reasonable cause to determine, by order, after notice . . . and a reasonable opportunity . . . to respond . . . is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.’’ The Bureau must base such reasonable-cause determinations on complaints collected by the Bureau under 12 U.S.C. 5493(b)(3), or on information collected from other sources.52 The final rule is intended to provide an efficient, streamlined, and fair process to implement 12 U.S.C. 5514(a)(1)(C).53 Although a rule is not necessary to implement this statutory provision, the final rule establishes a consistent procedure applicable to all affected entities, and provides transparency regarding the applicable procedures prior to commencement of a proceeding. 51 Specifically, 12 U.S.C. 5512(b)(2)(A) calls for the Bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services, the impact on depository institutions and credit unions with $10 billion or less in total assets as described in 12 U.S.C. 5516, and the impact on consumers in rural areas. In addition, 12 U.S.C. 5512(b)(2)(B) directs the Bureau to consult, before and during the rulemaking, with appropriate prudential regulators or other Federal agencies, regarding consistency with objectives those agencies administer. The manner and extent to which the provisions of 12 U.S.C. 5512(b)(2) apply to a procedural rule of this kind, and to benefits, costs and impacts that are compelled by statutory changes rather than discretionary Bureau action, is unclear. Nevertheless, to inform this rulemaking more fully, the Bureau performed the analysis and consultations described in those provisions of the Dodd-Frank Act. 52 12 U.S.C. 5514(a)(1)(C). 53 The Bureau notes that there is little publicly available data with which to effectively measure or quantify the benefits, costs, and impacts of the Proposed Rule. Where benefits or costs are not readily quantifiable or where data is not reasonably available, the Bureau will conduct qualitative analyses relying on information from available sources. E:\FR\FM\03JYR3.SGM 03JYR3 tkelley on DSK3SPTVN1PROD with RULES3 40374 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations B. Potential Benefits and Costs to Consumers and Covered Persons The analysis considers the benefits, costs, and impacts of the final rule against a statutory baseline. That is, the analysis evaluates the benefits, costs, and impacts of the final rule as compared to the statute without an implementing rule.54 Absent the final rule, the public would lack any guidance regarding the Bureau’s process under 12 U.S.C. 5514(a)(1)(C). Nonbank covered persons will incur certain costs in considering and responding to a Notice from the Bureau under the final rule, but these costs would generally exist in the absence of the rule. For major provisions of the final rule, the Bureau considered the benefits and costs of certain alternatives. For example, the final rule provides respondents an opportunity to participate in a supplementary oral response, which would generally be conducted via telephone, but permits respondents to request an in-person supplemental oral response at the Bureau’s headquarters in Washington, DC. The Bureau believes that this approach will benefit covered persons by offering an additional method of responding to a Notice compared with the alternative of not permitting any oral response. At the same time, the Bureau believes that this approach will be less costly than the alternative of requiring that all oral responses be conducted in person at a designated location. Also in connection with supplemental oral responses, the final rule permits, but does not require, a respondent to be represented by counsel. The Bureau considered requiring representation by counsel, but opted to provide respondents with the opportunity to receive the benefits of representation, while not mandating that respondents incur the costs of such representation. The final rule also permits respondents to consent to the Bureau’s supervisory authority under standard terms in lieu of filing a response to a Notice of Reasonable Cause, or to enter into a negotiated agreement at any time consenting to the Bureau’s supervisory authority. The Bureau believes that this approach provides a streamlined resolution process that will reduce the costs to the Bureau and those respondents that wish to consent to the Bureau’s supervisory authority, compared to the alternative of permitting only negotiated consent agreements. 54 The Bureau has discretion in any rulemaking to choose an appropriate scope of analysis with respect to potential benefits and costs and the appropriate baseline. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 Several industry commenters discussed the potential costs of the rule; however, only one directly commented on the Bureau’s consideration of benefits, costs and impacts under Section 1022. Commenters argued that the rule may subject firms to new regulations or that they may bear the burden of increased compliance with existing Federal consumer laws. However, as discussed above, the final rule only establishes procedures the Bureau intends to use to implement 12 U.S.C. 5514(a)(1)(C) to bring a nonbank covered person under the Bureau’s supervisory authority when the Bureau has made a reasonable-cause determination; it does not subject any entities to new substantive regulation or require increased compliance with existing law; nor is the final rule necessary for the Bureau to exercise its supervisory authority under 12 U.S.C. 5514(a)(1)(C). Commenters also asserted that the possibility of supervision and/or the actual initiation of supervision would prove costly to firms. Regarding the costs of changing business practices in preparing for possible supervision, the Bureau notes that nonbank covered persons are required to comply with existing law and with any current record-retention requirements to document such compliance even in the absence of this final rule. The Bureau recognizes, as the commenters do, that entities will incur some costs in responding to Notices and participating in examinations; however, those costs would also exist in the absence of the final rule since a rule is not necessary to implement 12 U.S.C. 5514(a)(1)(C). Going even further, one commenter asserted that the Bureau must also gather more data and quantify the costs related to the rule. This commenter noted the Bureau’s claim that data are quite limited, but then offered several citations to studies about the costs of regulation. As noted however, the costs of regulation writ large are not relevant here. Rather the relevant data must describe the costs of adhering to particular informal administrative procedural frameworks in establishing reasonable cause. The studies mentioned include estimates of all regulation, including environmental regulations, and from the Bureau’s reading, do not discuss or mention the costs to financial institutions of adherence with informal administrative procedural frameworks. The final rule will have no impact on insured depository institutions or insured credit unions with $10 billion or less in assets as described in 12 U.S.C. 5516(a). Nor will the final rule PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 have a unique impact on rural consumers. VI. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations.55 The RFA defines a ‘‘small business’’ as a business that meets the size standard developed by the Small Business Administration pursuant to the Small Business Act.56 The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) 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. The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.57 As discussed above in section V, a notice of proposed rulemaking was not required for this rulemaking. Because no notice of proposed rulemaking was required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis.58 In the alternative, a FRFA would not otherwise be required because the final rule would not have a significant economic impact on any small entities. The final rule sets forth only procedures by which a nonbank covered person may become subject to the Bureau’s current supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C). The final rule establishes a transparent and streamlined process by which the Bureau would exercise its existing legal authority and would not impose new substantive requirements. 55 5 U.S.C. 601 et seq. The term ‘‘ ‘small organization’ means any not-for-profit enterprise which is independently owned and operated and is not dominant in its field, unless an agency establishes [an alternative definition after notice and comment].’’ 5 U.S.C. 601(4). The term ‘‘ ‘small governmental jurisdiction’ means governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand, unless an agency establishes [an alternative definition after notice and comment].’’ 5 U.S.C. 601(5). 56 5 U.S.C. 601(3). The Bureau may establish an alternative definition after consultation with the Small Business Administration and an opportunity for public comment. 57 5 U.S.C. 609. 58 5 U.S.C. 603(a), 604(a). E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations As noted, the Bureau opted to issue a notice of proposed rulemaking to receive public comment including comment on the analysis under the RFA. One commenter argued that smaller institutions could bear substantial costs in responding to a Bureau notice, but did not provide any specific data regarding those costs. The Bureau had noted in its proposal that such responses will require firm resources: however, the Bureau maintains that those costs will not be substantial nor, given any reasonable expectation of the scope of supervision under this provision, will they be borne by a significant number of small entities. Accordingly, the undersigned certifies that this final rule will not have a significant impact on a substantial number of small entities. VII. Paperwork Reduction Act The Bureau has determined that the final rule does not impose any new recordkeeping, reporting or disclosure requirements on covered entities or members of the public that would be collections of information requiring OMB approval under the Paperwork Reduction Act, 44 U.S.C. 3501, et seq. List of Subjects in 12 CFR Part 1091 Administrative practice and procedures, Consumer protection, Credit, Trade practices. Authority and Issuance For the reasons set forth in the preamble, the Bureau adds part 1091 to Chapter X in Title 12 of the Code of Federal Regulations to read as set forth below. PART 1091—PROCEDURAL RULE TO ESTABLISH SUPERVISORY AUTHORITY OVER CERTAIN NONBANK COVERED PERSONS BASED ON RISK DETERMINATION tkelley on DSK3SPTVN1PROD with RULES3 Subpart A—General Sec. 1091.100 Scope and purpose. 1091.101 Definitions. Subpart B—Determination and Voluntary Consent Procedures 1091.102 Issuance of Notice of Reasonable Cause. 1091.103 Contents of Notice. 1091.104 Service of Notice. 1091.105 Response. 1091.106 Supplemental oral response. 1091.107 Manner of filing and serving papers. 1091.108 Recommended determination. 1091.109 Determination by the Director. 1091.110 Voluntary consent to Bureau’s authority. VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 1091.111 Notice and response included in adjudication proceeding otherwise brought by the Bureau. 1091.112 No limitation on relief sought in civil action or administrative adjudication. Subpart C—Post-Determination Procedures 1091.113 Petition for termination of order. Subpart D—Time Limits and Deadlines 1091.114 Construction of time limits. 1091.115 Change of time limits and confidentiality of proceedings. Authority: 12 U.S.C. 5512(b)(1), 5514(a)(1)(C), 5514(b)(7). Subpart A—General § 1091.100 Scope and purpose. This part sets forth procedures to implement section 1024(a)(1)(C) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111–203 (12 U.S.C. 5514(a)(1)(C)) (Dodd-Frank Act), and establishes rules to facilitate the Bureau’s supervisory authority over certain nonbank covered persons pursuant to section 1024(b)(7) of the Dodd-Frank Act (12 U.S.C. 5514(b)(7)). § 1091.101 Definitions. For the purposes of this part, the following definitions apply: Assistant Director means an Assistant Director for Supervision. If there is no Assistant Director, the Associate Director may designate an alternative Bureau employee to perform the functions of an Assistant Director under this part. Associate Director means the Associate Director of the Bureau’s Division of Supervision, Enforcement, and Fair Lending, or his or her designee. If there is no Associate Director, the Director may designate an alternative Bureau employee to perform the functions of the Associate Director under this part. Bureau means the Bureau of Consumer Financial Protection. Consumer means an individual or an agent, trustee, or representative acting on behalf of an individual. Consumer financial product or service means any financial product or service, as defined in 12 U.S.C. 5481(15), that is described in one or more categories under: (1) 12 U.S.C. 5481(15) and is offered or provided for use by consumers primarily for personal, family, or household purposes; or (2) Clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) and is delivered, offered, or provided in connection with a consumer financial product or service referred to in subparagraph (1) of this paragraph. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 40375 Decisional employee means any employee of the Bureau who has not engaged in: (1) Assisting the initiating official in either determining whether to issue a Notice of Reasonable Cause, or presenting the initiating official’s position in support of a Notice of Reasonable Cause, either in writing or in a supplemental oral response, to the Associate Director; or (2) Assisting the Associate Director in the preparation of a recommended determination. Director means the Director of the Bureau or his or her designee. If there is no Director, the term shall mean a person authorized to perform the functions of the Director under this part, or his or her designee. Executive Secretary means the Executive Secretary of the Bureau. Initiating official means an Assistant Director or a Bureau employee designated to act as an ‘‘initiating official’’ by an Assistant Director. If there is not an Assistant Director, the Associate Director may designate a Bureau employee to perform the functions of an initiating official under this part. Nonbank covered person means, except for persons described in 12 U.S.C. 5515(a) and 5516(a): (1) Any person that engages in offering or providing a consumer financial product or service; and (2) Any affiliate of a person described in subparagraph (1) of this paragraph if such affiliate acts as a service provider to such person. Notice of Reasonable Cause and Notice mean a Notice issued under § 1091.102. Person means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. Respondent means a person who has been issued a Notice of Reasonable Cause under § 1091.102. Response means the response to a Notice of Reasonable Cause filed by a respondent with the Associate Director under § 1091.105. Subpart B—Determination and Voluntary Consent Procedures § 1091.102 Issuance of Notice of Reasonable Cause. (a) An initiating official is authorized to issue a Notice of Reasonable Cause to a person stating that the Bureau may have reasonable cause to determine that the respondent is a nonbank covered person that is engaging, or has engaged, E:\FR\FM\03JYR3.SGM 03JYR3 40376 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. (b) A Notice of Reasonable Cause shall be based on: (1) Complaints collected through the system under 12 U.S.C. 5493(b)(3); or (2) Information from other sources. (c) Except as provided in § 1091.111, a Notice of Reasonable Cause shall contain the information set forth in § 1091.103, and be served on respondent as described in § 1091.104. tkelley on DSK3SPTVN1PROD with RULES3 § 1091.103 Contents of Notice. (a) A Notice of Reasonable Cause shall contain the following: (1) A description of the basis for the assertion that the Bureau may have reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, including a summary of the documents, records, or other items relied on by the initiating official to issue a Notice. Such summary will be consistent with the protection of sensitive information, including compliance with federal privacy law and whistleblower protections; and (2) A statement informing a respondent that: (i) A respondent may file with the Associate Director a written response to a Notice of Reasonable Cause no later than 30 days after the Notice is served on the respondent; (ii) The written response shall include the elements addressed in § 1091.105(b); (iii) A respondent may request in its written response to a Notice an opportunity to present an in-person or telephonic supplemental oral response to the Associate Director as set forth in § 1091.106; (iv) A failure timely to file a response to a Notice shall constitute a waiver of a respondent’s right to respond, and may result in a default determination by the Director, based on the Notice, that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services and the issuance of a decision and order subjecting a respondent to the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C); (v) The Associate Director shall serve a respondent with a notice of the date and time of a supplemental oral response, if a respondent has requested the opportunity to present a supplemental oral response, within 14 VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 days of the Associate Director’s receipt of a timely-filed response; (vi) If a respondent has not requested the opportunity to present a supplemental oral response, the Associate Director shall, not later than 45 days after receiving a timely-filed response, or not later than 45 days after the service of a Notice of Reasonable Cause when a respondent fails to file a timely response, provide a recommended determination to the Director including either a proposed decision and order subjecting a respondent to the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C), or a proposed notification that the Bureau has determined not to subject a respondent to the Bureau’s supervisory authority at that time, pursuant to § 1091.108; and (vii) In connection with a proceeding under this part, including a petition for termination under § 1091.113, all documents, records or other items submitted by a respondent to the Bureau, all documents prepared by, or on behalf of, or for the use of the Bureau, and any communications between the Bureau and a person, shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1). (b) A Notice shall be accompanied by a form of consent agreement by which a respondent may voluntarily consent to the Bureau’s authority to supervise a respondent under 12 U.S.C. 5514. A completed and executed form of consent agreement under this paragraph: (1) Shall not constitute an admission that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; (2) Shall result in an order by the Director that a respondent is subject to the Bureau’s supervisory authority under 12 U.S.C. 5514 for a period of two years from the date of such order; and (3) Shall include a provision that a respondent entering into a consent agreement waives any right to judicial review of such consent agreement. (c) Nothing in this section shall be construed as requiring the Bureau to produce any documents or other information to a respondent other than as set forth in this section. § 1091.104 Service of Notice. (a) A Notice of Reasonable Cause shall be served on a respondent as follows: (1) To individuals. A Notice shall be served on a respondent that is a natural person by delivering a copy of the Notice to the individual or to an agent authorized by appointment or by law to PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 receive such a Notice. Delivery, for purposes of this paragraph, means handing a copy of a Notice to the individual; or leaving a copy at the individual’s office with a clerk or other person in charge thereof; or leaving a copy at the individual’s dwelling house or usual place of abode with some person of suitable age and discretion then residing therein; or sending a copy of a Notice addressed to the individual through the U.S. Postal Service by Registered Mail, Certified Mail or Express Mail delivery, or by third-party commercial carrier, for overnight delivery and obtaining a confirmation of receipt. (2) To corporations or entities. Notice shall be served on a person other than an individual by delivering a copy of a Notice to an officer, managing or general agent, or any other agent authorized by appointment or law to receive such a Notice, by any method specified in paragraph (a)(1) of this section. (3) Upon persons registered with the Bureau. In addition to any other method of service specified in paragraph (a)(1) or (2) of this section, Notice may be served on a person registered with the Bureau by sending a copy of a Notice addressed to the most recent business address shown on the person’s registration form by U.S. Postal Service Certified, Registered, or Express Mail and obtaining a confirmation of receipt or attempted delivery. (4) Upon persons in a foreign country. Notice may be served on a person in a foreign country by any method specified in paragraph (a)(1) or (2) of this section, or by any other method reasonably calculated to give notice, provided that the method of service used is not prohibited by the law of the foreign country. (5) Record of service. The Bureau shall maintain a record of service of a Notice on a respondent, identifying the party given Notice, the method of service, the date of service, the address to which service was made, and the person who made service. If service is made in person, the certificate of service shall state, if available, the name of the individual to whom a Notice was given. If service is made by U.S. Postal Service Registered Mail, Certified Mail, or Express Mail, the Bureau shall maintain the confirmation of receipt or attempted delivery. (6) Waiver of service. In lieu of service as set forth in paragraph (a)(1) or (2) of this section, a person may be provided a copy of a Notice by First Class Mail or other reliable means if a written waiver of service is obtained from the person to be served. In the case of a respondent that is not a natural person, E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations a written waiver may be provided by an officer, managing or general member, or partner authorized to represent the respondent. (b) The initiating official shall promptly submit a copy of a Notice and a copy of the certificate of service to the Associate Director. tkelley on DSK3SPTVN1PROD with RULES3 § 1091.105 Response. (a) Timing. Within 30 days of service of a Notice, a respondent shall file any response with the Associate Director according to the instructions set forth in a Notice. (b) Content of the response. (1) The response shall set forth the basis for a respondent’s contention that the respondent is not a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. (2) The response shall include all documents, records, or other evidence a respondent wishes to use to support the arguments or assertions set forth in the response. (3) Any request to present a supplemental oral response, including the respondent’s preference for a telephonic or in-person supplemental oral response, must be included in the response. A respondent’s failure to request to present a supplemental oral response shall constitute a waiver of the opportunity to present a supplemental oral response. (4) A response shall include an affidavit or declaration, made by the individual respondent if a natural person, or, if a corporate or other entity that is not a natural person, by an officer, managing or general member, or partner authorized to represent the respondent, affirming that the response is true and accurate and does not contain any omissions that would cause the response to be materially misleading. (5) Notwithstanding any other provisions of this paragraph, a respondent may respond to a Notice of Reasonable Cause by voluntarily consenting to the Bureau’s authority to supervise the respondent under 12 U.S.C. 5514 by completing and executing the consent agreement form provided to the respondent with a Notice of Reasonable Cause in accordance with § 1091.103(b). (c) Default. Failure of a respondent to file a response within the time period set forth in paragraph (a) of this section shall constitute a waiver of the respondent’s right to respond, and shall, based on the Notice, authorize the Associate Director, without further VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 notice to the respondent, to issue a proposed decision and order as provided in § 1091.108(c)(1) and the Director to issue a decision and order as provided in § 1091.109(a)(1). (d) Waiver. A respondent shall be deemed to have waived the right, at any future stage of an Associate Director’s or the Director’s consideration of a matter, and in any petition for judicial review of an order issued pursuant to § 1091.109(a)(1), to rely on any argument, record, document, or other information that the respondent does not raise or include in its response. (e) No Discovery. There shall be no discovery in connection with a response. § 1091.106 Supplemental oral response. (a) A respondent may request in a response under § 1091.105 the opportunity to present to the Associate Director a supplemental oral response in support of a respondent’s assertion that the respondent is not a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. (b) The conduct of a supplemental oral response shall be subject to the following procedures: (1) A supplemental oral response shall be, at the respondent’s preference, by telephone or in person at the Bureau’s headquarters in Washington, DC. If a respondent requests in its written response a supplemental oral response but does not specify whether such response shall be conducted via telephone or in person, the supplemental oral response will be conducted by telephone unless otherwise directed by the Associate Director; (2) The Associate Director may impose any limitations on the conduct of a supplemental oral response, including but not limited to establishing a time limit for the presentation of a supplemental oral response, and limiting the subjects to be addressed in a supplemental oral response; (3) There shall be no discovery permitted or witnesses called in connection with a supplemental oral response; (4) If a respondent is a corporate or other entity, and not a natural person, the respondent shall be represented in any supplemental oral response by: (i) An officer, managing or general member, or partner authorized to represent the respondent; or (ii) An attorney in good standing of the bar of the highest court of any State. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 40377 (5) If a respondent is a natural person, the respondent shall be represented in any supplemental oral response by: (i) Himself or herself; or (ii) An attorney in good standing of the bar of the highest court of any State. (6) The Associate Director shall cause an audio recording of a supplemental oral response to be made by a court reporter. A respondent may purchase a copy or transcript of the recording at the respondent’s own expense. (c) The initiating official may participate in any supplemental oral response conducted under this section. (d) The Associate Director shall serve on a respondent, within 14 days after the Associate Director receives the respondent’s timely-filed response requesting a supplemental oral response, a notice setting forth the date, time, and general information relating to the conduct of a supplemental oral response. The date of a supplemental oral response shall be scheduled not less than ten days after the date the respondent is served with the notice of supplemental oral response. (e) The notice of supplemental oral response shall be served on a respondent pursuant to § 1091.107. (f) The Associate Director shall send a copy of the notice of supplemental oral response to the initiating official. (g) A respondent’s failure to participate in a supplemental oral response scheduled by the Associate Director shall constitute the respondent’s waiver of the opportunity to present a supplemental oral response. § 1091.107 papers. Manner of filing and serving Unless otherwise specified by the Associate Director or Director, a respondent shall file the response and any other paper with the Executive Secretary at the mailing or electronic address provided by the Bureau, and the Associate Director and Director shall serve any paper, other than a Notice as set forth in § 1091.104, on a respondent, by: (a) Electronic transmission upon any condition specified by the Associate Director or Director; or (b) Any of the following methods if a respondent demonstrates electronic filing is not practicable and the Associate Director or Director permits: (1) Personal delivery; (2) Delivery through a reliable commercial courier service or overnight delivery service; or (3) Mailing the papers by U.S. Postal Service First Class, Registered, Certified, or Express Mail. E:\FR\FM\03JYR3.SGM 03JYR3 40378 tkelley on DSK3SPTVN1PROD with RULES3 § 1091.108 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations Recommended determination. (a) If a respondent did not voluntarily consent to the Bureau’s supervision authority, and did not request the opportunity to present a supplemental oral response, not later than 45 days after receipt of a timely-filed response, or not later than 45 days after the service of a Notice of Reasonable Cause when a respondent fails to file a timely response, the Associate Director shall make a recommended determination whether there is reasonable cause for the Bureau to determine that the respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services which should result in an order subjecting the respondent to the Bureau’s authority under 12 U.S.C. 5514(a)(1)(C). (b) If a respondent did request the opportunity to present a supplemental oral response, not later than 90 days after service of a Notice of Reasonable Cause, the Associate Director shall make a recommended determination whether there is reasonable cause for the Bureau to determine that the respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services which should result in an order subjecting the respondent to the Bureau’s authority under 12 U.S.C. 5514(a)(1)(C). (c) Upon making the recommended determination described in paragraphs (a) or (b) of this section, the Associate Director shall submit to the Director either: (1) A proposed decision and order that would subject a respondent to the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C) if adopted by the Director; or (2) A proposed notification that a respondent should not be subjected to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C) based on the proceedings. Such a notification shall have no precedential effect and shall not prevent the issuance of another Notice of Reasonable Cause pursuant to either § 1091.102, or the procedures set forth in § 1091.111, at any time, or from issuance of a decision and order based on another Notice recommending that a respondent be subject to the Bureau’s authority pursuant to either of those sections. (d) Any proposed decision and order issued by the Associate Director pursuant to paragraph (c)(1) of this section shall set forth: VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 (1) A statement that the Associate Director has preliminarily determined based on reasonable cause that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; (2) The basis for the Associate Director’s determination; and (3) A proposed order directing that, pursuant to this determination, as of a specified date a respondent shall be subject to the Bureau’s supervisory authority under 12 U.S.C. 5514. (e) The Associate Director shall include with the recommended determination submitted to the Director copies of the following: (1) The Notice of Reasonable Cause; (2) The record of service of a Notice of Reasonable Cause; (3) A respondent’s response and any documents, records, or other items filed with the written response; (4) Any document, record, or other item considered by the Associate Director to be material in making a recommended determination; and (5) An audio recording of a supplemental oral response, if a supplemental oral response was conducted, and/or a transcript if a transcript was prepared at a respondent’s request or if requested by the Director. (f) The requirement that the Associate Director provide to the Director the items described in paragraph (e) of this section shall confer no substantive rights on a respondent and any omission of an item may be cured by the Associate Director to the extent applicable. § 1091.109 Determination by the Director. (a) Not later than 45 days after receipt of the Associate Director’s recommended determination, the Director shall, after considering the recommended determination and all documents, records, and other items submitted therewith by the Associate Director, make a determination either adopting without revision, modifying, or rejecting the Associate Director’s recommended determination, and shall issue to respondent, with copies to the Associate Director and the initiating official: (1) A decision and order subjecting the respondent to the Bureau’s supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C); or (2) A notification that the Director has determined that the respondent is not subject to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C) PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 as a result of the proceedings. Such notification shall have no precedential effect and shall not prevent the issuance of another Notice of Reasonable Cause pursuant to either § 1091.102, or the procedures set forth in § 1091.111, at any time, or the issuance of an order based on another Notice subjecting the respondent to the Bureau’s authority pursuant to either of those sections. (b) Any decision and order issued by the Director pursuant to paragraph (a)(1) of this section shall include: (1) A statement that the Director adopts the Associate Director’s proposed decision and order without revision as the Director’s decision and order, or that the Director rejects or modifies the Associate Director’s proposed determination for reasons set forth by the Director; (2) A statement that the Director has determined that the Bureau has reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; (3) The basis for the Director’s determination, which may be an adoption of the basis set forth in the Associate Director’s proposed decision; (4) An order directing that, pursuant to this determination, as of a specified date a respondent shall be subject to the Bureau’s supervisory authority under 12 U.S.C. 5514 and informing a respondent that the respondent may petition for termination of the Bureau’s supervisory authority no sooner than two years from the date of the order, and no more than annually thereafter; and (5) A copy of the recommended determination issued by the Associate Director. (c) Only decisional employees may advise and assist the Director in the consideration and disposition of a proceeding under this part. (d) A decision and order issued pursuant to paragraph (a)(1) of this section shall constitute final agency action under 5 U.S.C. 704. (e) Any item required to be served on a respondent under this section shall be served pursuant to § 1091.107. § 1091.110 authority. Voluntary consent to Bureau’s (a) Notwithstanding any other provision, pursuant to a consent agreement agreed to by the Bureau, a person may voluntarily consent to the Bureau’s supervisory authority under 12 U.S.C. 5514, and such voluntary consent agreement shall not be subject to any right of judicial review. E:\FR\FM\03JYR3.SGM 03JYR3 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations (b) The consent agreement of any person, pursuant to paragraph (a) of this section, that specifies the duration of time that such person will be subject to the Bureau’s authority under 12 U.S.C. 5514 shall not be eligible for a petition for termination of order pursuant to § 1091.113, and a consent agreement shall state that a respondent entering into a consent agreement waives any right to judicial review of such consent agreement. § 1091.111 Notice and response included in adjudication proceeding otherwise brought by the Bureau. (a) Notwithstanding §§ 1091.102 through 1091.106, the Bureau may, in its discretion, provide the notice and opportunity to respond required by 12 U.S.C. 5514(a)(1)(C) in a notice of charges otherwise brought by the Bureau pursuant to 12 CFR 1081.200 and the adjudication proceedings pursuant to part 1081. Also, a person may agree to submit to the Bureau’s supervisory authority under 12 U.S.C. 5514(a)(1)(C) as part of a consent order entered into in connection with an adjudication proceeding or civil action. (b) If the Bureau chooses to proceed in the manner described in paragraph (a) of this section, it shall so indicate in the notice of charges, and any order of the Director resulting from the notice of charges shall constitute the order referred to in 12 U.S.C. 5514(a)(1)(C). (c) If the Bureau proceeds pursuant to paragraph (a) of this section, the provisions of §§ 1091.101 through 1091.110, and 1091.113 through 1091.115 will be inapplicable to such proceeding. § 1091.112 No limitation on relief sought in civil action or administrative adjudication. Nothing in this part shall be construed to limit the relief the Bureau may seek in any civil action or administrative adjudication, including but not limited to, seeking an order to have a person deemed subject to the Bureau’s supervisory authority under 12 U.S.C. 5514, including for the reasons set forth in 12 U.S.C. 5514(a)(1)(C). Subpart C—Post-Determination Procedures tkelley on DSK3SPTVN1PROD with RULES3 § 1091.113 order. Petition for termination of Subpart D—Time Limits and Deadlines (a) Any person subject to an order issued pursuant to § 1091.109(a)(1) may, no sooner than two years after issuance of such an order and no more frequently than annually thereafter, petition the Director for termination of the order. (b) A petition for termination submitted pursuant to paragraph (a) of this section shall set forth the reasons VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 supporting termination of the order, including any actions taken by a respondent since issuance of the order to address the conduct that led to issuance of the order, and may include any supporting information or evidence that the petitioner believes is relevant to the Director’s determination of the matter. (c) A petition for termination shall be filed by the petitioner with the Executive Secretary at the mailing or electronic address provided by the Bureau. (d) The Director shall, promptly upon receipt of a petition for termination, send a copy of the same to the initiating official. (1) The initiating official may, within 30 days of his or her receipt of a copy of a petition for termination, file with the Director a response to the petition stating whether the initiating official recommends that the order be terminated, or modified, or that the petition for termination be denied and the basis for such recommendation. (2) The initiating official shall serve a copy of the response to a petition for termination on the petitioner pursuant to § 1091.107 at the time of filing it with the Director. (e) Not later than 90 days after submission of a petition under paragraph (a) of this section, the Director shall issue a written decision either terminating or modifying the order, or denying the petition. If the Director modifies the order or denies the petition, the Director shall explain the basis for his or her decision with respect to the petition and send the written decision to the petitioner and the initiating official. (1) The Director shall serve the written decision on a petition for termination of order on a respondent pursuant to § 1091.107. (2) The Director shall send a copy of the written decision on a petition for termination of order to the Associate Director and initiating official promptly upon issuing the written decision. (3) The decision of the Director made pursuant to paragraph (e) of this section shall constitute final agency action under 5 U.S.C. 704. § 1091.114 Construction of time limits. (a) General rule. In computing any period of time prescribed by this part, or by order of the Associate Director or Director, the date of the act or event that commences the designated period of time is not included. The last day so computed is included unless it is a Saturday, Sunday, or Federal holiday as PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 40379 set forth in 5 U.S.C. 6103(a). When the last day is a Saturday, Sunday, or Federal holiday, the period runs until the end of the next day that is not a Saturday, Sunday, or Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays are included in the computation of time, except when the time period within which an act is to be performed is ten days or less, not including any additional time allowed for in paragraph (c) of this section. (b) Filing or service of papers. Filing and service are deemed to be effective: (1) In the case of personal service or same day commercial courier delivery, upon actual receipt by the person served; (2) In the case of overnight commercial delivery service, U.S. Postal Service Express Mail delivery, or First Class, Registered, or Certified Mail, upon deposit in or delivery to an appropriate point of collection; or (3) In the case of electronic transmission, including email, upon transmission. (c) Calculation of time for service and filing of responsive papers. Whenever a time limit is measured by a prescribed period from the service of any notice or paper, the applicable time limits are calculated as follows: (1) If service is made by U.S. Postal Service First Class, Registered, or Certified Mail, add three calendar days to the prescribed period; (2) If service is made by Express Mail or overnight delivery service, add one calendar day to the prescribed period; or (3) If service is made by electronic transmission, add one calendar day to the prescribed period. § 1091.115 Change of time limits and confidentiality of proceedings. (a) Except as otherwise provided by law, the Associate Director until the issuance of a recommended determination, or the Director at any time thereafter, at their respective discretion, may extend the time limits prescribed by this part or by any notice or order issued pursuant to this part. Any request for an extension of a time limit by a respondent must be for good cause shown, in writing, and filed with the Associate Director or Director, as appropriate. The mere filing of a written request for an extension does not alleviate a respondent of the obligation to meet an applicable time limit absent written confirmation that an extension has been granted. (b) Deadlines for action by the initiating official, Associate Director, or the Director established in this part confer no substantive rights on respondents. E:\FR\FM\03JYR3.SGM 03JYR3 40380 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 (c) In connection with a proceeding under this part, including a petition for termination under § 1091.113, all documents, records or other items submitted by a respondent to the Bureau, all documents prepared by, or VerDate Mar<15>2010 19:30 Jul 02, 2013 Jkt 229001 on behalf of, or for the use of the Bureau, and any communications between the Bureau and a person, shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1). PO 00000 Dated: June 17, 2013. Richard Cordray, Director, Bureau of Consumer Financial Protection. [FR Doc. 2013–15485 Filed 7–2–13; 8:45 am] BILLING CODE 4810–AM–P Frm 00030 Fmt 4701 Sfmt 9990 E:\FR\FM\03JYR3.SGM 03JYR3

Agencies

[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Rules and Regulations]
[Pages 40351-40380]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15485]



[[Page 40351]]

Vol. 78

Wednesday,

No. 128

July 3, 2013

Part V





Bureau of Consumer Financial Protection





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12 CFR Part 1091





Procedural Rule To Establish Supervisory Authority Over Certain Nonbank 
Covered Persons Based on Risk Determination; Final Rule

Federal Register / Vol. 78 , No. 128 / Wednesday, July 3, 2013 / 
Rules and Regulations

[[Page 40352]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1091

[Docket No.: CFPB-2012-0021]
RIN 3170-AA24


Procedural Rule To Establish Supervisory Authority Over Certain 
Nonbank Covered Persons Based on Risk Determination

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
publishing a final rule that establishes procedures to implement 
requirements of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010. That statutory provision authorizes the Bureau 
to supervise a nonbank covered person when the Bureau has reasonable 
cause to determine, by order, after notice to the person and a 
reasonable opportunity to respond, that such person is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services. The 
Bureau is authorized to, among other things, require reports from, and 
conduct examinations of, nonbank covered persons subject to supervision 
under the Act.

DATES: Effective August 2, 2013.

FOR FURTHER INFORMATION CONTACT: Christopher J. Young, Senior Counsel, 
Office of Supervision Policy, Bureau of Consumer Financial Protection; 
1700 G Street NW., Washington, DC 20552, (202) 435-7408.

SUPPLEMENTARY INFORMATION: 

I. Background

    On May 25, 2012, the Bureau of Consumer Financial Protection 
(Bureau) published a notice of proposed rulemaking (Proposed Rule) in 
the Federal Register \1\ to establish procedures to implement section 
1024(a)(1)(C) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Dodd-Frank Act) \2\ (12 U.S.C. 5514(a)(1)(C)). 
Under this provision of the Dodd-Frank Act, the Bureau has the 
authority to supervise any nonbank covered person \3\ that the Bureau 
``has reasonable cause to determine, by order, after notice . . . and a 
reasonable opportunity . . . to respond . . . is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services.'' The 
Bureau must base such reasonable-cause determinations on complaints 
collected by the Bureau under 12 U.S.C. 5493(b)(3), or on information 
collected from other sources.\4\ The Bureau requested comments on all 
aspects of the Proposed Rule. The comment period ended on July 24, 
2012, and the Bureau received 32 comments from industry trade 
associations, businesses, consumer groups, a regulatory association, 
and individuals.
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    \1\ 77 FR 31226 (May 25, 2012).
    \2\ Public Law 111-203 (codified at 12 U.S.C. 5301 et seq.).
    \3\ The provisions of 12 U.S.C. 5514 apply to certain categories 
of covered persons, described in subsection (a)(1), and expressly 
exclude from coverage persons described in 12 U.S.C. 5515(a) or 
5516(a). ``Covered persons'' include ``(A) any person that engages 
in offering or providing a consumer financial product or service; 
and (B) any affiliate of a person described [in (A)] if such 
affiliate acts as a service provider to such person.'' 12 U.S.C. 
5481(6); see also 12 U.S.C. 5481(5) (defining ``consumer financial 
product or service''). Under 12 U.S.C. 5514(d), subject to certain 
exceptions, ``to the extent that Federal law authorizes the Bureau 
and another Federal agency to . . . conduct examinations, or require 
reports from a [nonbank covered person] under such law for purposes 
of assuring compliance with Federal consumer financial law and any 
regulations thereunder, the Bureau shall have the exclusive 
authority to . . . conduct examinations [and] require reports . . . 
with regard to a [nonbank covered person], subject to those 
provisions of law.''
    \4\ 12 U.S.C. 5514(a)(1)(C).
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    In addition to the Bureau's supervisory authority under 12 U.S.C. 
5514(a)(1)(C), the Bureau has the authority to supervise (1) nonbank 
covered persons of any size that offer or provide: (a) Origination, 
brokerage, or servicing of loans secured by real estate for use by 
consumers primarily for personal, family or household purposes, or loan 
modification or foreclosure relief services in connection with such 
loans, (b) private education loans, and (c) payday loans; \5\ and (2) 
``larger participant[s] of a market for other consumer financial 
products or services, as [the Bureau defines] by rule.'' \6\ The Bureau 
is authorized under the Dodd-Frank Act to ensure that ``Federal 
consumer financial law is enforced consistently, without regard to the 
status of a person as a depository institution, in order to promote 
fair competition.'' \7\
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    \5\ 12 U.S.C. 5514(a)(1)(A), (D), and (E). In addition, the 
Bureau has supervisory authority over very large depository 
institutions and credit unions and their affiliates. 12 U.S.C. 
5515(a). Furthermore, the Bureau has certain authorities relating to 
the supervision of other depository institutions and credit unions. 
12 U.S.C. 5516(c)(1), (e).
    \6\ 12 U.S.C. 5514(a)(1)(B). The Bureau has issued final rules 
establishing supervisory authority over larger participants of the 
consumer reporting and the consumer debt collection markets. See 77 
FR 42874 (July 20, 2012) (consumer reporting); 77 FR 65775 (Oct. 31, 
2012) (consumer debt collection). The larger participant rules are 
codified at 12 CFR part 1090. The Bureau has proposed a rule 
establishing supervisory authority over larger participants of the 
student loan servicing market. 78 FR 18902 (March 28, 2013). The 
Bureau's supervision authority also extends to service providers of 
those covered persons that are subject to supervision under12 U.S.C. 
5514. 12 U.S.C. 5514(e); see also 12 U.S.C. 5481(26) (defining 
``service provider'').
    \7\ 12 U.S.C. 5511(b)(5).
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    The Bureau is authorized to supervise nonbank covered persons 
subject to 12 U.S.C. 5514 of the Dodd-Frank Act for purposes of: (1) 
Assessing compliance with the requirements of Federal consumer 
financial law; (2) obtaining information about such persons' activities 
and compliance systems or procedures; and (3) detecting and assessing 
risks to consumers and to markets for consumer financial products and 
services.\8\ Pursuant to 12 U.S.C. 5514(b), the Bureau is authorized to 
conduct examinations of various scopes of supervised entities. In 
addition, the Bureau may, as appropriate, request information from 
supervised entities without conducting examinations.\9\
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    \8\ 12 U.S.C. 5514(b); see also 12 U.S.C. 5481(14) (defining 
``Federal consumer financial law'').
    \9\ See 12 U.S.C. 5514(b) (authorizing the Bureau both to 
conduct examinations and to require reports from entities subject to 
supervision).
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    The Proposed Rule set forth proposed procedures by which the Bureau 
would bring a nonbank covered person under the Bureau's supervisory 
authority pursuant to 12 U.S.C. 5514(a)(1)(C), and did not propose to 
impose any new substantive consumer protection requirements on entities 
subject to the rule. Although a rule is not necessary to implement 12 
U.S.C. 5514(a)(1)C), the final rule will establish a consistent 
procedure applicable to all affected entities for bringing a nonbank 
covered person under the Bureau's supervisory authority pursuant to 12 
U.S.C. 5514(a)(1)(C) and thereby provide transparency regarding the 
procedures the Bureau intends to use prior to commencement of a 
proceeding under 12 U.S.C. 5514(a)(1)(C). Absent the final rule, the 
public would lack guidance regarding such procedures. Regardless of 
whether nonbanks offering or providing consumer financial products or 
services are subject to the Bureau's supervisory authority, they are 
subject to the Bureau's regulatory and enforcement authority and any 
applicable Federal consumer financial law.

II. Summary of the Final Rule

    The final rule establishes the procedures by which a nonbank 
covered person may become subject to the

[[Page 40353]]

supervisory authority of the Bureau pursuant to 12 U.S.C. 
5514(a)(1)(C). The final rule is intended to provide an efficient, 
expeditious, and fair process by which the Bureau exercises its 
authority under 12 U.S.C. 5514(a)(1)(C). The final rule generally 
adopts the Proposed Rule, with certain modifications described in the 
section-by-section analysis below.
    The final rule is divided into four subparts. Subpart A contains 
general provisions, including provisions regarding scope and purpose 
and definitions applicable to the entire final rule. Subpart B sets 
forth the procedures relating to the determination process, including: 
(1) Issuing a notice commencing a proceeding (Notice or Notice of 
Reasonable Cause), (2) contents of a Notice of Reasonable Cause, (3) 
service of a Notice, (4) response to a Notice, (5) conduct of a 
supplemental oral response, (6) manner of filing and serving papers, 
(7) issuance of recommended determinations, (8) determinations by the 
Director, (9) voluntary consent to Bureau's authority, (10) notice and 
response included in an adjudication proceeding otherwise brought by 
the Bureau, and (11) relief available sought in a civil action or 
administrative adjudication. Subpart C sets forth a post-determination 
process whereby a respondent may petition the Director for the 
termination of supervision. Subpart D sets forth the rules for the 
construction of time limits, change of time limits, and effect of 
deadlines.
    Under the final rule, a Notice of Reasonable Cause does not 
constitute a notice of charges for any alleged violation of Federal 
consumer financial law or other law. The proceedings under the final 
rule are informal and do not constitute an adjudication proceeding with 
a hearing on the record under the Administrative Procedure Act 
(APA).\10\ Accordingly, no discovery is permitted, a supplemental oral 
response does not constitute a hearing on the record, and no witnesses 
may be called as part of a supplemental oral response.
---------------------------------------------------------------------------

    \10\ See 5 U.S.C. 554, 556, and 557 (setting forth APA 
procedures for adjudications determined on the record after 
opportunity for an agency hearing).
---------------------------------------------------------------------------

III. Legal Authority

A. Rulemaking authority

    The Bureau is issuing this final rule pursuant to its authority 
under: (1) 12 U.S.C. 5512(b)(1), which grants the Bureau the authority 
to prescribe rules as may be necessary and appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of 
Federal consumer financial law, and to prevent evasions of those laws; 
(2) 12 U.S.C. 5514(a)(1)(C), which authorizes the Bureau to supervise a 
nonbank covered person when it has reasonable cause to determine, by 
order, after notice to the person, and a reasonable opportunity to 
respond, that such person is engaging, or has engaged, in conduct that 
poses risks to consumers with regard to the offering or provision of 
consumer financial products or services; and (3) 12 U.S.C. 5514(b)(7), 
which authorizes the Bureau to prescribe rules to facilitate the 
supervision of nonbank covered persons under 12 U.S.C. 5514(a)(1).

B. Effective date

    The final rule relates solely to agency procedure and practice and 
thus is not subject to the 30-day effective date for substantive rules 
under the APA.\11\ Nevertheless, the Proposed Rule provided that the 
final rule would be effective 30 days after publication in the Federal 
Register. As discussed below, after considering the comments received, 
the Bureau adopts the proposed 30-day delayed effective date for the 
final rule.
---------------------------------------------------------------------------

    \11\ 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------

Request To Extend the Effective Date
    One commenter stated that the Bureau's proposed 30-day delayed 
effective date did not provide a sufficiently long transition period 
for nonbanks not already subject to supervision to develop compliance 
and recordkeeping standards to prepare for potential supervision by the 
Bureau, and urged the Bureau to instead adopt an effective date of six 
months after publication. The Bureau appreciates that supervision by a 
Federal agency would be new to many nonbank covered persons potentially 
subject to the final rule but does not believe that this factor 
justifies a substantial delay of the effective date of the final rule.
    Although certain nonbank covered persons might choose to increase 
their compliance with Federal consumer financial law in response to the 
perceived possibility of supervision, entities offering or providing 
consumer financial products or services are already obligated to comply 
with applicable Federal consumer financial law. Therefore, nonbank 
covered persons potentially subject to the final rule should not 
require additional time to come into compliance with Federal consumer 
financial law. Moreover, as noted above, the final rule is not 
necessary to establish the Bureau's supervisory authority under 12 
U.S.C. 5514(a)(1)(C). Rather, the final rule merely provides 
transparency and ensures consistency regarding the procedures that the 
Bureau intends to use in connection with its preexisting supervisory 
authority under 12 U.S.C. 5514(a)(1)(C). Thus, delaying the effective 
date of the final rule would not actually delay the period before which 
entities may be subject to supervision under 12 U.S.C. 5514(a)(1)(C), 
and entities need not have waited for the issuance of the final rule to 
begin taking any measures they may wish to take in anticipation of 
potential supervision by the Bureau.
    The Bureau thus believes that a six-month postponement of the 
effective date as requested by the commenter is not warranted and 
adopts the effective date as proposed.
Procedural Versus Substantive Rule
    Another commenter questioned the Bureau's assertion in the 
supplementary information to the Proposed Rule that the rule is 
procedural, rather than substantive. The Bureau regards the final rule 
as procedural because, as discussed above, the final rule does not 
impose on nonbank covered persons any new substantive requirements. As 
noted above, nonbank covered persons already must comply with 
applicable Federal consumer financial law, and a final rule is not 
necessary to implement the Bureau's supervisory authority under 12 
U.S.C. 5514(a)(1)(C).
    In any event, the question whether the final rule is procedural or 
substantive is generally without consequence because, as a matter of 
discretion, the Bureau undertook notice and comment rulemaking 
procedures in promulgating the final rule and is finalizing a 30-day 
delayed effective date.

IV. Section-by-Section Analysis of the Final Rule

Subpart A--General

Section 1091.100 Scope and Purpose
    Proposed Sec.  1091.100 set forth the scope and purpose of the 
Proposed Rule. It stated that proposed part 1091 establishes procedures 
to implement 12 U.S.C. 5514(a)(1)(C) and to facilitate the supervision 
of nonbank covered persons under 12 U.S.C. 5514(b)(7). The Bureau 
received a few comments that appear to have misinterpreted the scope 
and purpose of the Proposed Rule.
    A commenter asserted that Proposed Rule asserts an ``extremely 
broad grant of jurisdiction'' that ``appears at odds'' with the 
structure of the Dodd-Frank Act. The commenter argued that the Dodd-
Frank Act lists under 12 U.S.C. 5514(a)(1)(A)-(E) five discrete 
categories of nonbank entities that the Bureau may

[[Page 40354]]

supervise. According to the commenter, the Proposed Rule employed 12 
U.S.C. 5514(a)(1)(C) to ``supervise any nonbank entity if the [Bureau] 
determines on its own, and without appeal to any court, that a nonbank 
entity `poses a risk' to consumers.'' The commenter maintained that had 
``Congress intended to grant the [Bureau] such broad supervisory 
authority, it is unlikely it would have done so in the negative, 
limiting the authority to five discrete situations.''
    Another commenter stated that the Bureau should explain why the 
Bureau's existing authorities relating to data collection, and 
regulatory and enforcement authority, are not sufficient to achieve the 
Bureau's mission. The commenter also stated that the Bureau should make 
clear that the final rule will not pertain to mortgage lenders because 
they are already within the Bureau's supervisory authority. This and 
another commenter asked the Bureau to clarify whether a law firm may be 
examined as a service provider.
Assertions Relating to Jurisdiction
    The comment asserting that the Proposed Rule claims an extremely 
broad grant of jurisdiction in contravention of the Dodd-Frank Act 
misunderstands the purpose of the final rule and the structure of 12 
U.S.C. 5514(a)(1). As noted above, the purpose of the final rule is to 
provide transparency and ensure consistency regarding the procedures 
the Bureau intends to follow in exercising its authority under 12 
U.S.C. 5514(a)(1)(C), not to establish or to define the scope of the 
Bureau's 12 U.S.C. 5514(a)(1)(C) authority. The Dodd-Frank Act, not the 
final rule, establishes and defines the scope of that authority. In 
addition, the commenter's understanding of the Bureau's supervisory 
authority appears at odds with the language of 12 U.S.C. 5514(a)(1)(C), 
which defines the covered persons subject to the Bureau's authority 
under the provision not exclusively by reference to the category of 
activities in which they engage, but based on whether there is 
reasonable cause to believe that their conduct--whatever the particular 
activity involved--poses risks to consumers with regard to the offering 
or provision of consumer financial products or services.
    As to the commenter that requested the Bureau justify the need for 
12 U.S.C. 5514(a)(1)(C) in light of the Bureau's other authorities, the 
Bureau notes that Congress provided the Bureau with various 
complementing authorities to enable the Bureau to achieve its statutory 
purposes and objectives relating to consumer financial protection. 
These authorities, which include supervision, as well as market 
research and data collection, regulation, and enforcement, are not 
mutually exclusive, but rather complement and reinforce each other. For 
example, where the Bureau issues a substantive rule under its 
regulatory authority, such as Regulation Z,\12\ it may also be 
appropriate to supervise a nonbank covered person to examine whether 
the person is in compliance with that regulation pursuant to 12 U.S.C. 
5514(a)(1)(C), where the Bureau has reasonable cause to determine that 
the person is engaging, or has engaged, in conduct that poses risks to 
consumers regarding the offering or provision of consumer financial 
products or services.
---------------------------------------------------------------------------

    \12\ Regulation Z is codified at 12 CFR part 1026 and implements 
the Truth in Lending Act which is codified at 15 U.S.C. 1601 et seq.
---------------------------------------------------------------------------

    Relatedly, the Bureau notes that if an entity is subject to the 
Bureau's supervisory authority, the Bureau may examine the entire 
entity for compliance with all Federal consumer financial law, assess 
enterprise-wide compliance systems and procedures, and assess and 
detect risks to consumers or to markets for consumer financial products 
and services posed by any activity of the entity, not just the 
activities that initially rendered the entity subject to Bureau 
supervisory authority. This authority results from the Dodd-Frank Act's 
conferral of authority on the Bureau to supervise ``covered person[s]'' 
described in 12 U.S.C. 5514(a)(1)(A)-(E). In addition, the Dodd-Frank 
Act directs the Bureau to require reports and conduct examinations on a 
periodic basis of such persons for purposes of (a) assessing compliance 
with the requirements of Federal consumer financial law, (b) obtaining 
information about the activities and compliance systems or procedures 
of such persons, and (c) detecting and assessing risks to consumers and 
to markets for consumer financial products and services.\13\ By 
granting the Bureau supervisory authority over such ``covered 
persons,'' as opposed to over particular activities in which they 
engage, the Dodd-Frank Act establishes that the Bureau's supervisory 
authority is not limited to the products or services that qualified a 
person for supervision, but also includes other activities of such a 
person that involve other consumer financial products or services or 
are subject to Federal consumer financial law.\14\
---------------------------------------------------------------------------

    \13\ 12 U.S.C. 5514(b)(1).
    \14\ For specific references in the Dodd-Frank Act to 
supervision authority over ``persons'' rather than particular 
activities see, e.g., 12 U.S.C. 5514(b)(1) (``The Bureau shall 
require reports and conduct examinations on a periodic basis of 
`persons' described in subsection (a)(1) . . . .'') (emphasis 
added); 12 U.S.C. 5514(a)(1) (``[T]his section shall apply to any 
covered `person' who . . . .'') (emphasis added).
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Applicability to Mortgage Lenders
    The procedures established by the final rule will be used only to 
assess whether a nonbank covered person will be made subject to the 
Bureau's supervisory authority based on a reasonable-cause 
determination. There would ordinarily be no reason to make such a 
determination and thus invoke the procedures set forth in the final 
rule with respect to a nonbank covered person already subject to the 
Bureau's supervisory authority. Potentially, however, if the Bureau 
believed that a nonbank entity qualified for supervision under another 
provision of 12 U.S.C. 5514(a), the entity disagreed, and the Bureau 
believed that there might be reasonable cause to determine that the 
entity was engaging, or had engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer 
financial products or services, the Bureau might use the procedures in 
the final rule to establish supervisory authority under 12 U.S.C. 
5514(a)(1)(C). The Bureau would not be conceding the lack of 
supervisory authority on another basis by proceeding in this manner. 
Therefore, the Bureau declines to establish an exclusion from coverage 
for entities subject to supervision under another provision of 12 
U.S.C. 5514.
Attorneys as Service Providers
    The Proposed Rule did not address the scope or manner of the 
Bureau's supervisory authority over service providers to nonbank 
covered persons pursuant to 12 U.S.C. 5514. The Proposed Rule simply 
proposed procedures for use by the Bureau to subject a nonbank covered 
person to the Bureau's supervisory authority under 12 U.S.C. 
5514(a)(1)(C), and observed that the Dodd-Frank Act vests the Bureau 
with supervisory authority over service providers to persons described 
in 12 U.S.C. 5514(a)(1).\15\ Consequently, comments regarding which 
service providers the Bureau may supervise, and how, are beyond the 
scope of the final rule.\16\
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    \15\ 77 FR 31226, 31227 (May 25, 2012). A service provider is a 
person that provides a material service to a covered person in 
connection with a consumer financial product or service. 12 U.S.C. 
5481(26)(A). The Dodd-Frank Act provides a non-exhaustive set of 
examples of such material services. 12 U.S.C. 5481(26)(A)(i)-(ii).
    \16\ One commenter suggested that the Bureau publish a policy 
that it will not examine any service provider until after it has 
examined the entity receiving the services. The Bureau notes that 
policies regarding the Bureau's supervision of service providers are 
also beyond the scope of the final rule, which is limited to 
establishing procedures the Bureau intends to follow in implementing 
12 U.S.C. 5514(a)(1)(C).

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[[Page 40355]]

    For the foregoing reasons, the Bureau adopts Sec.  1091.100 as 
proposed with minor technical revisions for consistency.
Section 1091.101 Definitions
    Section 1091.101 defines terms used in the final rule that are 
applicable to all of part 1091. If a term is defined in the Dodd-Frank 
Act, the final rule generally incorporates that definition, with 
clarifications and modifications as appropriate. The Bureau received 
comments on several definitions set forth in the Proposed Rule and 
discusses the comments below in the context of the definition to which 
they relate.
    Assistant Director. The Proposed Rule stated that the term 
``Assistant Director'' means the Bureau's Assistant Director for 
Nonbank Supervision or his or her designee. The proposed definition 
provided that, in the event there is no Assistant Director, the 
Director of the Bureau may designate an alternative Bureau employee to 
perform the functions of the Assistant Director under the rule. The 
Bureau did not receive any substantive comments on this definition.
    However, subsequent to the issuance of the Proposed Rule, the 
Bureau reorganized its supervision offices into the Office of 
Supervision Policy and the Office of Supervision Examinations, each 
headed by an Assistant Director. As a result of that restructuring, 
there is no longer an Office of Nonbank Supervision. The Bureau has 
therefore revised the Proposed Rule to delete the reference to Nonbank 
Supervision, but otherwise adopts the proposed definition with only 
minor technical revisions for consistency. As revised, the term 
``Assistant Director'' means an Assistant Director for Supervision, and 
thus refers to the Assistant Directors for both the Offices of 
Supervision Policy and Supervision Examinations. The definition under 
the final rule further provides that if there is no Assistant Director, 
the Associate Director may designate an alternative Bureau employee to 
perform the functions of an Assistant Director under part 1091.
    Associate Director. The Proposed Rule did not define the term 
``Associate Director'' in large part because at the time the Proposed 
Rule was issued, the Bureau did not have an Associate Director of 
Supervision, Enforcement, and Fair Lending. An Associate Director has 
since been appointed. The Bureau therefore is revising the Proposed 
Rule to formally include the Associate Director in the procedures 
established by the final rule and to provide the Bureau with more 
flexibility in assigning personnel to handle the key functions under 
such procedures. As described in greater detail in the section-by-
section analysis of Sec. Sec.  1091.102-.108 below, the functions of 
the Assistant Director under the Proposed Rule have been transferred to 
the Associate Director, or his or her designee, under the final rule. 
Similarly, under the final rule, the functions of the Deputy under the 
Proposed Rule have been transferred to the Assistant Director or his or 
her designee, and the term ``initiating official'' is used to identify 
the Assistant Director or his or her designee as discussed in the 
section-by-section analysis for the definition of the term ``initiating 
official'' below.\17\ This modification does not change the basic 
structure of the Proposed Rule, which designated separate Bureau 
personnel to perform the functions of (1) issuing a notice, (2) 
considering written and oral responses and issuing a recommended 
determination, and (3) rendering a final determination.
---------------------------------------------------------------------------

    \17\ Unless otherwise noted herein, when discussing the Proposed 
Rule in this section-by-section analysis, the term ``[initiating 
official]'' will be used in place of the term ``Deputy.''
---------------------------------------------------------------------------

    For the reasons discussed above, the final rule defines the term 
``Associate Director'' to mean the Associate Director of the Bureau for 
Supervision, Enforcement, and Fair Lending, or his or her designee. The 
definition under the final rule provides that if there is no Associate 
Director, the Director of the Bureau may designate an alternative 
Bureau employee to perform the functions of the Associate Director 
under part 1091.\18\
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    \18\ Because the Assistant Director's role in the process has 
been transferred to the Associate Director, this section-by-section 
analysis of the final rule refers to the ``[Associate Director]'' in 
place of the Assistant Director in discussing the functions of the 
Assistant Director under the Proposed Rule.
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    Bureau. The Proposed Rule stated that that the term ``Bureau'' 
means the Bureau of Consumer Financial Protection. The Bureau did not 
receive any substantive comments on this section and adopts it as 
proposed with minor technical revisions for consistency.
    Consumer. The Proposed Rule incorporated the definition of the term 
``consumer'' set forth in 12 U.S.C. 5481(4). That provision defines 
``consumer'' as an individual or an agent, trustee, or representative 
acting on behalf of an individual. The Bureau did not receive any 
substantive comments on this definition and adopts it as proposed with 
minor technical revisions for consistency.
    Consumer financial product or service. The Proposed Rule 
incorporated the definition of the term ``consumer financial product or 
service'' set forth in 12 U.S.C. 5481(5). The Proposed Rule provided 
that the term ``consumer financial product or service'' means any 
financial product or service as defined in 12 U.S.C. 5481(15) that is 
described in one or more categories under: (1) 12 U.S.C. 5481(15) and 
is offered or provided for use by consumers primarily for personal, 
family, or household purposes; or (2) clause (i), (iii), (ix), or (x) 
of 12 U.S.C. 5481(15)(A) \19\ and is delivered, offered, or provided in 
connection with a consumer financial product or service referred to in 
(1).
---------------------------------------------------------------------------

    \19\ Under these specified clauses, the term ``financial product 
or service'' is generally defined to include, subject to certain 
exclusions: (1) Extending credit and servicing loans, 12 U.S.C. 
5481(15)(A)(i); (2) providing real estate settlement services or 
performing appraisals of real estate or personal property, 12 U.S.C. 
5481(15)(A)(iii); (3) collecting, analyzing, maintaining, or 
providing consumer report information or other account information 
used or expected to be used in connection with any decision 
regarding the offering or provision of a consumer financial product 
or service, 12 U.S.C. 5481(15)(A)(ix); and (4) collecting debt 
related to any consumer financial product or service, 12 U.S.C. 
5481(15)(A)(x).
---------------------------------------------------------------------------

    The Bureau received one comment recommending modification to the 
definition of the term ``consumer financial product or service.'' This 
commenter asserted that the definition of the term is ambiguous. The 
commenter stated that, as proposed, the definition fails to provide 
clear notice as to which products are subject to the definition and 
which products are not. The commenter explained that some of the 
financial products it offers are sold for both consumer and business 
uses. The commenter urged the Bureau to modify the definition of the 
term ``consumer financial product or service'' to make clear that the 
Bureau intends to base reasonable-cause determinations solely on risk 
associated with products that are used exclusively for personal, 
household, or family purposes.
    The Bureau declines to adopt the commenter's request, because the 
commenter's proposed definition of the term ``consumer financial 
product or service'' would be narrower than the definition in the Dodd-
Frank Act. The definition of that term in the Act includes not only 
financial products or services ``offered or provided `for use by' 
consumers primarily for personal, family or household purposes'' but 
also, for certain types of financial products or

[[Page 40356]]

services, those ``delivered, offered, or provided `in connection with' 
a consumer financial product or service'' of the first type.\20\ The 
Bureau is not aware of any reason that it should treat as less 
significant for purposes of determining the scope of its supervisory 
authority under 12 U.S.C. 5514(a)(1)(C) the risks to consumers that may 
arise in the offering or provision of the second type of consumer 
financial product or service.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 5481(5).
---------------------------------------------------------------------------

    Accordingly, the Bureau adopts the definition of the term 
``consumer financial product or service'' as proposed with minor 
technical revisions for consistency.
    Decisional employee. The Proposed Rule stated that the term 
``decisional employee'' means any employee of the Bureau who has not 
engaged in: (1) Assisting the [initiating official] in either 
determining whether to issue a Notice of Reasonable Cause, or 
presenting the [initiating official's] position in support of a Notice 
of Reasonable Cause, either in writing or in a supplemental oral 
response, to the [Associate] Director; or (2) assisting the [Associate] 
Director in the preparation of a recommended determination. The Bureau 
received one comment on this definition expressing appreciation for the 
Bureau's efforts to separate the functional roles of Bureau employees 
with respect to the procedures the Bureau will follow under 12 U.S.C. 
5514(a)(1)(C). The Bureau adopts the definition as proposed with minor 
technical revisions for consistency.
    Director. The Proposed Rule stated that the term ``Director'' means 
the Director of the Bureau or his or her designee. The Proposed Rule 
provided that if there is no Director the term shall mean a person 
authorized to perform the functions of the Director under part 1091, or 
his or her designee. The Bureau did not receive any substantive 
comments on this definition and adopts it as proposed with minor 
technical revisions for consistency.
    Executive Secretary. The Proposed Rule stated that the term 
``Executive Secretary'' means the Executive Secretary of the Bureau. 
The Bureau did not receive any substantive comments on this definition 
and adopts it as proposed with minor technical revisions for 
consistency.
    Initiating official. As noted in the section-by-section analysis of 
the term ``Associate Director'' above, the Proposed Rule defined the 
term ``Deputy,'' which in the final rule is replaced with the term 
``initiating official.''
    The final rule further revises the definition of the term 
``initiating official'' to provide the Bureau with more flexibility in 
staffing the key functions of the rule with Bureau personnel. As 
revised, the term ``initiating official'' means an Assistant Director 
of the Office of Supervision or Office of Examinations, or a Bureau 
employee designated to act as an ``initiating official'' by an 
Assistant Director. The final rule states that if there is not an 
Assistant Director, the Associate Director may designate a Bureau 
employee to perform the functions of an initiating official under part 
1091.
    The Bureau adopts the proposed definition with the revisions 
described above and with other minor technical revisions for 
consistency.
    Nonbank covered person. The provisions of 12 U.S.C. 5514 relate to 
``covered persons'' as defined in 12 U.S.C. 5481(6) that are not 
insured depository institutions or credit unions, or, in the case of 
such entities with assets of more than $10 billion, their affiliates, 
as set forth in 12 U.S.C. 5515 and 5516. The Proposed Rule therefore 
excluded from the definition of the term ``nonbank covered persons,'' 
persons described in 12 U.S.C. 5515(a) and 5516(a), and provided that 
the term ``nonbank covered person'' means, except for persons described 
in 12 U.S.C. 5515(a) and 5516(a): (1) Any person that engages in 
offering or providing a consumer financial product or service; and (2) 
any affiliate of a person described in (1) if such affiliate acts as a 
service provider to such person.
    The Bureau received a comment asserting that the Bureau's authority 
to supervise based on reasonable-cause determinations under 12 U.S.C. 
5514(a)(1)(C) should not extend to affiliates of nonbank covered 
persons that act as service providers. The commenter expressed concern 
about the potential for affiliated service providers being unaware of 
the possibility that they could be brought under the Bureau's 
supervisory authority. The commenter asserted that affiliate service 
providers that do not themselves offer or provide consumer financial 
products or services would not anticipate that their work for their 
affiliated nonbank entities could subject them to Bureau supervision.
    The Bureau believes that it is appropriate to include affiliated 
service providers under the definition of the term ``nonbank covered 
person.'' This definition derives from the definition of the term 
``covered person'' provided in 12 U.S.C. 5481(6). By including 
affiliated service providers in the definition of the term ``covered 
person,'' Congress expressed its intention that these particular 
service providers be subject to the Bureau's supervisory authority over 
covered persons as set forth in the Act.\21\ Accordingly, the Bureau 
declines to revise the definition of ``nonbank covered person'' to 
exclude affiliated service providers and adopts the definition as 
proposed with minor technical revisions for consistency.
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    \21\ The Bureau also notes that the treatment of service 
providers affiliated with nonbank covered persons under the final 
rule for purposes of 12 U.S.C. 5514(a)(1)(C) is consistent with the 
treatment of such affiliated service providers for purposes of 12 
U.S.C. 5514(a)(1)(A), (B), (D), and (E). The same rationale that 
applies to treating affiliated service providers as covered persons 
under 12 U.S.C. 5514(a)(1)(A), (B), (D) and (E) applies equally to 
the treatment of affiliated service providers under 12 U.S.C. 
5514(a)(1)(C).
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    Notice of Reasonable Cause and Notice. The Proposed Rule stated 
that the terms ``Notice of Reasonable Cause'' and ``Notice'' mean a 
Notice issued under Sec.  1091.102. The Bureau did not receive any 
substantive comments on this definition and adopts it as proposed with 
minor technical revisions for consistency.
    Person. The Proposed Rule incorporated the definition of the term 
``person'' set forth in 12 U.S.C. 5481(19). The Proposed Rule therefore 
stated that the term ``person'' means an individual, partnership, 
company, corporation, association (incorporated or unincorporated), 
trust, estate, cooperative organization, or other entity. The Bureau 
did not receive any substantive comments on this definition and adopts 
it as proposed with minor technical revisions for consistency.
    Respondent. The Proposed Rule stated that the term ``respondent'' 
means a person who has been issued a Notice of Reasonable Cause by the 
[initiating official] under Sec.  1091.102. The Bureau did not receive 
any substantive comments on this definition and adopts it as proposed 
with minor technical revisions for consistency.
    Response. The Proposed Rule stated that the term ``response'' means 
the response to a Notice of Reasonable Cause filed by a respondent with 
the [Associate] Director under Sec.  1091.105. The Bureau did not 
receive any substantive comments on this definition and adopts it as 
proposed with minor technical revisions for consistency.

Subpart B--Determination and Voluntary Consent Procedures

    Subpart B sets forth the procedures relating to the Bureau's 
process for determining, after notice to a person and a reasonable 
opportunity to respond,

[[Page 40357]]

whether there is reasonable cause to determine, based on complaints and 
information from other sources, that the respondent is a covered person 
that is engaging, or has engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer 
financial products or services, and therefore subject to the Bureau's 
supervisory authority under 12 U.S.C. 5514(a)(1)(C). The Bureau 
received several comments on the Proposed Rule that are generally 
applicable to subpart B. The Bureau addresses these comments prior to 
its analysis of the specific sections of subpart B.
    A number of commenters urged the Bureau to define the type of 
``risks'' posed to consumers that could give rise to supervision under 
12 U.S.C. 5514(a)(1)(C). Other commenters asked the Bureau to define 
what constitutes ``reasonable cause'' for purposes of the rule. A 
number of commenters requested that the Bureau revise the Proposed Rule 
to require the Bureau to verify complaints. A few commenters asked the 
Bureau to identify what ``information from other sources'' it would 
consider in issuing a Notice of Reasonable Cause. One commenter 
asserted that the Dodd-Frank Act requires a formal hearing under the 
Administrative Procedure Act (APA) because determinations under 12 
U.S.C. 5514(a)(1)(C) are to be made by ``order'' of the Bureau.
Define Risk
    As noted above, several commenters asserted that the Proposed Rule 
failed adequately to define the types of conduct that pose risks to 
consumers within the meaning of 12 U.S.C. 5514(a)(1)(C). For example, 
two commenters urged the Bureau to clarify that prohibited ``risks'' 
include only inappropriate or undisclosed financial risks to consumers. 
Another commenter asserted that, although it may be ``impracticable to 
provide a laundry list'' of products, services, or actions that might 
pose risks, even a non-exhaustive list would allow businesses to 
evaluate not only their compliance with existing law, but also 
compliance with the Bureau's expectations. This commenter stated that, 
unlike other consumer protection laws and regulations that are 
codified, the Bureau will be creating new law as it goes along. The 
commenter argued that, without a clear understanding of what conduct is 
prohibited under the rule, it will be difficult to understand what 
conduct would subject nonbank covered persons to supervision.
    In a similar vein, another commenter stated that the ``utilization 
of consumer financial products and services inherently involves risk'' 
and that to avoid acting in an arbitrary and capricious manner, the 
Bureau must set forth clear and detailed descriptions of the process 
that it will follow and the factors that it will consider to determine 
whether a covered person's conduct poses more risks to consumers than 
is inherently present in the product or transaction without that 
conduct.
    In objecting to the Bureau's decision not to define or ask for 
comments regarding whether to define the terms ``risk determination'' 
or ``risk'' in the Proposed Rule, a commenter asserted that any ``risk 
paradigm'' must be clarified with respect to the unfair, deceptive, or 
abusive acts or practices (UDAAP) provisions of the Dodd-Frank Act. 
This commenter asserted that because the hearing prescribed in this 
part may deem actions that do not violate Federal law to be risky, the 
Bureau must define the terms ``unauthorized,'' ``deceptive,'' and 
``abusive'' before issuing a final rule. Regarding a related issue, one 
commenter requested that the Bureau define the term ``risk'' to include 
a safe harbor from a reasonable-cause determination under the final 
rule where a respondent can demonstrate reliance upon written reports 
or judgments issued by the Bureau.
    First, the Bureau notes that the phrase ``risks to consumers'' is 
taken directly from 12 U.S.C. 5514(a)(1)(C). The phrase is not defined 
by that or any other provision of the Dodd-Frank Act, and neither the 
Dodd-Frank Act nor any other law requires the Bureau to define the 
phrase before implementing 12 U.S.C. 5514(a)(1)(C). Second, the Bureau 
notes that the final rule is not a substantive conduct rule. The final 
rule neither prohibits any conduct nor requires any disclosures. It 
merely sets forth the procedures the Bureau intends to use in 
connection with the exercise of its existing authority under 12 U.S.C. 
5514(a)(1)(C). Among other things, the final rule establishes 
procedures for issuing Notices of Reasonable Cause, responding to such 
Notices, considering responses, and rendering determinations. 
Consistent with the narrow purpose of the Proposed Rule, it is beyond 
the scope of the final rule to establish substantive standards for what 
constitutes ``risks to consumers.''
    The Bureau also believes that the procedures established by the 
final rule provide sufficient opportunity for respondents to address, 
and for the Bureau to evaluate, whether, consistent with 12 U.S.C. 
5514(a)(1)(C), any particular covered person is subject to the Bureau's 
risk-based supervision authority. As discussed below, a Notice under 
the final rule is required to contain a description of the basis for 
the Bureau's assertion that there may be reasonable cause to determine 
that a respondent is engaging, or has engaged, in conduct that poses 
risks to consumers. A reasonable opportunity to respond to such Notice 
does not necessitate that the Bureau identify in advance of the 
issuance of a Notice the types of conduct that the Bureau has 
determined may pose risks to consumers. Accordingly, the Bureau 
declines commenters' requests that the Bureau define the term ``risks 
to consumers'' for purposes of the final rule.
    For similar reasons, the Bureau declines the commenter's request to 
include a safe harbor in the final rule from a reasonable-cause 
determination where a respondent can demonstrate reliance upon written 
reports or judgments issued by the Bureau. The Bureau believes that the 
final rule, consistent with 12 U.S.C. 5514(a)(1)(C), provides 
respondents with a reasonable opportunity to present to the Bureau, in 
a response, information supporting any asserted reliance on Bureau 
decisions or guidance. The Bureau observes that a covered person's 
reliance on written reports or judgments issued by the Bureau would 
likely be a relevant consideration in evaluating risk.
    The Bureau notes that in evaluating risks to consumers for purposes 
of 12 U.S.C. 5514(a)(1)(C), it expects to consider, consistent with the 
objectives set forth in the Dodd-Frank Act,\22\ whether a nonbank 
covered person has engaged in conduct that would pose risks to 
consumers because, for example, it involves potentially unfair, 
deceptive, or abusive acts or practices, or because the conduct 
otherwise potentially violates applicable Federal consumer financial 
law.
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 5511(b).
---------------------------------------------------------------------------

Define Reasonable Cause
    Several commenters requested that the Bureau define the term 
``reasonable cause.'' One commenter asserted that without such a 
definition, nonbank covered persons would have no guidance on how to 
comply with the law or how to protect consumers. Another commenter 
complained that although the term ``reasonable cause'' is vital to a 
full understanding of the Bureau's authority to subject a nonbank to 
its supervision authority, this term is not defined by the rule.
    The Bureau does not believe that it is necessary to define the term 
``reasonable cause'' in the final rule for three

[[Page 40358]]

reasons. First, the Bureau notes that the term ``reasonable cause'' is 
adopted in the final rule without revision from 12 U.S.C. 
5514(a)(1)(C). The term is not defined by that or any other provision 
of the Dodd-Frank Act, and neither the Dodd-Frank Act nor any other law 
requires the Bureau to define the term to implement 12 U.S.C. 
5514(a)(1)(C). Second, the Bureau disagrees with the commenter that the 
lack of a definition of the term ``reasonable cause'' results in 
nonbank covered persons having ``no guidance for compliance with the 
law and protection of consumers.'' Nonbank covered persons and other 
persons are required, irrespective of the final rule, to comply with 
applicable Federal consumer financial law. Third, the purpose of the 
final rule is not to establish or describe the supervisory authority of 
the Bureau as it relates to nonbank covered persons described in 12 
U.S.C. 5514(a)(1)(C). The Bureau's supervisory authority in this regard 
is established by 12 U.S.C. 5514(a)(1)(C), and a rule is not necessary 
to further delineate that authority. Rather, the purpose of the final 
rule is to provide transparency and ensure consistency regarding the 
procedures the Bureau intends to follow in exercising its authority 
under 12 U.S.C. 5514(a)(1)(C).
12 U.S.C. 5514(b)(2)(A)-(E) Risk Criteria
    A couple of commenters argued that in making reasonable-cause 
determinations, the Bureau must consider the criteria enumerated in 12 
U.S.C. 5514(b)(2)(A)-(E) relating to risk-based supervision, something 
these commenters felt the Proposed Rule failed to do.\23\ One commenter 
asserted that the Proposed Rule did not adequately explain the 
interrelatedness of these criteria to each other and to the Proposed 
Rule. Another commenter noted that the Proposed Rule made no mention of 
these factors which, the commenter argued, Congress clearly intended to 
limit the exercise of the Bureau's authority by focusing the Bureau's 
efforts on the most problematic issues.
---------------------------------------------------------------------------

    \23\ The factors for exercising the Bureau's supervisory 
authority on a risk basis include: ``the asset size of the covered 
person,'' ``the volume of transactions involving consumer financial 
products or services in which the covered person engages,'' ``the 
risks to consumers created by the provision of such consumer 
financial products or services,'' ``the extent to which such 
institutions are subject to oversight by State authorities for 
consumer protection,'' and ``any other factors that the Bureau 
determines to be relevant to a class of covered persons.'' 12 U.S.C. 
5514(b)(2).
---------------------------------------------------------------------------

    The Bureau believes that these commenters have misinterpreted the 
scope and purpose of 12 U.S.C. 5514(b)(2). That subsection describes 
how the Bureau must ``exercise its authority under paragraph 
[(b)](1),'' \24\ which in turn authorizes the Bureau to supervise 
``persons described in subsection (a)(1).'' The final rule does not 
address the exercise of the Bureau's supervisory authority under 
subsection (b)(1). Rather, the final rule establishes procedures for 
implementing subsection (a)(1)(C) to bring a nonbank covered person 
under the Bureau's supervisory authority. Nevertheless, although not 
expressly applicable to an (a)(1)(C) proceeding, the Bureau may 
consider the (b)(2) factors to the extent applicable in making a 
reasonable-cause determination.
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 5514(b)(2).
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau declines to revise the 
Proposed Rule to define the term ``reasonable cause'' in the final 
rule.
Consideration of Past Conduct in Risk Determinations
    A commenter stated that any assertion of supervisory authority by 
the Bureau based upon past (but not ongoing) risk-posing activity 
should be required clearly to state the basis for the Bureau's belief 
that such conduct is likely to recur. This commenter also recommended 
that there should be something akin to a ``statute of limitations'' 
where past conduct cannot be the basis for a Notice, and that activity 
more than three years in the past should not be a permissible basis for 
reasonable cause.
    Contrary to the commenter's assertion, the Bureau does not believe 
that requiring the Bureau to state its belief that the risk-posing 
conduct giving rise to a proceeding is likely to recur is consistent 
with the Dodd-Frank Act. The plain language of 12 U.S.C. 5514(a)(1)(C) 
covers conduct that a nonbank covered person ``is engaging, or has 
engaged, in'' that poses risks to consumers. The Bureau further 
believes that past conduct may pose risks to consumers, even if the 
identical conduct is not likely to recur, to the extent that such 
conduct indicates weak compliance systems that might lead to other 
potential law violations or harms to consumers. Additionally, the Dodd-
Frank Act does not require, and the Bureau does not believe it is 
appropriate to adopt, the equivalent of a statute of limitations. 
Accordingly, the Bureau declines to revise the Proposed Rule to add the 
language suggested by the commenter regarding recurring activity or to 
impose a statute of limitations as requested by commenters. The Bureau 
notes that it intends to consider both past and present conduct of 
nonbank covered persons in evaluating whether there is reasonable cause 
to proceed under 12 U.S.C. 5514(a)(1)(C), but that in considering past 
conduct, it expects to take into account, among other factors, the 
length of time since conduct occurred.
Verify Complaints and Describe Information From Other Sources
    The Bureau received a number of comments requesting that the Bureau 
verify any complaints used as the basis for issuing a Notice of 
Reasonable Cause or reaching a final determination under 12 U.S.C. 
5514(a)(1)(C). In expressing concerns about the use of complaints, a 
commenter stated that complaints provide ``anecdotal, unverified, and 
incomplete accounts of consumer satisfaction with financial products 
and services.'' This commenter asserted that ``complaints are an 
unreliable means of targeting supervision of financial institutions, 
particularly given the small number of complaints typically generated 
by smaller providers of financial services.'' Another commenter stated 
that the Proposed Rule does not contain any ``mechanism to ensure that 
only legitimate and verifiable complaints are considered.'' The 
commenter stated that without a mechanism to systematically root out 
``baseless complaints from legitimate ones,'' businesses will be left 
defenseless against baseless complaints, and the Bureau will leave 
itself vulnerable to making decisions based on inaccurate information. 
The commenter specifically requested that the Bureau revise the 
Proposed Rule to state that in making reasonable-cause determinations, 
the Bureau will consider only complaints that, after ``reasonable 
inquiry'' by the Bureau, are found to have merit.
    The Bureau received similar comments questioning the Bureau's 
reliance on complaints as a basis for issuing reasonable-cause 
determinations on the ground that complaints do not accurately reflect 
an entity's compliance with applicable law. A trade association for the 
debt collection industry stated that reviewing ``consumer inquiries and 
complaints about the debt collection industry is not a proper, 
reasonable, or accurate gauge of the industry's level of compliance 
with consumer protection laws, such as the [Fair Debt Collection 
Practices Act (FDCPA)].'' This commenter was also concerned that 
complaints would be treated the same by the Bureau, regardless of their 
nature. The commenter noted the importance of providing adequate 
procedural and training measures to ensure that any data gathered at 
the outset clearly

[[Page 40359]]

distinguishes between complaints of FDCPA violations and complaints 
that do not assert law violations or simply inquire into the rights and 
responsibilities of collectors and consumers during the collection 
process. The commenter urged the Bureau to clarify how consumer 
complaints will be used in determining ``reasonable cause'' under the 
rule. Similar comments expressed concern that that the Proposed Rule 
would not require the Bureau to consider the nature and severity of 
complaints. A commenter urged the Bureau to look not just at the number 
of complaints regarding a company, but also at the nature of the 
complaints submitted against a company. Voicing a related concern, 
another commenter asserted that there is a danger that consumers might 
equate the number of complaints against a nonbank covered person with 
the risks the person actually poses to consumers.
    The Bureau also received comments expressing concern that third 
parties may submit complaints to the Bureau on behalf of consumers. In 
this regard, a commenter stated that because the Bureau's complaint 
system permits the submission of complaints by third parties on behalf 
of consumers, the system runs the risk of being inundated with 
complaints from ``credit repair organizations, debt settlement 
companies, advocacy groups, politicians, competitors, and even blog 
sites dedicated to airing gripes about specific companies.''
    In emphasizing the potential for meritless complaints, a commenter 
noted that ``the federal financial agencies estimated in the Accuracy 
and Integrity Rule that the percentage of frivolous or irrelevant 
disputes could range from 25 percent to 94 percent of all disputes 
[referring to complaints under the Fair Credit Reporting Act].'' The 
commenter asserted that the procedure the Bureau uses to verify 
complaints it receives is insufficient, and therefore that the Bureau 
should not make a determination that a covered person is engaging, or 
has engaged, in conduct that poses risks to consumers based solely on 
the number of complaints or on unverified information from other 
sources. This commenter recommended that, instead, the Bureau should 
consider risks associated with specific products and acknowledge that 
the strong financial performance of some products during the recent 
crisis indicates lower consumer risks.
    Several commenters also expressed concern that the Proposed Rule 
did not adequately describe what may be used as ``information from 
other sources'' and requested the Bureau to describe these other 
sources of information, and/or provide examples of such sources. One 
commenter asked whether information from ``other sources'' might 
include privileged information. Another raised concern about using 
internet blogs, which the commenter deemed unreliable. As with 
complaints, commenters requested that the Proposed Rule be revised to 
require that information from other sources be verified by the Bureau. 
Lastly, the Bureau received a comment requesting guidance on how the 
Bureau will use data sources.
    In response to these comments, the Bureau notes that it intends to 
look at many factors relating to complaints and information from other 
sources in deciding whether there is a sufficient basis to initiate a 
proceeding under 12 U.S.C. 5514(a)(1)(C). These factors may include, 
among others, the nature of the conduct relating to the complaints or 
other information, the severity of risk alleged, the number of 
consumers potentially affected, and the number of complaints or amount 
of information from other sources received. The Bureau is committed to 
using its limited resources where most needed and intends to consider 
complaints and information from other sources with the efficient use of 
Bureau resources in mind.
    At the same time, the Bureau notes that the purpose of the final 
rule is to establish procedures that the Bureau intends to use to 
exercise its authority under 12 U.S.C. 5514(a)(1)(C) through which a 
nonbank covered person might become subject to the Bureau's supervisory 
authority. This process is not intended to determine whether a nonbank 
covered person has, in fact, violated applicable Federal consumer 
financial law or harmed consumers. The level of inquiry necessary to 
make a finding of a violation of law would instead occur, where 
consistent with Bureau prioritization and resources, in the course of 
supervisory activity such as an examination. It is not required under, 
and would defeat the purpose of, 12 U.S.C. 5514(a)(1)(C), to mandate 
that the Bureau make a finding of a law violation before concluding 
that there is ``reasonable cause to determine'' that a nonbank covered 
person's conduct poses risks to consumers with regard to the offering 
or provision of consumer financial products or services.
    Finally, the Bureau notes that ``information from other sources'' 
may, as the phrase suggests, come from a variety of places. Such 
information sources might include, among others, judicial opinions and 
administrative decisions. Given the potential range of sources, the 
Bureau does not believe it would serve a useful purpose to provide a 
list (even a nonexclusive list) of such sources in the final rule.
    For the reasons stated above, the Bureau declines to revise the 
Proposed Rule to require the Bureau to verify complaints or to identify 
``other sources of information'' that form the basis for a Notice or a 
determination of reasonable cause.
Request for Formal Adjudication Under the Administrative Procedure Act
    In response to the comment that determinations under 12 U.S.C. 
5514(a)(1)(C) require a hearing on the record, the Bureau notes that 
there is no statutory requirement that the process to exercise the 
Bureau's authority under 12 U.S.C. 5514(a)(1)(C) be a formal 
adjudication with a hearing on the record under the APA. Rather, 12 
U.S.C. 5514(a)(1)(C) states only that the Bureau must provide to a 
respondent ``notice'' and a ``reasonable opportunity to respond.'' Nor 
does Due Process necessitate formal adjudication with a hearing on the 
record in this context. As stated above, the sole consequence of a 
determination that an entity is a covered person that is engaging, or 
has engaged, in conduct that poses risks to consumers with regard to 
the offering or provision of a consumer financial product or service 
under 12 U.S.C. 5514(a)(1)(C) is that such person becomes subject to 
Bureau supervisory authority. Supervision alone does not impose any 
penalty on a person, does not deprive it of any property, and does not 
restrict its ability to engage in a viable business.
    The Bureau has wide discretion in establishing the procedures it 
will adopt to implement 12 U.S.C. 5514(a)(1)(C). The Bureau has sought 
to establish a process that meets the statutory requirement of 
providing a respondent with a notice and a reasonable opportunity to 
respond and that is also fair and efficient. The Bureau believes that a 
formal adjudication with a hearing on the record would unnecessarily 
add complexity to, lengthen, and add to the cost of, the process 
established by the final rule and declines to revise the Proposed Rule 
to require a formal adjudication with a hearing on the record.
Confidentiality of Proceedings
    The Bureau received several comments regarding the confidentiality 
of the process established by the final rule. Some commenters expressed 
the view that all aspects of a proceeding should be confidential, while 
others urged the Bureau to make information

[[Page 40360]]

regarding the entire process available to the public. Preliminarily, 
the Bureau notes that proposed Sec.  1091.105 relating to responses, 
stated that ``documents, records or other items submitted by a 
respondent with a response shall be deemed confidential supervisory 
information under 12 CFR 1070.2(i)(1)(iv).'' After consideration of the 
comments regarding confidentiality, the Bureau agrees that all aspects 
of a proceeding under the final rule relate to the Bureau's supervisory 
process and should be deemed confidential supervisory information under 
12 CFR 1070.2(i)(1).\25\ As noted below, the Bureau therefore revises 
proposed Sec.  1091.115 \26\ to add a new paragraph (c), which states: 
``In connection with a proceeding under this part, including a petition 
for termination under Sec.  1091.113, all documents, records or other 
items submitted by a respondent to the Bureau, all documents prepared 
by, or on behalf of, or for the use of the Bureau, and any 
communications between the Bureau and a person, shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1).''
---------------------------------------------------------------------------

    \25\ See also 12 CFR 1070.2(q) (defining ``supervised financial 
institution'' to mean a ``financial institution that is `or may 
become' subject to the CFPB's supervisory authority'').
    \26\ Section 1091.115 of the final rule appeared as Sec.  
1091.112 in the Proposed Rule.
---------------------------------------------------------------------------

Section 1091.102 Issuance of Notice of Reasonable Cause
    Section 1091.102 relates to the issuance of a Notice of Reasonable 
Cause, which initiates a proceeding that culminates in a determination 
by the Director under Sec.  1091.109 of the final rule, or a 
respondent's voluntary consent to supervision by the Bureau.\27\ 
Section 1091.102 of the Proposed Rule provided that the [initiating 
official] is authorized to issue a Notice of Reasonable Cause stating 
that the Bureau may have reasonable cause to determine that a nonbank 
covered person is engaging, or has engaged, in conduct that poses risks 
to consumers with regard to the offering or provision of consumer 
financial products or services and, consistent with 12 U.S.C. 
5514(a)(1)(C), that such Notice shall be based on complaints collected 
by the Bureau, or on information from other sources. The Bureau 
received several comments on proposed Sec.  1091.102 discussed below.
---------------------------------------------------------------------------

    \27\ A final determination may result in an order bringing a 
person under the Bureau's supervisory authority based on a 
reasonable-cause determination, or may result in a notice indicating 
that a person will not be so brought under the Bureau's supervisory 
authority.
---------------------------------------------------------------------------

Concerns Regarding Use of ``May Have'' Reasonable Cause To Determine 
Statement in Notice
    The Bureau received a few comments expressing concern that, under 
the Proposed Rule, a Notice of Reasonable Cause would state that the 
Bureau ``may have'' reasonable cause to determine that a nonbank 
covered person is engaging, or has engaged, in conduct that poses risks 
to consumers with regard to the offering or provision of consumer 
financial products or services. One commenter interpreted this language 
in the Proposed Rule as not requiring the Bureau to articulate a 
``reasonable cause'' in a Notice. This commenter asserted that under 
the Proposed Rule it is enough that Bureau staff merely ``suppose, 
surmise, or conjecture'' that there might possibly be a `reasonable 
cause' to assume risky conduct.'' Similarly, another commenter argued 
that the ``may have reasonable cause'' standard is vague and not in 
accordance with the statute.
    In response, the Bureau notes that these commenters appear to be 
confusing the Bureau's basis for issuing a Notice with the reasonable 
cause necessary to support a final determination of reasonable cause 
under 12 U.S.C. 5514(a)(1)(C). The Bureau clarifies that the initiating 
official issues a Notice indicating that there ``may'' be reasonable 
cause to determine that a person's activities pose risks to consumers 
but that a reasonable-cause determination will not be made until the 
Director makes a final determination. At the final stage of the process 
set forth in the final rule, the Director will issue a final 
determination indicating that there ``is'' reasonable cause to 
determine that a nonbank covered person's activities pose risks to 
consumers, or a notice stating that the person will not be made subject 
to the Bureau's authority. The Dodd-Frank Act provides that the 
Bureau's reasonable-cause determinations under 12 U.S.C. 5514(a)(1)(C) 
must follow notice and a reasonable opportunity to respond.\28\ 
Accordingly, the Bureau believes it would not be appropriate to state 
unequivocally in a Notice that the Bureau ``has reasonable cause to 
determine'' that the respondent's conduct poses risks to consumers. The 
Bureau therefore declines to revise the proposed content of the Notice 
to state that the Bureau ``has,'' as opposed to ``may have,'' 
reasonable cause to determine that an entity's conduct poses risks to 
consumers.
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 5514(a)(1)(C) (``[T]he Bureau has reasonable 
cause to determine, by order, `after' notice to the covered person 
and a reasonable opportunity for such covered person to respond. . . 
.'' (emphasis added)).
---------------------------------------------------------------------------

    The Bureau also received a comment requesting that the Bureau meet 
with a respondent prior to issuing a Notice to that respondent. The 
commenter recognized that this may not be feasible in every instance. 
The Bureau agrees with the commenter that meeting with a potential 
respondent prior to sending out a Notice may not be feasible in some, 
and perhaps many, instances, and as stated above, one of the purposes 
of the final rule is to establish uniform procedures applicable to all 
persons potentially subject to the final rule that the Bureau intends 
to follow in implementing its authority under 12 U.S.C. 5514(a)(1)(C). 
Moreover, the Bureau believes that the commenter's suggestion would add 
an additional layer to the process established by the final rule that 
would unnecessarily lengthen and complicate the process. Accordingly, 
the Bureau declines to revise the Proposed Rule to adopt a provision 
requiring the Bureau to meet with a prospective respondent prior to 
issuing a Notice.
    For the reasons discussed above, the Bureau adopts Sec.  1091.102 
as proposed with minor technical revisions for consistency.
Section 1091.103 Contents of Notice
    Section 1091.103 details the required contents of a Notice of 
Reasonable Cause. To ensure that a respondent would have a reasonable 
opportunity to address the substance of a Notice, proposed Sec.  
1091.103 provided that a Notice must set forth, among other things, the 
basis for the assertion that the Bureau may have reasonable cause to 
determine that a respondent is a nonbank covered person that is 
engaging, or has engaged, in conduct that poses risks to consumers with 
regard to the offering or provision of consumer financial products or 
services.
    Proposed Sec.  1091.103 further stated that a Notice must contain a 
statement informing a respondent of how to file a timely response, and 
of the required contents of a response. Under proposed Sec.  1091.103, 
a Notice would be required to inform a respondent that he or she may 
request a supplemental oral response, and that a respondent may, in 
lieu of filing a response, voluntarily consent to the Bureau's 
supervisory authority under 12 U.S.C. 5514 by filing an executed form 
of consent agreement attached to a Notice served on a respondent. 
Proposed Sec.  1091.103 further provided that a Notice shall inform a 
respondent that failure to respond, as set forth in a Notice, may 
result in a determination by the Director without

[[Page 40361]]

further opportunity for the respondent to respond. As set forth in 
proposed Sec.  1091.103, a Notice would also inform a respondent of the 
various timelines associated with the process.
    The Bureau received a number of comments on the proposed contents 
of a Notice and related issues discussed below.
Information in, and Items Accompanying, a Notice
    Several commenters recommended that a Notice should include copies 
of the complaints collected by the Bureau and/or the information from 
other sources that were used in the decision to issue the Notice. One 
commenter stated that the Bureau should include in the Notice a 
statement detailing what specific risk to consumers is under 
consideration, what conduct the respondent is engaging in, or has 
engaged in, that the Bureau alleges poses risks to consumers, and how 
those risks are increased by the respondent's alleged conduct. This 
commenter asked the Bureau to release a model Notice. Another commenter 
recommended that the Bureau provide copies of underlying complaints 
with a Notice, asserting that without a copy of the underlying 
complaint, ``a respondent wishing to object or to accede to the notice 
will have limited information upon which to make a reasonably informed 
decision.''
    Some other commenters asked the Bureau to revise the Proposed Rule 
to provide greater detail regarding the items relied on to issue a 
Notice of Reasonable Cause. One commenter recommended that the Bureau 
include detailed information regarding any consumer complaints, in 
addition to copies of the complaints, together with the Notice of 
Reasonable Cause. Another commenter urged the Bureau to require that 
the Notice state with specificity the basis for the Bureau's assertions 
and include an inventory of any complaints and other information relied 
upon by the Bureau. This commenter asserted that such a showing is 
crucial to a respondent's ability to prepare adequately its response 
and assemble ``documents, records or other evidence'' in support of its 
position.
    Similarly, a commenter requested that the Bureau explain how much 
detail it expects to provide in the Notice, as well as the level of 
detail it expects to receive in response. The commenter asked the 
Bureau to clarify whether it intends to include in the Notice detailed 
information regarding the consumer complaints, if any, on which the 
Bureau bases its assertions, and whether it will provide copies of any 
such complaints together with the Notice of Reasonable Cause. The 
commenter further asked whether the Bureau expects respondents 
specifically to address each complaint and any resolution thereof in 
its response.
    The Bureau also received several comments taking issue with 
proposed Sec.  1091.103(c), which stated that ``[n]othing in this 
section shall be construed as requiring the Bureau to produce any 
documents or information to a respondent other items than as set forth 
in this section.'' One commenter stated that this provision ``seems 
unreasonable,'' and ``in the interest of open and honest 
communication,'' urged the Bureau to ``be willing to share any and all 
relevant information with respondents.'' Another commenter asserted in 
connection with this provision that the good faith efforts of nonbank 
covered persons will continue to be frustrated by the lack of clearly 
defined requirements and expectations in the rule. Similarly, the 
Bureau received a comment suggesting a specific revision to Sec.  
1091.103(c) to require the Bureau to produce to a respondent documents 
or information ``as otherwise relevant, material and necessary for 
respondent to prepare its response to the Notice.'' This commenter 
encouraged the Bureau to include in the final rule a process by which a 
respondent, upon receiving a Notice of Reasonable Cause, may request 
additional relevant information from the Bureau and requested the 
establishment of a reasonable time frame in which the Bureau must 
provide such additional information or, conversely, state with 
specificity the reason for its denial of the request.
    The Bureau does not believe that a reasonable opportunity to 
respond requires the Bureau to provide copies of all complaints or 
information from other sources relied on by the Bureau in issuing a 
Notice along with a Notice. Respondents should typically already have, 
or have access to, copies of any complaints, pleadings, judicial 
opinions, or independent studies on which the initiating official may 
rely in issuing a Notice.\29\ Other information that the initiating 
official might rely on in issuing a Notice could contain confidential 
or other personally identifiable information regarding consumers or 
others.
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    \29\ It is the Bureau's policy to place complaints in the public 
database 15 days after forwarding the complaint to the company in 
question. 77 FR 37558, 37568 (June 22, 2012). Thus, typically the 
company should already have copies of the complaints that the Bureau 
might rely on in issuing a Notice.
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    For the same reasons, the Bureau does not believe it is necessary 
or appropriate to provide respondents with the right to request 
additional information from the Bureau. The final rule, moreover, 
prohibits discovery and permitting such requests would not be 
consistent with the informal, expeditious nature of the proceedings. 
Thus, the Bureau rejects the commenter's request that the Bureau add 
language to Sec.  1091.103(c) requiring the Bureau to produce items 
``as otherwise relevant, material and necessary for respondent to 
prepare its response to the Notice.''
    Nevertheless, after consideration of the comments received, the 
Bureau agrees that it may be helpful to respondents to include in a 
Notice more information on items that the initiating official relied on 
in issuing a Notice than was required under the Proposed Rule. Thus, 
the Bureau revises the Proposed Rule to require under the final rule 
that the Notice set forth not just a ``description of the basis'' for, 
but also a ``summary of the documents, records, or other items relied 
on,'' by the initiating official in issuing a Notice. Accordingly, as 
finalized, Sec.  1091.103(a)(1) reads: ``A Notice of Reasonable Cause 
shall contain the following: A description of the basis for the 
assertion that the Bureau may have reasonable cause to determine that a 
respondent is a nonbank covered person that is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services, 
including a summary of the documents, records or other items relied on 
by the initiating official to issue a Notice. Such summary will be 
consistent with the protection of sensitive information, including 
compliance with federal privacy law and whistleblower protections.''
Statement of Verification
    Another commenter suggested that a Notice include a ``statement of 
verification undertaken by the Bureau . . . of . . . the specific harms 
and risks that the Bureau believes the entity's activities pose to 
consumers,'' which should also ``state the basis for the Bureau's 
belief that such conduct will recur if the assertion is based upon past 
but not ongoing activities.''
    Under the final rule, the Notice must describe the basis for the 
assertion that the Bureau may have a ``reasonable cause to determine'' 
that the conduct of a nonbank covered person poses risks to consumers 
and provide a summary of the documents, records, or other items relied 
on by the initiating official in issuing a Notice. Accordingly, the 
Notice would describe the risks the Bureau believes the respondent's

[[Page 40362]]

conduct poses to consumers as requested by the commenter. However, for 
the reasons discussed in the section-by-section analysis of Sec.  
1091.102 above, the Bureau declines to include provisions in the final 
rule requiring the Bureau to verify specific harms and risks on which a 
Notice is based, or to conclude where past conduct forms the basis for 
a Notice that such conduct is likely to recur.
Notice Regarding Parallel Proceedings
    Another commenter mistook the Proposed Rule's Notices of Reasonable 
Cause for notices that might be given at the outset of a civil 
investigation or examination. Accordingly, this commenter claimed that 
the Bureau should, in accordance with the commenter's interpretation of 
the Fifth Amendment and understanding of the approach taken by the SEC, 
revise the Proposed Rule to require that a Notice of Reasonable Cause 
``inform civil investigative targets of their Constitutional rights.'' 
Contrary to the commenter's assumption, a Notice would not be used to 
initiate a civil investigation or an examination. A Notice, rather, 
would commence a proceeding solely to determine whether a nonbank 
covered person would be made subject to the Bureau's supervisory 
authority on the basis of a reasonable-cause determination. Moreover, a 
person receiving a Notice would not be compelled to respond or 
otherwise act in response to such a Notice. Accordingly, the Fifth 
Amendment concerns raised by the commenter are not relevant to the 
issuance of Notices of Reasonable Cause under the Proposed Rule. In any 
event, nothing in the Proposed Rule would preclude the Bureau from 
providing additional information to those persons who receive a Notice 
of Reasonable Cause.\30\ The Bureau therefore declines to revise the 
Proposed Rule as recommended by the commenter.
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    \30\ The Bureau takes no position here whether and in what 
circumstances it would be obligated under the Fifth Amendment to 
provide additional information to recipients of notices initiating a 
civil investigation or supervisory activity.
---------------------------------------------------------------------------

Revision to Address Confidentiality of Proceedings
    As discussed above, after consideration of the comments regarding 
confidentiality, the Bureau agrees that all aspects of a proceeding 
under the final rule relate to the Bureau's supervisory process and 
therefore qualify as confidential supervisory information under 12 CFR 
1070.2(i)(1).\31\ Consistent with new Sec.  1091.115(c), the Bureau has 
therefore revised proposed Sec.  1091.103(a) to add a new subparagraph 
(vii), which states: ``In connection with a proceeding under this part, 
including a petition for termination under Sec.  1091.113, all 
documents, records or other items submitted by a respondent to the 
Bureau, all documents prepared by, or on behalf of, or for the use of 
the Bureau, and any communications between the Bureau and a person, 
shall be deemed confidential supervisory information under 12 CFR 
1070.2(i)(1).''
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    \31\ See also 12 CFR 1070.2(q) (defining ``supervised financial 
institution'' to mean a ``financial institution that is `or may 
become' subject to the CFPB's supervisory authority'').
---------------------------------------------------------------------------

Section 1091.104 Service of Notice
    Section 1091.104 sets forth the procedures governing service of a 
Notice of Reasonable Cause. Proposed Sec.  1091.104 provided that a 
Notice of Reasonable Cause shall be served pursuant to methods 
including electronic transmission (where a respondent has consented), 
personal service, First Class U.S. Mail, or commercial courier or 
express delivery service. Proposed Sec.  1091.104 further required that 
the [initiating official] submit a copy of a Notice and any attached 
documents, records or other items to the [Associate] Director, who 
shall proceed as set forth in the Proposed Rule.
Rule 4 of the Federal Rules of Civil Procedure
    The Bureau received several comments pertaining to the proposed 
service requirements. One commenter recommended that the Bureau use the 
rules for service set forth in Rule 4 of the Federal Rules of Civil 
Procedure (FRCP 4). Specifically, this commenter objected to service of 
notice on an administrative employee or other person at a respondent's 
office, or through Certified Mail or a third-party commercial carrier. 
This commenter also asserted that the Bureau should enable entities to 
designate agents and officers to receive service of notice, which is 
allowed under FRCP 4.
    The Bureau believes that service by the methods set forth in 
proposed Sec.  1091.104 is reasonably calculated to provide to a 
respondent the Notice commencing a proceeding under the Proposed Rule. 
The manner of service proposed incorporates many of the provisions of 
FRCP 4. For example, in the case of a corporation or other business 
entity, the Proposed Rule incorporates the provision of FRCP 4 that 
permits service by delivery to an officer, managing or general agent, 
or other agent authorized by appointment or law to receive such a 
notice. In most instances this will mean serving an entity's registered 
agent.
    Where the Proposed Rule differs from FRCP 4, such as by permitting 
service by Registered Mail or next-day courier, the Proposed Rule is 
consistent with the procedural rules of practice of other Federal bank 
regulators.\32\ For example, the Federal Deposit Insurance Corporation 
(FDIC) Rules of Practice and Procedure permit service on a person that 
has not appeared in a proceeding by the following methods: ``(i) By 
personal service; (ii) If the person to be served is an individual, by 
delivery to a person of suitable age and discretion at the physical 
location where the individual resides or works; (iii) If . . . a 
corporation or other association, by delivery to an officer, managing 
or general agent, or to any other agent authorized by appointment or by 
law to receive service . . . and the statute so requires, by also 
mailing a copy to the party; (iv) By registered or certified mail 
addressed to the party's last known address; or (v) By any other method 
reasonably calculated to give actual notice.'' \33\
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    \32\ In some instances, FRCP 4, by reference to applicable state 
law, may allow service by Registered Mail, next-day courier, or 
other means not explicitly provided for in FRCP 4.
    \33\ 12 CFR 308.11(c). See also 12 CFR 263.11(c)(2) (Federal 
Reserve System, Rules of Practice); 12 CFR 19.11(c)(2) (Office of 
the Comptroller of the Currency (OCC), Uniform Rules of Practice and 
Procedure); 12 CFR 1081.113(d) (Bureau Rules of Practice for 
Adjudication Proceedings).
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Service on Persons Registered With the Bureau
    Additionally, two commenters requested clarification on what it 
meant to be registered with the Bureau under Sec.  1091.104(a)(3). The 
Bureau notes that the provision in the Proposed Rule stating that 
``[n]otice may be served on a person currently registered with the 
Bureau'' by using ``the most recent business address shown on the 
person's registration form,'' was included to permit such service if 
the Bureau adopts a rule requiring nonbank covered persons to register 
with the Bureau. The Bureau anticipates that to the extent a 
registration rule is adopted, a person required to register with the 
Bureau would be required to have its business address on file with the 
Bureau. In such a case, the Bureau believes that it should be able to 
rely on the address provided by a registrant in serving a Notice. 
Although a registration rule has not been adopted, the Bureau is 
including this provision in the final rule to avoid the need to revise 
the final rule

[[Page 40363]]

to add such a provision should the Bureau adopt a registration rule in 
the future.
Waiver of Service
    The same two commenters also requested clarification on what a 
waiver of service under Sec.  1091.104(a)(6) would entail and requested 
that the Bureau require waivers to be in writing and given by persons 
``upon whom the Notice would be served.'' First, to clarify what waiver 
entails under proposed Sec.  1091.104(a)(6), a waiver of service would 
permit the Bureau to provide a Notice by ``First Class Mail or other 
reliable means.'' There may be a number of ``other reliable means'' to 
provide a Notice, but one example would be delivering it to a 
designated person not otherwise authorized to accept service. Second, 
the Bureau agrees with the commenters' suggestion that service should 
be waived only in writing, and by the person ``upon whom the Notice 
would be served.'' Accordingly, to make this explicit, the Bureau has 
revised proposed Sec.  1091.104(a)(6) to read: ``In lieu of service as 
set forth in paragraph (a)(1) or (a)(2) of this section, the person may 
be provided a copy of a Notice by First Class Mail or other reliable 
means if a written waiver of service is obtained from the person to be 
served. In the case of a respondent that is not a natural person, a 
written waiver may be provided by an officer, managing or general 
member, or partner authorized to represent the respondent.''
    For the reasons discussed above, the Bureau adopts Sec.  1091.104 
as proposed, other than the revisions to subsection (a)(6) relating to 
waiver of service as discussed above and other minor technical 
revisions for consistency.
Section 1091.105 Response
    Section 1091.105 sets forth the requirements for responding to a 
Notice of Reasonable Cause, including the time limit to respond, 
content of a response, default for failure to respond, and waiver of 
the right to submit items or make arguments not included in the 
response. The Bureau received a number of comments on proposed Sec.  
1091.105.
Time Limit
    Proposed Sec.  1091.105 provided that any response must be filed 
within 20 days of service of a Notice. The Bureau received several 
comments requesting a longer time period to file a response, ranging 
from a response deadline of 30 to 120 days. Generally these commenters 
asserted that a 20-day response deadline is not sufficient for a 
respondent to respond to a Notice. One commenter suggested either using 
the Federal Rules of Civil Procedure as a model for setting deadlines, 
or the method prescribed by the Bureau for contesting consumer 
complaints (20 days to provide notice that the entity will challenge a 
complaint, and 60 days to provide a complete response). Another 
commenter stated that 20 days is an unreasonably short time limit given 
that there is no limit on the content, accuracy, and/or length of a 
Notice of Reasonable Cause. Another commenter asserted that responding 
to a Notice of Reasonable Cause would require engaging counsel, 
locating and reviewing potentially relevant documents, interviewing 
personnel, drafting a written response, compiling documents to 
accompany the response, internally approving the response, and 
submitting the response--activities that the commenter asserted could 
not be completed in 20 days. One commenter proffered that an extended 
period is needed to facilitate collection of data and material from 
remote locations. A few commenters implied that it would be unfair if 
the Bureau could review a response for longer than a respondent had to 
prepare the response. One commenter asserted that 20 days is too short 
given that this period of time would include any intermediate Saturday, 
Sunday, and Federal holiday. Still other commenters asserted that it 
would be unfair to set a time limit shorter than the limits for 
responding to government subpoenas, pre-examination audits, civil 
discovery requests, or notices of proposed rulemaking. Finally, one 
commenter asserted that the 20-day window did not provide for an 
opportunity to be heard at a meaningful time and in a meaningful 
manner. In a related comment, a commenter requested a mechanism by 
which the response time could be restarted if the Bureau raised a new 
material issue or assertion after issuance of a Notice.
    In proposing a 20-day response time, the Bureau attempted to ensure 
a fair process that provides respondents a reasonable opportunity to 
respond, but that is also efficient and streamlined. The Bureau notes 
that a 20-day response period is consistent with the rules of practice 
of other Federal banking regulators for certain administrative actions 
that impose similar burdens on the respondent in terms of consultation 
with counsel, review and compilation of documents, and preparation of a 
written response.\34\ The Bureau, however, understands the commenters' 
concerns that 20 days to respond to a Notice may not be sufficient in 
some instances and believes that the response time can be moderately 
increased without undermining the goal that the process be streamlined 
and efficient. Thus, the Bureau is adopting a revision to the Proposed 
Rule extending the response time from 20 to 30 days. The Bureau 
believes that 30 days should generally provide a respondent sufficient 
time to respond.\35\ Moreover, the final rule provides certain 
flexibility in response time. Section 1091.115(a) of the final rule 
adopts the proposed provision stating that an extension of a time limit 
may be granted at the discretion of the Associate Director or Director, 
as applicable, for good cause shown, and the Bureau has deleted a 
provision in the Proposed Rule that directed the Associate Director or 
Director to strongly disfavor extension requests. The Bureau believes 
that the increase in the response deadline from 20 to 30 days, coupled 
with the increased flexibility for the Associate Director or Director 
to grant an extension for good cause shown, should address the 
commenters' concerns and provide respondents sufficient time to respond 
to a Notice without undermining the goal of establishing a streamlined 
and efficient process for making determinations under 12 U.S.C. 
5514(a)(1)(C). Finally, the Bureau agrees with the comment that 
additional time would be warranted were the Bureau to raise a new 
material basis for issuing a Notice that was not fairly within the 
scope of the initial Notice. The Bureau believes, however, this result 
was evident under the Proposed Rule, which contemplates that a response 
be responsive to the Notice. Thus, the Bureau does not believe that a 
revision to the Proposed Rule is necessary to address this comment.
---------------------------------------------------------------------------

    \34\ See 12 CFR 308.19(a) (FDIC Rules of Practice and 
Procedure); 12 CFR 263.19(a) (Federal Reserve System Rules of 
Practice for Hearings); 12 CFR 19.19(a) (OCC Rules of Practice) see 
also 12 CFR 1081.201(a) (Bureau's Rules of Practice for Adjudication 
Proceedings, providing a 14-day deadline to submit an answer to a 
notice of charges).
    \35\ The Bureau notes for example that, as distinguished from 
its rules of practice, the Board of Governors of the Federal Reserve 
provides 30 days for submitting a written response to a preliminary 
``control'' determination under the Bank Holding Company Act. 
Control determinations often involve complex issues of fact and law. 
See 12 CFR 225.31(b) (providing that if a person wishes to contest a 
preliminary control determination the person may file a response 
within 30 days).
---------------------------------------------------------------------------

Content of Response
    Section 1091.105(b) sets forth the requirements relating to the 
content of a response. Proposed Sec.  1091.105(b) provided that a 
respondent could

[[Page 40364]]

respond to a Notice of Reasonable Cause either by contending that it is 
not a nonbank covered person that is engaging, or has engaged, in 
conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services (proposed Sec.  
1091.105(b)(1)-(2)), or by voluntarily consenting to the Bureau's 
supervisory authority under 12 U.S.C. 5514 (proposed Sec.  
1091.105(b)(5)). Where a respondent wished to contest the assertions in 
a Notice, proposed Sec.  1091.105(b) required that the response: (1) 
Set forth the basis for a respondent's contention that the respondent 
should not be subject to supervision pursuant to 12 U.S.C. 
5514(a)(1)(C); (2) include all records, documents, or other items upon 
which a respondent relies; (3) include any request for a supplemental 
oral response to present oral arguments; and (4) include an affidavit 
signed by the respondent attesting that the information contained in 
the response is true, accurate, and without any omission that would 
cause the response to be materially misleading.
    One commenter requested that the Bureau permit entities to request 
a supplemental oral response after submitting the written response but 
within 14 days of that submission. The Bureau believes that the 
extension of the written response period from 20 to 30 days 
sufficiently satisfies the commenter's request for an extension of time 
to request a supplemental oral response. Under the commenter's 
requested time frame, a respondent would have 34 days to determine 
whether it wanted a supplemental oral response, while under the final 
rule, the respondent will have 30 days to make this determination. 
Therefore the Bureau declines to revise the final rule to allow 
respondents to submit a request for a supplemental oral response after 
submitting a written response.
    Additionally, in response to comments relating to the 
confidentiality of the overall process established by the final rule, 
as discussed in the section-by-section analysis of Sec.  1091.103(a), 
the Bureau has added Sec.  1091.115(c), which addresses the issue of 
confidentiality for the entire rule. Consequently, the Bureau has 
deleted from the final rule the second sentence of proposed Sec.  
1091.105(b)(2) relating to confidential supervisory information, which 
has been rendered superfluous by the addition of Sec.  1091.115(c) to 
the final rule.
    Further, the Bureau notes that it is revising proposed Sec.  
1091.105(b)(3) to permit respondents to request either an in-person or 
telephonic supplemental oral response in the written response. The 
Proposed Rule had provided only for a telephonic supplemental oral 
response unless the [Associate] Director directed that it be conducted 
in some other manner. The Bureau is making this revision to address 
comments received regarding proposed Sec.  1091.106 discussed below.
Waiver of Right To File Response
    Proposed Sec.  1091.105(c) provided that the failure of a 
respondent to file a response within the required time period would 
constitute a waiver of the respondent's right to file a response and 
would authorize the Director to issue a decision and order.
    One commenter asserted that the compressed 20-day time frame to 
respond and the provision for default for failing to respond could 
unduly disadvantage persons or entities that least expect to be subject 
to federal financial services regulation. This commenter urged the 
Bureau to give appropriate regard to procedural fairness. The Bureau 
has carefully considered procedural fairness and believes that the 
waiver provision is appropriate. A key purpose of establishing 
procedures to implement 12 U.S.C. 5534(a)(1)(C) is to set appropriate 
deadlines to allow for an efficient resolution of a matter. The Bureau 
believes that a reasonable and fair way to enforce the Notice-response 
deadline is to make the consequence of failing to respond within the 
allotted time the waiver of the right to respond. Moreover, the removal 
of the waiver provision from the final rule could undermine the process 
established by the rule by effectively rendering the timing 
requirements unenforceable. The Bureau further believes that the 
increase in the response time period under the final rule from 20 to 30 
days, as well as the revision to the final rule to give the Associate 
Director or Director increased flexibility to grant an extension for 
good cause shown, as discussed above, should alleviate the commenter's 
concern.
Waiver of Right To Raise an Issue or Submit Items
    Proposed Sec.  1091.105(d) stated that the failure to raise timely 
an issue in, or submit records, documents, or other items with, the 
response constitutes a waiver of a respondent's right to raise the 
issue, or submit the records, documents, or other items, at any future 
stage of consideration of the matter and in any petition for judicial 
review. Several commenters objected to this waiver provision; one 
stated that the provision ``violates fundamental fairness,'' another 
stated that it is ``not equitable.'' A few commenters expressed concern 
that this provision, coupled with the 20-day response time limit, was 
too onerous and could have serious consequences for respondents.
    One commenter, while generally agreeing with the need for a waiver 
provision, stated that it is possible that information relevant to the 
Bureau's evaluation may come to the respondent's attention subsequent 
to submitting the initial response even when the respondent has, for 
example, conducted appropriate due diligence in compiling documents, 
searching electronic databases, and conducting interviews. This 
commenter urged the Bureau to revise Sec.  1091.105(d) by including a 
provision stating that ``a respondent shall not be deemed to have 
waived its right to submit relevant information when a respondent can 
demonstrate to the satisfaction of the [Associate] Director or the 
Director that such information could not have reasonably been 
discovered at the time that petitioner submitted its [response to a 
Notice].'' Another commenter asked the Bureau to extend the time period 
for responding and/or permit extensions of time or allow respondents to 
submit supplemental materials within a reasonable time after a 
supplemental oral response, if requested. Similarly, one commenter 
expressed the concern that a respondent failing to raise an issue 
within the proposed 20-day response deadline would risk waiving the 
ability to defend itself on the issue. This commenter requested a 
longer process that would require four, instead of two, steps: the 
Notice of Reasonable Cause, the response, a Bureau answer setting forth 
its analysis of the response, and a respondent's reply to that 
subsequent Bureau answer--together with an additional 20 or 30 days 
added to the deadline.
    As stated earlier, the final rule sets forth a process only for 
determining whether the Bureau has supervisory authority over a person 
pursuant to 12 U.S.C. 5514(a)(1)(C). A determination resulting in an 
order for supervision under the final rule does not constitute a 
finding of a violation of Federal consumer financial law. As such, the 
ramifications of the waiver provision are limited. By failing to raise 
an issue or argument in a response, covered persons do not waive under 
the final rule any right to use arguments or evidence to rebut a claim 
of a violation of law during the supervision process or any potential 
collateral enforcement action.
    As stated in the supplementary information to the Proposed Rule, 
the Bureau continues to believe that the proposed waiver provision is 
necessary

[[Page 40365]]

to remove any incentive for a respondent to wait until after filing a 
response, such as at a supplemental oral response or during judicial 
review, to raise an argument or present documents or other information 
for the first time. The waiver is intended to help ensure that the 
Bureau is aware of all relevant issues upon which a respondent wishes 
to rely at the earliest opportunity before reaching a 
determination.\36\ Including the waiver provision is within the 
Bureau's broad discretion in formulating the informal procedures set 
forth in the final rule. Consequently, the Bureau declines to delete 
the waiver provision. The Bureau believes, however, that by increasing 
the response time limit under the final rule from 20 to 30 days and by 
revising the final rule to provide increased flexibility for the 
Associate Director or Director to grant an extension for good cause 
shown, it has reasonably addressed the commenters' core concerns. Nor 
is the Bureau persuaded by the commenters' contention that an exception 
to the waiver provision is necessary where information relevant to the 
Bureau's evaluation purportedly could not have reasonably been 
discovered until after the initial response is provided. The documents, 
records, or other items that respondents may wish to rely on are types 
that should reasonably be available to respondents, such as product or 
service information, promotional materials, transactional, account, or 
financial information, and policies or procedures. Additionally, the 
Bureau believes that the recommended additional layers of procedure 
requested by commenters (i.e., a Bureau answer to a response and a 
respondent's reply to such answer) is not necessary to reduce the risk 
of waiver and would needlessly complicate and lengthen the informal 
process set forth in the final rule.
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    \36\ 77 FR 31230 (May 25, 2012).
---------------------------------------------------------------------------

    Expressing a different concern, a commenter stated that the waiver 
provision incentivizes respondents to submit more information than is 
necessary to preserve arguments, frustrating efficiency. The Bureau 
believes that the commenter overstates the risks that the waiver 
provision will cause respondents to submit extraneous or unnecessary 
information in response to a Notice. The Bureau believes that 
respondents generally will include with their responses such records, 
documents, or other items that they believe relevant to supporting 
their substantive positions; the Bureau believes that documents 
pertaining to arguments a respondent wishes to preserve will generally 
be relevant to a determination under the final rule. Also, the Bureau 
notes that respondents that wish to frustrate the process under the 
final rule by supplying unnecessary or extraneous information in 
response to a Notice may do so even in the absence of a waiver 
provision. Moreover, the Bureau believes that on balance the waiver 
provision will enhance, rather than frustrate, the efficiency of the 
process established by the final rule. It would be highly inefficient 
and disruptive to the process to permit the introduction of additional 
evidence or arguments at any point during a proceeding.
    Another commenter asserted that the waiver provision conflicts with 
the exhaustion of administrative remedies doctrine because, according 
to that doctrine, courts deem arguments waived on judicial review that 
have not first been raised before an administrative agency on 
``administrative appeal,'' and the waiver provision under Sec.  
1091.105(d) might result in waiver of an argument ``prior to an 
administrative review of the underlying merits of the claim, well 
before appeal.''
    Contrary to the commenter's contention, the proposed waiver 
provision is fully consistent with the doctrine of exhaustion of 
administrative remedies. This doctrine generally requires that ``[o]ne 
challenging an agency decision must exhaust all administrative remedies 
before seeking judicial review.'' \37\ Moreover, ``[r]elated is the 
requirement, often included under the exhaustion doctrine, that one 
must raise issues with the agency or lose the right to challenge those 
issues on review.'' \38\ The doctrine of exhaustion of administrative 
remedies does not preclude an agency from specifying the time and 
manner in which issues must be raised before the agency, including 
prior to any administrative appeal, or from deeming arguments waived 
that are not raised consistent with such rules, even if this waiver 
precludes consideration of the issue in any administrative or 
subsequent judicial review process.\39\ Rather, the doctrine provides 
that any administrative remedy that is available must be exhausted in 
the manner specified by the agency--and consistent with any rules of 
that agency--before a litigant resorts to the courts.
---------------------------------------------------------------------------

    \37\ 33 Charles Alan Wright & Charles H. Koch, Jr., Federal 
Practice and Procedure Sec.  8398 (2d ed.).
    \38\ 33 Charles Alan Wright & Charles H. Koch, Jr., Federal 
Practice and Procedure Sec.  8398 (2d ed.).
    \39\ The Bureau notes that the procedures set forth in the final 
rule do not provide for an administrative appeal process, and that 
such a process is neither required under the APA nor necessary to 
provide respondents a reasonable opportunity to respond.
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    The Bureau therefore declines the commenter's request that the 
waiver provision be deleted or revised.
No Discovery
    Proposed Sec.  1091.105(e) stated that there shall be no discovery 
in connection with the response. A few commenters requested that the 
Bureau provide for discovery at this point in the process. The Bureau 
notes that neither the Dodd-Frank Act nor the APA requires discovery as 
part of the informal process established by the final rule. There are 
many informal agency procedures that do not allow for discovery. For 
example, the FDIC's informal exemption hearings under Section 12(H) of 
the Securities and Exchange Act of 1934 do not permit discovery.\40\ 
Indeed, the final rule provides greater procedural rights to 
respondents than required by the Dodd-Frank Act, which mandates only 
that the Bureau provide respondents with notice and a reasonable 
opportunity to respond.\41\ Among other procedural enhancements, the 
final rule permits a respondent to request a supplemental oral response 
in addition to filing a written response. The final rule also permits a 
respondent to petition for termination of supervision after two years, 
whereas 12 U.S.C. 5514(a)(1)(C) does not expressly provide for 
termination.
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    \40\ 12 CFR 308.142(b)(2).
    \41\ 12 U.S.C. 5514(a)(1)(C).
---------------------------------------------------------------------------

    The Bureau believes that permitting discovery would unnecessarily 
protract the process established by the final rule and increase its 
costs to the Bureau. A longer process would be contrary to the Bureau's 
goal of establishing efficient and streamlined procedures. Instead, a 
Notice under the final rule must contain a description of the basis for 
the assertions giving rise to the Notice. As revised, under the final 
rule, a Notice will also include a summary of the consumer complaints 
and information from other sources relied on by the Bureau in issuing 
the Notice, as described in the section-by-section analysis of Sec.  
1091.103. The Bureau believes that this process will afford a 
respondent a reasonable opportunity to evaluate the assertions in a 
Notice and formulate an appropriate response.
    For the reasons discussed above, the Bureau adopts Sec.  1091.105 
as proposed, other than revisions to: subsection (a), which increases 
the response time limit from 20 to 30 days, and subsection (b)(3), 
which provides that a respondent may specify whether it prefers an in-

[[Page 40366]]

person or telephonic supplemental oral response. Additionally, the 
Bureau deletes the second sentence of proposed Sec.  1091.105(b)(2) 
relating to confidential supervisory information because this sentence 
is redundant in light of new Sec.  1091.115(c) of the final rule.
Section 1091.106 Supplemental Oral Response
    Section 1091.106 sets forth the procedures relating to a 
supplemental oral response. Proposed Sec.  1091.106 provided that a 
respondent may request in its written response under Sec.  1091.105 to 
present a supplemental oral response in support of its assertion that 
it is not a nonbank covered person that is engaging, or has engaged, in 
conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services. Proposed Sec.  
1091.106 also set forth procedures for the conduct of a supplemental 
oral response.
Option for In-Person Supplemental Oral Response
    Proposed Sec.  1091.106(b)(1) provided that a supplemental oral 
response would be conducted by telephone unless the [Associate] 
Director directed that it be conducted in some other manner. The Bureau 
received several comments requesting that the Bureau also grant 
respondents an option for an in-person supplemental oral response. 
These commenters asserted that respondents should have the option to 
take on any level of burden that they wish, and that in-person 
responses facilitate better communication.
    The Bureau proposed that a supplemental oral response generally be 
held by telephone to minimize burdens on both respondents and the 
Bureau. The Bureau provided some flexibility in the Proposed Rule to 
allow for the conduct of supplemental oral responses by other means if 
directed by the [Associate] Director. In light of the comments received 
and on further consideration, however, the Bureau agrees that it would 
be reasonable to provide a respondent with an opportunity for an in-
person supplemental oral response where the respondent wishes to take 
on the additional burden of traveling to the Bureau's headquarters. 
Thus, the Bureau revises proposed Sec.  1091.106(b)(1) to allow a 
respondent to request an in-person supplemental oral response to be 
held at the Bureau's headquarters in Washington, DC. Under the final 
rule, if a respondent requests in its written response a supplemental 
oral response but does not specify whether such response shall be 
conducted via telephone or in person, the supplemental oral response 
will be conducted by telephone unless otherwise directed by the 
Associate Director.
Alternatives to Supplemental Oral Response
    Raising a different issue, a commenter asserted that it is unclear 
whether, as proposed, a supplemental oral response would provide any 
material benefit to a respondent because no discovery is allowed in 
connection with the response and respondents cannot raise issues in the 
supplemental response that were not raised in the written response. 
This commenter recommended that the Proposed Rule be revised either to: 
(1) permit limited discovery, or (2) replace a supplemental oral 
response with a supplemental written response that would allow a 
respondent to present additional relevant issues or documentation 
related to a matter.
    The Bureau notes that a supplemental oral response is optional 
under the final rule. A respondent that does not believe a supplemental 
oral response would be beneficial need not request such a response. 
Contrary to the commenter's contention, however, the Bureau believes 
that in many instances a supplemental oral response would benefit a 
respondent by, for example, providing a respondent with the opportunity 
to present arguments orally directly to the Associate Director and to 
highlight particular aspects of its written response. Moreover, as 
discussed above, the Bureau believes that it would unnecessarily 
lengthen and complicate the final rule to allow for discovery or 
provide a respondent the opportunity to submit a supplemental written 
response, and that such measures are not necessary to ensure that 
respondents have a reasonable opportunity to respond to a Notice. 
Accordingly, the Bureau declines the commenter's suggestion to replace 
a supplemental oral response with discovery or a supplemental written 
response.
Limitations on Conduct of Supplemental Oral Response
    Proposed Sec.  1091.106(b)(2) provided that the [Associate] 
Director may impose limitations on the conduct of a supplemental oral 
response and set forth a non-exhaustive set of such limitations. The 
Bureau received several comments pertaining to the [Associate] 
Director's discretion to set restrictions on the supplemental oral 
response. Two commenters argued that the [Associate] Director should 
not be able to set a time limit on the presentation of a supplemental 
oral response. One of these commenters stated that no time limit was 
necessary given the Bureau's proposed limitation on subjects that may 
be addressed. The other stated that there should be no limitation on 
the submission of additional records, documents, or other items, in 
addition to no limitation on presentation time. Another commenter 
requested that the respondent be provided an opportunity to file a 
written dissent when it believes that the [Associate] Director is 
imposing unreasonable limitations on the supplemental oral response. 
Two commenters proffered that the Bureau should set uniform guidelines, 
similar to the guidelines for a written response that all respondents 
must follow. One of these commenters asserted that if the previous 
recommendation is not adopted, limitations should be developed on a 
case-by-case basis in consultation with the respondent.
    The Bureau believes that permitting the Associate Director to 
impose limitations on the conduct of a supplemental oral response is 
appropriate in an informal proceeding of the type established by the 
final rule and will help ensure that a supplemental oral response 
focuses on a respondent's and initiating official's arguments 
supporting their respective assertions in the matter. It is important, 
for example, that the Associate Director have the flexibility to set 
time limits for these proceedings so that they do not become unwieldy 
or cumbersome and are appropriate in relation to the issues presented.
    At the same time, it would not be consistent with the informal 
nature of the proceedings under the final rule, or the Bureau's 
objective to establish an efficient and streamlined process, to permit 
written dissents or objections on limitations imposed by the Associate 
Director in connection with a supplemental oral response, or in 
connection with any other issue relating to the proceedings. The 
informal procedures under the final rule do not contemplate motions 
practice or objections, and such motions and objections would undermine 
the efficiency of the procedures under the final rule.
    The Bureau also believes that it would not best serve the interests 
of the Bureau or respondents to establish uniform guidelines governing 
the supplemental oral response because the facts and circumstances 
relating to proceedings--such as the size of the respondents or the 
complexity of matters under consideration--may vary significantly 
between matters. The Bureau is concerned that a single approach to

[[Page 40367]]

supplemental oral responses would not permit the flexibility needed to 
efficiently and fairly accommodate the particular circumstances of a 
matter. The Bureau, however, recognizes the need to ensure that 
respondents understand what the process of a supplemental oral response 
will entail. Thus, the Bureau included in proposed Sec.  1091.106(d) a 
requirement that a notice for a supplemental oral response include 
``general information relating to the conduct of an oral response.'' 
Such information would include, for example, time limitations for 
presenting a supplemental oral response.
No Discovery or Witnesses
    Proposed Sec.  1091.106(b)(3) stated that no discovery will be 
permitted, and no witnesses will be called, in connection with a 
supplemental oral response. Several commenters objected to these 
restrictions. However, as discussed above, the Bureau believes that 
this limitation is appropriate given the informal nature of the 
procedures set forth in this Proposed Rule and the Bureau's objective 
to establish an efficient and streamlined process for making 
determinations under 12 U.S.C. 5514(a)(1)(C). The prohibition on 
discovery in this section is consistent with, and supported by, the 
same considerations as those underlying the prohibition on discovery in 
connection with the response under Sec.  1091.105, which is discussed 
in detail in the section-by-section analysis above. The prohibition on 
the calling of witnesses in connection with a supplemental oral 
response is consistent with the overall prohibition on submitting 
additional evidence in connection with a supplemental oral response. If 
a respondent wishes to submit testimony, it may submit written 
testimony under affidavit as part of its response under Sec.  1091.105.
Timing and Waiver for Failure To Participate
    Proposed Sec.  1091.106(d) prescribed the timing of a supplemental 
oral response. Under this proposed section, within 14 days of receiving 
a respondent's request for a supplemental oral response, the 
[Associate] Director shall serve on a respondent a notice advising the 
respondent of the date, time, and general information relating to the 
conduct of a supplemental oral response, with a copy to the [initiating 
official]. To allow a respondent and the [initiating official] 
sufficient time to prepare for a supplemental oral response, and to 
make arrangements to participate, proposed Sec.  1091.106(d) provided 
that a supplemental oral response shall be scheduled not less than ten 
days after the date of such service. Finally, proposed Sec.  
1091.106(g) stated that if a respondent fails to participate in a 
scheduled supplemental oral response, such a failure would constitute a 
respondent's waiver of the opportunity to present a supplemental oral 
response.
    The Bureau received a few comments pertaining to the timing of a 
supplemental oral response. Several commenters requested that the time 
and date of the supplemental oral response be scheduled at a time that 
is convenient for both the Bureau and the respondent. One commenter 
stated that a respondent that fails to participate in a scheduled 
supplemental oral response due to extenuating circumstances should not 
be deemed to have waived the opportunity to participate in a 
supplemental oral response.
    The Bureau believes that it is important that the final rule grant 
the Associate Director discretion to make final decisions pertaining to 
the scheduling of a supplemental oral response. To provide otherwise 
might necessitate burdensome and unwieldy negotiations and would 
infringe unnecessarily on Bureau prioritization. However, the Bureau 
notes that under the final rule, in exercising his or her discretion to 
schedule a supplemental oral response, the Associate Director will take 
into consideration the availability and convenience of a respondent. A 
respondent that is unable to participate in a scheduled supplemental 
oral response for good cause may request an extension. The Associate 
Director may, at his or her discretion, grant an extension ``for good 
cause shown.''
Recording of Supplemental Oral Response
    Proposed Sec.  1091.106(b)(6) provided that a recording of the 
supplemental oral response will be made, and that a respondent may 
purchase a copy or transcript of the recording. The Bureau received a 
few comments regarding recordings and transcripts of the supplemental 
oral response. One commenter asked the Bureau to use a court 
stenographer to reduce the supplemental oral response to writing. 
Another commenter suggested that the Bureau afford respondents the 
opportunity to record the supplemental oral response themselves. 
Additionally, a commenter requested confirmation that the recording of 
the supplemental oral response would be treated as confidential 
supervisory information.
    In response to the comments received, the Bureau notes that it 
intends to use court reporters to record supplemental oral responses 
and has revised Sec.  1091.106(b)(6) of the Proposed Rule to make this 
explicit. The Bureau does not, however, anticipate that it will have 
these recordings transcribed in each instance. Under the final rule, if 
a respondent wishes to purchase a copy of the recording or a transcript 
from the court reporter, it may do so at its own expense. The Bureau 
believes that it is important to have only one official recording (and, 
if produced, transcript) of a supplemental oral response. Thus the 
Bureau declines to revise the Proposed Rule to permit a respondent to 
create its own recording of a supplemental oral response. Finally, the 
Bureau notes that under new Sec.  1091.115(c), transcripts and 
recordings of supplemental oral responses are deemed confidential 
supervisory information.
Other Issues
    The Bureau also received comments requesting clarification on 
whether the supplemental oral response will include a question and 
answer period, or whether the oral responses will simply be a monologue 
performed by the respondent. The Bureau considers a supplemental oral 
response an opportunity for a respondent to present oral arguments in 
support of the respondent's written response. The initiating official 
may also participate in a supplemental oral response to present oral 
arguments supporting the assertions set forth in the Notice of 
Reasonable Cause. The Associate Director may, at his or her discretion, 
ask questions of the respondent and/or initiating official during the 
proceeding.
    Finally, the Bureau received a comment from a consumer group 
expressing its concern that, unlike in the written response, there 
would be no requirement of truthfulness with respect to the 
supplemental oral response. The Bureau notes that an affidavit or 
declaration of truthfulness as required under Sec.  1091.105(b)(4) is 
not warranted in connection with a supplemental oral response because 
no new evidence or witnesses are permitted as part of such response. 
Rather, during a supplemental oral response, a respondent is limited to 
making oral arguments in support of the respondent's written response. 
Thus, it is sufficient that, under the final rule, only the written 
response must be submitted pursuant to Sec.  1091.105(b)(4), under 
affidavit or declaration that it is true and accurate and does not 
contain any omissions that would cause the response to be materially 
misleading.
    For the reasons discussed above, the Bureau adopts Sec.  1091.106 
as proposed,

[[Page 40368]]

other than the revisions to 1091(b)(1) and (6) as described above and 
other minor technical revisions for consistency.
Section 1091.107 Manner of Filing Papers
    Proposed 1091.107 provided for filing of papers other than a Notice 
in a proceeding under the Proposed Rule by electronic transmission 
under such conditions as specified by the [Associate] Director or 
Director. Proposed 1091.107 also authorized other methods of filing and 
service if a respondent demonstrated electronic filing was not 
practicable and the [Associate] Director or Director permitted an 
alternative method of filing or service.
    The Bureau did not receive any substantive comments on this 
proposed provision and adopts Sec.  1091.107 as proposed with minor 
technical revisions for consistency.
Section 1091.108 Recommended Determination
    Section 1091.108 sets forth the procedures relating to the issuance 
of a recommended determination by the [Associate] Director. Proposed 
Sec.  1091.108 provided that the [Associate] Director shall make a 
recommended determination and submit to the Director either a proposed 
order that would bring a respondent within the Bureau's supervisory 
authority under 12 U.S.C. 5514, or a proposed notification containing a 
determination that a respondent is not subject to the Bureau's 
supervisory authority under 12 U.S.C. 5514 on the basis of the 
proceeding. Under proposed Sec.  1091.108(a), if a respondent had not 
voluntarily consented to the Bureau's supervisory authority, and had 
not requested the opportunity to present a supplemental oral response, 
a recommended determination would be required to be made not later than 
45 days from the receipt of a timely-filed response, or not later than 
45 days after the service of a Notice of Reasonable Cause when a 
respondent failed to file a timely response. If a respondent requested 
the opportunity to present a supplemental oral response, a recommended 
determination would be required to be made not later than 90 days after 
the service of a Notice of Reasonable Cause. Proposed Sec.  
1091.108(c)-(e) further set forth the required content of the 
[Associate] Director's recommended determination, and the records, 
documents, and other items that were required to accompany the 
recommended determination sent to the Director by the [Associate] 
Director. Proposed Sec.  1091.108 also provided that if the [Associate] 
Director recommended that the respondent should not be subjected to the 
Bureau's supervisory authority based on the proceedings, such 
recommendation would not have precedential effect and would not prevent 
the issuance of another Notice of Reasonable Cause or a determination 
subjecting the respondent to the Bureau's supervisory authority.
Provision of Recommended Determination to Respondent
    Several commenters requested that the Bureau provide the respondent 
with an exact copy of the recommended determination and all 
accompanying documentation. Some of these commenters recommended that 
the Bureau allow respondents to file objections to a recommended 
determination before the Director makes a final determination. 
Commenters stated that allowing for objections would provide a fairer 
process, provide the Director with the respondent's position before he 
or she makes a final determination, resolve claims in advance of 
judicial review, and correspond with common practice in other informal 
adjudicatory processes.
    The Bureau believes that the procedures for issuing a recommended 
determination set forth in the proposed rule strike the appropriate 
balance between fairness and efficiency. In the Bureau's view, if the 
final rule were to allow a respondent to submit a written objection to 
a recommended determination for the Director's consideration, as 
requested by commenters, then to ensure a fair process, the final rule 
would also need to afford the initiating official the opportunity to 
rebut the objection. The Bureau believes that such a procedure would be 
unwieldy and unnecessarily lengthen and increase the costs of the 
process set forth in the Proposed Rule. The Bureau therefore declines 
to revise the Proposed Rule to require such a procedure. In addition, 
given the limited purpose of the Associate Director's recommended 
determinations under the final rule to guide the final determination of 
the Director, the Bureau believes that it would serve no purpose to 
require the Associate Director to provide a respondent with an exact 
copy of a recommended determination together with all accompanying 
documents at the time these items are submitted to the Director, or to 
allow respondents to object to a recommended determination on the 
record. Accordingly, the Bureau declines to revise the Proposed Rule to 
include such requirements. However, the Bureau believes that a 
respondent should receive a copy of the recommended determination 
(excluding other documents or items transmitted to the Director) at the 
end of the determination process. Therefore, as discussed in the 
section-by-section analysis of Sec.  1091.109(b) below, the Bureau is 
revising that section to add a new subparagraph (5) stating that the 
Director will send to the respondent a copy of the recommended 
determination issued by the Associate Director.
Bureau Deadlines
    One commenter requested clarification regarding the consequences of 
a failure by the Bureau to meet the deadlines set forth in proposed 
Sec.  1091.108. The Bureau addressed this issue in Sec.  1091.112(c) of 
the Proposed Rule (Sec.  1091.115 in the final rule), which states that 
``[d]eadlines for action by the [initiating official], [Associate] 
Director, or the Director established in this part confer no 
substantive rights on respondents.'' This provision reflects the 
Bureau's desire to balance its commitment to establish an efficient and 
streamlined process, with the need to maintain flexibility in meeting 
internal prioritization goals.
Findings of Fact and Conclusions of Law
    A commenter stated that the Proposed Rule should be revised to 
require that recommended determinations set forth specific findings of 
fact and conclusions of law. Although the Proposed Rule did not mandate 
the inclusion of findings of fact and conclusions of law in the 
[Associate] Director's recommended determination, proposed Sec.  
1091.108(d)(2) would have required that a recommended determination 
provide the ``basis'' for a recommendation that the Director issue a 
final determination that there is reasonable cause to determine that 
the respondent is a nonbank covered person that is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services. The 
Bureau believes that this proposed requirement is sufficient to achieve 
a fair process and ensure that the recommended determination contains 
sufficient information to facilitate a final determination of the 
Director. On the other hand, the Bureau does not believe that revising 
the Proposed Rule to impose a requirement that a recommended 
determination include proposed findings of fact and conclusions of law 
would be consistent with the informal nature of the

[[Page 40369]]

procedures set forth in the final rule, or with the limited purpose of 
the Associate Director's recommended determinations under the rule to 
facilitate the final determination of the Director. Such a requirement 
also is not warranted in light of the limited purposes of a 
determination of reasonable cause by the Director under the final rule. 
A proceeding under the final rule would not result in a determination 
that a person violated the law or is subject to penalty, but would 
merely subject such person to the Bureau's supervisory authority.
    For the reasons discussed above, the Bureau adopts Sec.  1091.108 
as proposed with minor technical revisions for consistency.
Section 1091.109 Determination by the Director
    Section 1091.109 governs the procedures relating to the Director's 
issuance of a final determination. Proposed Sec.  1091.109(a) provided 
that, not later than 45 days after receipt of the [Associate] 
Director's recommended determination, the Director shall make a final 
determination by either adopting without revision, modifying, or 
rejecting the [Associate] Director's recommended determination. Under 
the proposed subsection, the Director shall issue to a respondent, with 
copies to the [Associate] Director and [initiating official], a 
decision and order bringing a respondent within the Bureau's 
supervisory authority under 12 U.S.C. 5514, or a notification 
containing the determination that a respondent is not subject to the 
Bureau's supervisory authority under 12 U.S.C. 5514 on the basis of the 
proceeding. Proposed Sec.  1091.109(b) described what a decision and 
order must set forth. Proposed Sec.  1091.109(c) provided that the 
Director may rely on the assistance and advice only of decisional 
employees in reaching a final determination.
Written Analysis Relating to Decision
    One commenter requested that proposed Sec.  1091.109 be modified to 
require the Director to include a written and detailed analysis of the 
reasons supporting his or her final determination, and that the 
Director's determinations should include a description of how the risky 
product or practice can be changed in order to conform with Bureau 
requirements.
    First, the Bureau notes that proposed Sec.  1091.109(b)(3) already 
requires the Director to provide the basis for the Director's decision 
in his or her final determination. The Bureau does not believe that it 
is necessary to revise the Proposed Rule to further require the 
Director to include in a final determination a written and detailed 
analysis of the reasons supporting his or her decision as requested by 
the commenter. To the extent the commenter is suggesting that the final 
rule should be revised to mandate that the Director include in a final 
determination findings of facts and conclusions of law, the Bureau 
declines the recommendation for the reasons discussed above with 
respect to the Associate Director's recommended determination. For the 
foregoing reasons, the Bureau declines to revise the Proposed Rule to 
require a final determination to include the level of detail requested 
by the commenter.
    Second, the Bureau notes that, as stated above, the purpose of the 
final rule is to provide transparency and ensure consistency regarding 
the procedures the Bureau intends to follow in determining whether to 
subject a nonbank covered person to supervision under 12 U.S.C. 
5514(a)(1)(C). As discussed above, it is beyond the scope of this 
procedural rule to define ``risks to consumers'' or to establish 
conduct standards. For similar reasons, it would exceed the scope of 
the final rule to require the Director to include in a final 
determination a description of how a risky product or practice can be 
changed in order to conform to the Bureau's requirements. Moreover, to 
the extent that the Bureau were to provide guidance to a particular 
nonbank covered person regarding its activities, it would do so in the 
context of supervision, not in an order issued by the Director bringing 
a nonbank covered person under the Bureau's supervisory authority. The 
Bureau therefore declines to revise the Proposed Rule to require the 
Director to provide in a final determination a description of how a 
risky product or practice should be changed.
Deferring to State or Other Federal Determinations
    The same commenter also recommended that the final rule allow the 
Director to defer to State or other official determinations on the same 
issue addressed by a Notice of Reasonable Cause, or require the 
Director to explain how the Bureau's position is consistent or 
inconsistent with such outside determinations.
    The Bureau does not believe that requiring the Director to justify 
a final determination in relation to State or other official 
determinations on the same issue is in accord with 12 U.S.C. 
5514(a)(1)(C), which confers on the Bureau the sole authority to make 
reasonable-cause determinations. The Bureau notes, however, that under 
12 U.S.C. 5514(a)(1)(C), the Bureau may base a final determination on 
complaints, as well as on ``information from other sources.'' Such 
information may include, among other things, State or other Federal 
administrative, civil, or criminal actions taken in connection with a 
nonbank covered person. The Bureau further observes that in exercising 
its supervisory authority under 12 U.S.C. 5514(a)(1)(C), it will 
coordinate with State and other Federal agencies as set forth in 12 
U.S.C. 5514(b)(3) and will consider the extent to which the nonbank 
covered person is subject to oversight by State authorities for 
consumer protection pursuant to 12 U.S.C. 5514(b)(2).
Final Agency Action and Judicial Review
    Another commenter recommended that the Bureau expand on proposed 
Sec.  1091.109(d), which stated that a determination by the Director is 
final agency action under 5 U.S.C. 704, and add a separate section to 
the final rule delineating a respondent's opportunities for review of 
an order and decision issued by the Director. The commenter further 
asserted that deeming the final determination of the Director final 
agency action under proposed Sec.  1091.109(d) was in tension with the 
Bureau's assertion that the action was informal.
    The Bureau included proposed Sec.  1091.109(d) to make clear that a 
decision and order issued by the Director pursuant to the informal 
process described in the rule is a final agency action for purposes of 
judicial review. The Bureau does not believe that the informal nature 
of the proceedings conflicts in any way with deeming a final 
determination of the Director final agency action under Sec.  
1091.109(d). Also, in the Bureau's view, inclusion of a section in the 
final rule of procedures relating to judicial review, as requested by 
the commenter, is unnecessary and beyond the scope of the final rule.
Precedential Effect
    Two commenters argued that proposed Sec.  1091.109(a)(2), which 
provided that the issuance of a notification that the respondent will 
not be made subject to the Bureau's supervisory authority ``shall have 
no precedential effect and shall not prevent the issuance of another 
Notice of Reasonable Cause,'' appears to constitute ``double 
jeopardy.'' The Bureau disagrees with the commenters' characterization 
of Sec.  1091.109(a)(2). First, the double jeopardy clause is

[[Page 40370]]

wholly inapplicable to the proceedings under the final rule, which are 
informal administrative proceedings rather than criminal in nature, and 
do not result in a punitive action against the respondent, but rather 
merely subject the respondent to Bureau supervision. Second, the Bureau 
believes that there are good reasons to allow an initiating official to 
issue a Notice of Reasonable Cause to a respondent even after the 
Director has issued a final determination not to subject it to 
supervision under 12 U.S.C. 5514(a)(1)(C) on the basis of a prior 
Notice. For example, the second Notice may be based on new complaints 
or sources of information, or while the conduct at issue in the second 
Notice might be similar to that in the first, the severity of risk to 
consumers may have significantly increased because of the number of 
consumers alleged to be affected. Although such circumstances may be 
rare, the Bureau believes, consistent with the Dodd-Frank Act, that it 
is necessary and appropriate to preserve the possibility of invoking 
the procedures under 12 U.S.C. 5514(a)(1)(C) should such circumstances 
arise. The Bureau therefore declines to revise the Proposed Rule to 
delete the no precedential effect provision.
Making Information Regarding a Proceeding Publicly Available
    The Bureau received one comment requesting that the Bureau publicly 
release information on the entities that receive a Notice of Reasonable 
Cause, the entities under the Bureau's supervision, and the reasoning 
underlying the Bureau's final determinations. The commenter argued that 
such publicity would mitigate the risk that a future Director could 
neglect the obligations of the Bureau. As set forth in Sec.  
1091.115(c), information relating to a proceeding shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1), and the 
Bureau declines to depart from the limitations on public disclosure set 
forth in that provision of the final rule.
    For the reasons discussed above, the Bureau adopts Sec.  1091.109 
as proposed with a revision to specify that the Director will provide 
the Associate Director's recommended determination along with the 
Director's final determination to a respondent, as explained in the 
section-by-section analysis of Sec.  1091.108 above, and with minor 
technical revisions for consistency.
Section 1091.110 Voluntary Consent to Bureau's Authority \42\
---------------------------------------------------------------------------

    \42\ Proposed Sec.  1091.113 has been renumbered Sec.  1091.110 
in the final rule. All references to proposed Sec.  1091.113 in this 
analysis correspond to Sec.  1091.110 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.113(a) provided that nothing in the Proposed 
Rule shall affect a person's ability to voluntarily consent, at any 
time, to the Bureau's supervisory authority under 12 U.S.C. 5514 as 
mutually agreed to by the parties. As proposed, voluntary consent under 
this provision would be an alternative to consenting voluntarily to the 
Bureau's supervision under proposed Sec.  1091.103(b), which provided 
that a respondent could execute and file a consent-agreement form in 
lieu of filing a written response to a Notice. The Bureau did not 
receive any substantive comments on proposed Sec.  1091.113(a) and 
therefore adopts Sec.  1091.113(a) as proposed with minor technical 
revisions for consistency, including renumbering this section as Sec.  
1091.110(a).
Length of Supervision Period Under Consent Agreement; Waiver of 
Judicial Review
    Proposed Sec.  1091.113(b) provided that a person entering into a 
consent agreement waives any right to judicial review of that 
agreement. Additionally, proposed Sec.  1091.113(b) provided that a 
consent agreement that specifies the period during which the person 
will be subject to the Bureau's supervisory authority precludes such a 
person from petitioning for the termination of the consent order during 
the agreed-to supervisory period. The Bureau received several comments 
regarding proposed Sec.  1091.113(b). A few commenters addressed the 
appropriate length of the supervision period required under a voluntary 
consent, or similarly, how much time should pass before a consenting 
nonbank may petition to terminate supervision. One commenter stated 
that consent agreements should require a supervision period lasting at 
least two examination cycles. Another commenter asserted that 
respondents entering into consent agreements should have the right to 
petition for termination of supervision after two years. A commenter 
asked that nonbanks be able to reconsider and void consent agreements 
upon discovering additional evidence. The Bureau received one comment 
stating that requiring respondents to waive their right to judicial 
review of a voluntary consent agreement is not equitable or reasonable. 
Finally, two commenters suggested that proposed Sec.  1091.113 be 
revised to require the inclusion of a confidentiality provision and 
corrective-action plans that, if adhered to, would allow for early 
termination of supervision.
    First, the Bureau notes that a consent agreement is voluntary and 
that, under proposed Sec.  1091.113, most terms of such agreements are 
negotiable. Respondents do not have to enter into a consent agreement 
if they do not wish to accept its terms. Benefits of consent agreements 
include, among others, providing certainty of outcome to the parties 
and reducing the potential burden of going through the full informal 
process established by the final rule.
    Second, proposed Sec.  1091.113 is intended to provide flexibility 
to allow the parties to establish terms acceptable to each. One of the 
negotiable terms under proposed Sec.  1091.113 is the length of the 
supervision period to which a respondent will be subject. This differs 
from the consent agreement form described in Sec.  1091.103(b), which 
automatically establishes a two-year supervision period. The Bureau 
does not believe that it is appropriate to limit this flexibility by 
mandating under proposed Sec.  1091.113 a minimum supervision period, 
such as requiring two examination cycles, or by mandating that a 
respondent be permitted to petition for termination of supervision 
earlier than agreed. For the same reason, the Bureau declines to revise 
proposed Sec.  1091.113 to require correction action plans that, if 
adhered to, would allow for early termination of supervision.
    Third, as discussed above, the Bureau has added Sec.  1091.115(c) 
to the final rule, which provides that information relating to a 
proceeding shall be deemed confidential supervisory information under 
12 CFR 1070.2(i)(1). The Bureau believes that this provision adequately 
addresses the issue of confidentiality and therefore declines to revise 
the Proposed Rule to require the inclusion of a confidentiality 
provision in a consent agreement.
    Fourth, since one of the purposes of entering into a consent 
agreement is to provide certainty to the parties and reduce potential 
burden, the Bureau believes that it is reasonable to require that the 
respondent waive the right to judicial review of the terms of a consent 
agreement, thereby ensuring that the parties do not litigate an 
agreement after it is executed. A respondent that does not want to 
relinquish any possible opportunity for judicial review need not enter 
into a consent agreement. For clarity, the Bureau revises proposed 
Sec.  1091.113(b) to add that a consent agreement ``shall state'' that 
a

[[Page 40371]]

respondent entering into a consent agreement waives any right to 
judicial review of such consent agreement.
    For the reasons discussed above, the Bureau adopts Sec.  1091.113 
as proposed with the revision to proposed Sec.  1091.113(b) to clarify 
the waiver provision described in the preceding paragraph and with 
other minor technical revisions for consistency, including renumbering 
this section as Sec.  1091.110(b).
Section 1091.111 Notice and Response Included in Adjudication 
Proceeding Otherwise Brought by the Bureau \43\
---------------------------------------------------------------------------

    \43\ Proposed Sec.  1091.114 has been renumbered Sec.  1091.111 
in the final rule. All references to proposed Sec.  1091.114 in this 
analysis correspond to Sec.  1091.111 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.114 provided that if the Bureau issues a notice 
of charges against a person under 12 CFR 1081.200,\44\ the Bureau may, 
in its discretion, also provide the notice and opportunity to respond 
required by 12 U.S.C. 5514(a)(1)(C) in the notice of charges. In such a 
circumstance, the procedures set forth in Sec.  1091.102-Sec.  1091.110 
would not apply to the proceedings. Under the Proposed Rule, the Bureau 
could use the administrative adjudication proceedings set forth in 12 
CFR 1081.200 to provide notice and a reasonable opportunity to respond 
as required by 12 U.S.C. 5514(a)(1)(C) only in certain cases where the 
Bureau has otherwise brought an administrative action against a 
respondent. The Bureau believes that the flexibility provided by this 
section would enhance efficiency and reduce burdens on respondents and 
the Bureau by allowing a determination under 12 U.S.C. 5514(a)(1)(C) 
and an adjudicative proceeding to be handled in a single forum. The 
Bureau received two comments suggesting that supervision authority 
should be established before bringing an enforcement action. One 
commenter asserted that simultaneous risk-determination proceedings and 
enforcement actions could penalize a company for conduct that it 
previously had no reason to know was illegal. This commenter 
recommended that the risk determinations set forth in this rule be used 
to put a company on notice that certain activities are deemed to pose 
risks to consumers before any enforcement action is initiated. The 
other commenter asserted that simultaneous risk determinations and 
enforcement actions would give rise to enforcement actions regarding 
otherwise lawful conduct that poses risks to consumers, which the 
commenter believed would be an expansion of Bureau authority.
---------------------------------------------------------------------------

    \44\ 12 CFR 1081.200 sets forth the procedures for the 
commencement of an adjudicative proceeding by the Bureau under 12 
U.S.C. 5563, and also the contents of the notice of charges in such 
a proceeding.
---------------------------------------------------------------------------

    The Bureau believes that the commenters may have misconstrued the 
purpose of proposed Sec.  1091.114. Under this provision, the Bureau 
would provide the notice required under 12 U.S.C. 5514(a)(1)(C) in a 
notice of charges only when the Bureau has ``otherwise'' brought an 
administrative action against a respondent.\45\ The Bureau further 
notes that, under the Dodd-Frank Act, supervision is not a necessary 
precursor to an enforcement action. The Bureau may, however, wish to 
bring a person subject to an enforcement action under the Bureau's 
supervisory authority, in addition to seeking other relief through an 
administrative action. Proposed Sec.  1091.114 is intended to provide 
administrative convenience and efficiency both for respondents and the 
Bureau by handling what would otherwise be two separate processes in a 
single administrative forum.
---------------------------------------------------------------------------

    \45\ 77 FR 31231.
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau adopts proposed Sec.  
1091.114 substantially as proposed with minor technical revisions for 
consistency, including renumbering this section as Sec.  1091.111. The 
Bureau has also made one change to proposed Sec.  1091.114 to clarify 
that a person may submit to the Bureau's supervisory authority under 12 
U.S.C. 5514(a)(1)(C) by agreeing to a consent order in connection with 
an adjudication proceeding or civil action.
 Section 1091.112 No Limitation on Relief Sought in Civil Action or 
Administrative Adjudication \46\
---------------------------------------------------------------------------

    \46\ Proposed Sec.  1091.115 has been renumbered Sec.  1091.112 
in the final rule. All references to proposed Sec.  1091.115 in this 
analysis correspond to Sec.  1091.112 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.115 clarified that nothing in proposed part 
1091 shall be construed to limit the relief the Bureau may seek in any 
civil action or administrative adjudication, including seeking an order 
to have a person deemed subject to the Bureau's supervisory authority 
under 12 U.S.C. 5514, for the reasons set forth in 12 U.S.C. 
5514(a)(1)(C) or otherwise. Two commenters discussing this proposed 
section recommended that the Bureau provide respondents the option to 
proceed using a formal adjudication, instead of the informal hearing 
process prescribed in this part. In response, the Bureau notes that 
proposed Sec.  1091.115 does not relate to the procedures established 
by the final rule, but rather merely makes clear that the final rule 
does not limit the relief the Bureau might seek in another forum. The 
Bureau's authority to adopt informal procedures rather than formal 
adjudication procedures, as requested by the commenter, and its 
rationale for so doing is discussed in the introductory paragraphs to 
subsection B above. The Bureau therefore adopts proposed Sec.  1091.115 
as proposed with minor technical revisions for consistency, including 
renumbering to Sec.  1091.112.

Subpart C--Post-Determination Procedures

Section 1091.113 Petition for Termination of Order \47\
---------------------------------------------------------------------------

    \47\ Proposed Sec.  1091.110 has been renumbered Sec.  1091.113 
in the final rule. All references to proposed Sec.  1091.110 in this 
analysis correspond to Sec.  1091.113 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.110 provided that a respondent may petition the 
Director for the termination of an order bringing a respondent within 
the Bureau's supervisory authority under 12 U.S.C. 5514, and set forth 
the required contents of such a petition. Under proposed Sec.  
1091.110, a respondent could petition for termination no sooner than 
two years after the issuance of the order, and no more frequently than 
annually thereafter, except that in the case of a voluntary consent to 
supervision, a respondent could not petition for early termination of 
the supervisory authority period set forth in the consent agreement. A 
petition is a respondent's opportunity to inform the Bureau of the 
actions taken and the progress made to reduce risk to consumers after 
the issuance of an order subjecting the entity to supervision under 12 
U.S.C. 5514(a)(1)(C). Under proposed Sec.  1091.110(b), a petition was 
required to set forth the reasons supporting a termination of an order, 
including any actions taken by a respondent since issuance of an order 
to address the conduct that led to the order. Under proposed Sec.  
1091.110(d), the [initiating official] would be permitted to file a 
response to a petition for termination setting forth the [initiating 
official's] recommendation to terminate or modify the order, or to deny 
the petition, and the reasons supporting such a recommendation, within 
30 days of his or her receipt of a copy of a petition. Proposed Sec.  
1091.110(e) further provided that within 90 days of a respondent's 
submission of a petition for termination, the Director could either 
terminate or modify the order, or deny the petition. This proposed 
section also specified the

[[Page 40372]]

manner in which a petition for termination must be filed.
Time Periods Related to Petitions To Terminate
    The Bureau received a number of comments discussing the 
termination-petition process generally and the prohibition on filing a 
petition prior to two years after an order establishing supervisory 
authority under 12 U.S.C. 5514(a)(1)(C) has been issued. Several 
commenters believe that allowing petitions to terminate an order only 
after two years is excessively harsh, and that respondents should 
either be allowed to petition for termination of the order immediately 
after the respondent has remedied the behavior that the Bureau deemed 
risky, or respondents should be allowed to petition after one year. One 
commenter asserted that orders should automatically terminate after one 
year unless the Bureau can show good cause for continuation, 
eliminating the need to petition for termination of an order. Many of 
these commenters argued that supervision would be unfair or unnecessary 
if the respondent terminated the practice for which the Bureau 
established supervisory authority. Taking a different view, one 
commenter asserted that the two-year period was not long enough because 
the Bureau might only finish one examination cycle within the two-year 
period. This commenter suggested setting a time limit for the first 
petition to terminate an order after two examination cycles.
    After consideration of the comments, the Bureau continues to 
believe that allowing a respondent to petition for termination of 
supervision no sooner than two years after the issuance of a decision 
and order by the Director subjecting an entity to supervision under 12 
U.S.C. 5514(a)(1)(C) is appropriate. This period is intended to provide 
the Bureau with sufficient time to conduct an initial set of 
supervision activities, such as requesting reports and/or undertaking 
an examination, and to conduct follow-up supervision activities so the 
Bureau can assess whether a nonbank covered person corrected any 
deficiencies identified by the Bureau and maintained any required 
corrective actions. A minimum two-year supervision period reflects the 
reality that after supervisory jurisdiction is established, it will 
take two years to meaningfully examine, and possibly re-examine, an 
entity. In essence, the Bureau believes that the proposed supervision 
period will permit two examination cycles as one commenter asserted was 
necessary. Allowing termination after one year or immediately after a 
nonbank covered person purportedly remediated any deficiencies would 
not permit enough time for the needed follow-up supervision activity. 
Permitting termination on an ad hoc basis at any time would engender a 
disorderly supervision program where a supervised person could demand 
an evaluation of its activities at any time, regardless of Bureau 
resource constraints or supervision priorities.
    For all of the foregoing reasons the Bureau declines to revise the 
Proposed Rule to alter the process for petitioning for termination of 
supervision.
Administrative Appeal
    A few commenters suggested that the Bureau adopt an administrative 
appeals process instead of the petition process. The Bureau believes 
that an administrative appeals process is not necessary and would 
significantly add to the complexity and length of the process 
established by the final rule.
Require Initiating Official To File a Recommendation Regarding a 
Petition To Terminate
    A commenter argued that the Bureau should revise proposed Sec.  
1091.110(d)(1) to require the [initiating official] to file a response 
to a petition to terminate. The Bureau made the filing of a 
recommendation regarding a petition by the initiating official 
permissive rather than mandatory because the Bureau recognized that the 
initiating official may not feel the need to provide a recommendation 
in all instances. If the initiating official were to choose not to file 
a response to a petition to terminate, the result would be that the 
petition would be unopposed. The Bureau does not believe that this 
result would prejudice a petitioner. Moreover, the Bureau believes that 
it is important that under the final rule the initiating official have 
flexibility in determining how to expend Bureau resources. The Bureau 
does not believe that it would be appropriate to require the initiating 
official to prepare and file a recommendation where the initiating 
official has determined that this is not a necessary or useful 
allocation of Bureau resources. The Bureau therefore declines to revise 
the Proposed Rule to require the initiating official to file a response 
to a petition to terminate.
Add Requirement That the Director Terminate Supervision Under Certain 
Circumstances
    Another commenter requested that the Bureau include a requirement 
that the Director approve petitions to terminate where the respondent 
provides clear and convincing evidence that the respondent has 
eliminated any reasonable prospect of consumer risk.
    The purpose of proposed Sec.  1091.110 was to permit the Director 
to grant a petition and terminate supervision if the Director believed 
that it was appropriate to do so. The Bureau believes that adding to 
the final rule a requirement that the Director grant a petition as 
recommended by the commenter would impose a standard not consistent 
with 12 U.S.C. 5514(a)(1)(C), which does not require that the Bureau 
consider petitions to terminate. Therefore the Bureau declines to 
revise the Proposed Rule as suggested by the commenter.
Clarification on Whether Petitions To Terminate Are Public Information
    Another commenter urged the Bureau to make the Bureau's response to 
a petition for termination publicly available.
    The Bureau has added to the final rule Sec.  1091.115(c), which 
provides that ``[i]n connection with a proceeding under this part, 
including a petition for termination under Sec.  1091.113, all 
documents, records or other items submitted by a respondent to the 
Bureau, all documents prepared by, or on behalf of, or for the use of 
the Bureau, and any communications between the Bureau and a person, 
shall be deemed confidential supervisory information under 12 CFR 
1070.2(i)(1).'' In light of this provision, a petition to terminate 
supervision is confidential supervisory information, subject to the 
confidentiality requirements of 12 CFR part 1070.
    For the reasons discussed above, the Bureau is adopting Sec.  
1091.110 as proposed with minor technical revisions for consistency, 
including renumbering that section as Sec.  1091.113.

Subpart D--Time Limits and Confidentiality

Section 1091.114 Construction of Time Limits \48\
---------------------------------------------------------------------------

    \48\ Proposed Sec.  1091.111 has been renumbered Sec.  1091.114 
in the final rule. All references to proposed Sec.  1091.111 in this 
analysis correspond to Sec.  1091.114 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.111(a) provided common rules for computing time 
limits, taking into account the effect of weekends and holidays on time 
periods that are ten days or less. This section also sets forth when 
filing or service is effective. Proposed Sec.  1091.111(b) established 
when papers are deemed to be served. With regard to time limits for 
responsive papers, proposed Sec.  1091.111(c) incorporated a three-day 
extension for mail service, and a one-

[[Page 40373]]

day extension for overnight delivery and electronic transmission. A 
one-day extension for service by electronic transmission reflects that 
electronic transmissions may result in delays in actual receipt by the 
person served.
    The Bureau received two comments pertaining to the construction of 
time limits. Both of these comments requested the Bureau to provide 
clear deadline dates in the Notice of Reasonable Cause, asserting that 
the time limit framework provided may be confusing to respondents. The 
Bureau adopted the language used in Sec.  1091.111 from the Bureau's 
rules for adjudication proceedings in 12 CFR 1081.114, which in turn 
incorporates rules similar to the Federal Rules of Civil Procedure and 
some agencies' existing rules.\49\
---------------------------------------------------------------------------

    \49\ 77 FR 39058, 39065 (June 29, 2012).
---------------------------------------------------------------------------

    The Bureau understands the commenters' desire for exact dates on 
which filings are required, but is concerned that providing specific 
dates as requested would be difficult in many circumstances and might 
result in increased operational costs or inaccuracy. For example, the 
Bureau may need to put Notices into production sometime in advance of 
when they will be served and might not know the exact date that a 
Notice will be served. The Bureau believes that it is important to 
specify dates in the Notice in relation to the date of service to 
ensure the accuracy of the time periods disclosed.
    For the reasons discussed above, the Bureau adopts Sec.  1091.111 
as proposed with minor technical revisions for consistency, including 
renumbering this section as Sec.  1091.114.
Section 1091.115 Change of Time Limits and Confidentiality of 
Proceedings \50\
---------------------------------------------------------------------------

    \50\ Proposed Sec.  1091.112 has been renumbered Sec.  1091.115 
in the final rule. All references to proposed Sec.  1091.112 in this 
analysis correspond to Sec.  1091.115 of the final rule.
---------------------------------------------------------------------------

    Proposed Sec.  1091.112(a) provided that requests for an extension 
of time may be granted where good cause is shown. Proposed Sec.  
1091.112(b) provided that requests for extensions of time are strongly 
disfavored and may be granted only when a party makes a strong showing 
that the denial of the request would substantially prejudice the party. 
Finally, proposed Sec.  1091.112(c) stated that deadlines for action by 
the [Associate] Director or Director established in this Proposed Rule 
confer no substantive rights on respondents.
    The Bureau received several comments requesting a more flexible 
extension policy. One commenter suggested allowing time extensions 
where it would prevent prejudice and do substantial justice. Another 
commenter asserted that providing Bureau staff the discretion to grant 
extensions would alleviate its concerns regarding the abbreviated 
response time of 20 days provided in the Proposed Rule. A few 
commenters objected to the language used in proposed Sec.  1091.112(b), 
which stated that extensions are ``strongly disfavor[ed].'' 
Additionally, one commenter asserted that granting extensions only to 
prevent substantial prejudice was excessively stringent and requested 
instead that the Bureau decide requests for extensions based on the 
``good cause shown'' standard set forth in proposed Sec.  1091.112(a).
    Although many of the concerns regarding time limits should be 
alleviated with the extension of the written-response deadline in Sec.  
1091.105(a) from 20 to 30 days, the Bureau agrees that the [Associate] 
Director and Director should have reasonable flexibility to permit 
extensions of time limits at their discretion and for good cause shown. 
The Proposed Rule granted some flexibility in this regard--permitting 
extensions for good cause shown--but, as noted above, it also stated a 
policy of strongly disfavoring requests for extensions and permitting 
them only where a denial would substantially prejudice a requesting 
party's case. The Bureau is concerned that the language in the Proposed 
Rule stating that extensions are strongly disfavored and should be 
permitted only where there would be substantial prejudice may result in 
less flexibility to allow extensions than the Bureau intended. The 
Bureau therefore revises the Proposed Rule by deleting proposed Sec.  
1091.112(b). The Bureau believes that this will provide the Associate 
Director and Director with greater flexibility to permit, at their 
discretion, extensions of time limits where good cause is shown.
    One commenter requested that the Bureau provide an automatic 
extension where a respondent did not receive a Notice. Such a revision 
to the Proposed Rule is unnecessary, however, because the 30-day time 
limit begins upon service of a Notice.
    The Bureau adopts Sec.  1091.112 with the revision deleting 
proposed Sec.  1091.112(b), and adding a new paragraph (c) on 
confidentiality of proceedings (for the reasons discussed in the 
section-by-section analysis of subpart B above) and with other minor 
technical revisions for consistency, including renumbering this section 
as Sec.  1091.115.

V. Section 1022(b)(2) of the Dodd-Frank Act

A. Overview

    In developing the final rule, the Bureau has considered the 
potential benefits, costs, and impacts, and has consulted or offered to 
consult with the prudential regulators and the Federal Trade 
Commission, including with regard to consistency with any prudential 
market, or systemic objectives administered by such agencies.\51\
---------------------------------------------------------------------------

    \51\ Specifically, 12 U.S.C. 5512(b)(2)(A) calls for the Bureau 
to consider the potential benefits and costs of a regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services, the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in 12 U.S.C. 5516, and the 
impact on consumers in rural areas. In addition, 12 U.S.C. 
5512(b)(2)(B) directs the Bureau to consult, before and during the 
rulemaking, with appropriate prudential regulators or other Federal 
agencies, regarding consistency with objectives those agencies 
administer. The manner and extent to which the provisions of 12 
U.S.C. 5512(b)(2) apply to a procedural rule of this kind, and to 
benefits, costs and impacts that are compelled by statutory changes 
rather than discretionary Bureau action, is unclear. Nevertheless, 
to inform this rulemaking more fully, the Bureau performed the 
analysis and consultations described in those provisions of the 
Dodd-Frank Act.
---------------------------------------------------------------------------

    Under 12 U.S.C. 5514(a)(1)(C), the Bureau has the authority to 
supervise any nonbank covered person that it ``has reasonable cause to 
determine, by order, after notice . . . and a reasonable opportunity . 
. . to respond . . . is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services.'' The Bureau must base such reasonable-
cause determinations on complaints collected by the Bureau under 12 
U.S.C. 5493(b)(3), or on information collected from other sources.\52\ 
The final rule is intended to provide an efficient, streamlined, and 
fair process to implement 12 U.S.C. 5514(a)(1)(C).\53\ Although a rule 
is not necessary to implement this statutory provision, the final rule 
establishes a consistent procedure applicable to all affected entities, 
and provides transparency regarding the applicable procedures prior to 
commencement of a proceeding.
---------------------------------------------------------------------------

    \52\ 12 U.S.C. 5514(a)(1)(C).
    \53\ The Bureau notes that there is little publicly available 
data with which to effectively measure or quantify the benefits, 
costs, and impacts of the Proposed Rule. Where benefits or costs are 
not readily quantifiable or where data is not reasonably available, 
the Bureau will conduct qualitative analyses relying on information 
from available sources.

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[[Page 40374]]

B. Potential Benefits and Costs to Consumers and Covered Persons

    The analysis considers the benefits, costs, and impacts of the 
final rule against a statutory baseline. That is, the analysis 
evaluates the benefits, costs, and impacts of the final rule as 
compared to the statute without an implementing rule.\54\ Absent the 
final rule, the public would lack any guidance regarding the Bureau's 
process under 12 U.S.C. 5514(a)(1)(C). Nonbank covered persons will 
incur certain costs in considering and responding to a Notice from the 
Bureau under the final rule, but these costs would generally exist in 
the absence of the rule.
---------------------------------------------------------------------------

    \54\ The Bureau has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits and 
costs and the appropriate baseline.
---------------------------------------------------------------------------

    For major provisions of the final rule, the Bureau considered the 
benefits and costs of certain alternatives. For example, the final rule 
provides respondents an opportunity to participate in a supplementary 
oral response, which would generally be conducted via telephone, but 
permits respondents to request an in-person supplemental oral response 
at the Bureau's headquarters in Washington, DC. The Bureau believes 
that this approach will benefit covered persons by offering an 
additional method of responding to a Notice compared with the 
alternative of not permitting any oral response. At the same time, the 
Bureau believes that this approach will be less costly than the 
alternative of requiring that all oral responses be conducted in person 
at a designated location. Also in connection with supplemental oral 
responses, the final rule permits, but does not require, a respondent 
to be represented by counsel. The Bureau considered requiring 
representation by counsel, but opted to provide respondents with the 
opportunity to receive the benefits of representation, while not 
mandating that respondents incur the costs of such representation.
    The final rule also permits respondents to consent to the Bureau's 
supervisory authority under standard terms in lieu of filing a response 
to a Notice of Reasonable Cause, or to enter into a negotiated 
agreement at any time consenting to the Bureau's supervisory authority. 
The Bureau believes that this approach provides a streamlined 
resolution process that will reduce the costs to the Bureau and those 
respondents that wish to consent to the Bureau's supervisory authority, 
compared to the alternative of permitting only negotiated consent 
agreements.
    Several industry commenters discussed the potential costs of the 
rule; however, only one directly commented on the Bureau's 
consideration of benefits, costs and impacts under Section 1022. 
Commenters argued that the rule may subject firms to new regulations or 
that they may bear the burden of increased compliance with existing 
Federal consumer laws. However, as discussed above, the final rule only 
establishes procedures the Bureau intends to use to implement 12 U.S.C. 
5514(a)(1)(C) to bring a nonbank covered person under the Bureau's 
supervisory authority when the Bureau has made a reasonable-cause 
determination; it does not subject any entities to new substantive 
regulation or require increased compliance with existing law; nor is 
the final rule necessary for the Bureau to exercise its supervisory 
authority under 12 U.S.C. 5514(a)(1)(C).
    Commenters also asserted that the possibility of supervision and/or 
the actual initiation of supervision would prove costly to firms. 
Regarding the costs of changing business practices in preparing for 
possible supervision, the Bureau notes that nonbank covered persons are 
required to comply with existing law and with any current record-
retention requirements to document such compliance even in the absence 
of this final rule. The Bureau recognizes, as the commenters do, that 
entities will incur some costs in responding to Notices and 
participating in examinations; however, those costs would also exist in 
the absence of the final rule since a rule is not necessary to 
implement 12 U.S.C. 5514(a)(1)(C).
    Going even further, one commenter asserted that the Bureau must 
also gather more data and quantify the costs related to the rule. This 
commenter noted the Bureau's claim that data are quite limited, but 
then offered several citations to studies about the costs of 
regulation. As noted however, the costs of regulation writ large are 
not relevant here. Rather the relevant data must describe the costs of 
adhering to particular informal administrative procedural frameworks in 
establishing reasonable cause. The studies mentioned include estimates 
of all regulation, including environmental regulations, and from the 
Bureau's reading, do not discuss or mention the costs to financial 
institutions of adherence with informal administrative procedural 
frameworks.
    The final rule will have no impact on insured depository 
institutions or insured credit unions with $10 billion or less in 
assets as described in 12 U.S.C. 5516(a). Nor will the final rule have 
a unique impact on rural consumers.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\55\ The RFA defines a ``small 
business'' as a business that meets the size standard developed by the 
Small Business Administration pursuant to the Small Business Act.\56\
---------------------------------------------------------------------------

    \55\ 5 U.S.C. 601 et seq. The term `` `small organization' means 
any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field, unless an agency 
establishes [an alternative definition after notice and comment].'' 
5 U.S.C. 601(4). The term `` `small governmental jurisdiction' means 
governments of cities, counties, towns, townships, villages, school 
districts, or special districts, with a population of less than 
fifty thousand, unless an agency establishes [an alternative 
definition after notice and comment].'' 5 U.S.C. 601(5).
    \56\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment.
---------------------------------------------------------------------------

    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) 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. The Bureau also is subject to certain additional procedures 
under the RFA involving the convening of a panel to consult with small 
business representatives prior to proposing a rule for which an IRFA is 
required.\57\
---------------------------------------------------------------------------

    \57\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    As discussed above in section V, a notice of proposed rulemaking 
was not required for this rulemaking. Because no notice of proposed 
rulemaking was required, the Regulatory Flexibility Act does not 
require an initial or final regulatory flexibility analysis.\58\
---------------------------------------------------------------------------

    \58\ 5 U.S.C. 603(a), 604(a).
---------------------------------------------------------------------------

    In the alternative, a FRFA would not otherwise be required because 
the final rule would not have a significant economic impact on any 
small entities. The final rule sets forth only procedures by which a 
nonbank covered person may become subject to the Bureau's current 
supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C). The final 
rule establishes a transparent and streamlined process by which the 
Bureau would exercise its existing legal authority and would not impose 
new substantive requirements.

[[Page 40375]]

    As noted, the Bureau opted to issue a notice of proposed rulemaking 
to receive public comment including comment on the analysis under the 
RFA. One commenter argued that smaller institutions could bear 
substantial costs in responding to a Bureau notice, but did not provide 
any specific data regarding those costs. The Bureau had noted in its 
proposal that such responses will require firm resources: however, the 
Bureau maintains that those costs will not be substantial nor, given 
any reasonable expectation of the scope of supervision under this 
provision, will they be borne by a significant number of small 
entities.
    Accordingly, the undersigned certifies that this final rule will 
not have a significant impact on a substantial number of small 
entities.

VII. Paperwork Reduction Act

    The Bureau has determined that the final rule does not impose any 
new recordkeeping, reporting or disclosure requirements on covered 
entities or members of the public that would be collections of 
information requiring OMB approval under the Paperwork Reduction Act, 
44 U.S.C. 3501, et seq.

List of Subjects in 12 CFR Part 1091

    Administrative practice and procedures, Consumer protection, 
Credit, Trade practices.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau adds part 
1091 to Chapter X in Title 12 of the Code of Federal Regulations to 
read as set forth below.

PART 1091--PROCEDURAL RULE TO ESTABLISH SUPERVISORY AUTHORITY OVER 
CERTAIN NONBANK COVERED PERSONS BASED ON RISK DETERMINATION

Subpart A--General
Sec.
1091.100 Scope and purpose.
1091.101 Definitions.
Subpart B--Determination and Voluntary Consent Procedures
1091.102 Issuance of Notice of Reasonable Cause.
1091.103 Contents of Notice.
1091.104 Service of Notice.
1091.105 Response.
1091.106 Supplemental oral response.
1091.107 Manner of filing and serving papers.
1091.108 Recommended determination.
1091.109 Determination by the Director.
1091.110 Voluntary consent to Bureau's authority.
1091.111 Notice and response included in adjudication proceeding 
otherwise brought by the Bureau.
1091.112 No limitation on relief sought in civil action or 
administrative adjudication.
Subpart C--Post-Determination Procedures
1091.113 Petition for termination of order.
Subpart D--Time Limits and Deadlines
1091.114 Construction of time limits.
1091.115 Change of time limits and confidentiality of proceedings.

    Authority: 12 U.S.C. 5512(b)(1), 5514(a)(1)(C), 5514(b)(7).

Subpart A--General


Sec.  1091.100  Scope and purpose.

    This part sets forth procedures to implement section 1024(a)(1)(C) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010, Public Law 111-203 (12 U.S.C. 5514(a)(1)(C)) (Dodd-Frank Act), 
and establishes rules to facilitate the Bureau's supervisory authority 
over certain nonbank covered persons pursuant to section 1024(b)(7) of 
the Dodd-Frank Act (12 U.S.C. 5514(b)(7)).


Sec.  1091.101  Definitions.

    For the purposes of this part, the following definitions apply:
    Assistant Director means an Assistant Director for Supervision. If 
there is no Assistant Director, the Associate Director may designate an 
alternative Bureau employee to perform the functions of an Assistant 
Director under this part.
    Associate Director means the Associate Director of the Bureau's 
Division of Supervision, Enforcement, and Fair Lending, or his or her 
designee. If there is no Associate Director, the Director may designate 
an alternative Bureau employee to perform the functions of the 
Associate Director under this part.
    Bureau means the Bureau of Consumer Financial Protection.
    Consumer means an individual or an agent, trustee, or 
representative acting on behalf of an individual.
    Consumer financial product or service means any financial product 
or service, as defined in 12 U.S.C. 5481(15), that is described in one 
or more categories under:
    (1) 12 U.S.C. 5481(15) and is offered or provided for use by 
consumers primarily for personal, family, or household purposes; or
    (2) Clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) and is 
delivered, offered, or provided in connection with a consumer financial 
product or service referred to in subparagraph (1) of this paragraph.
    Decisional employee means any employee of the Bureau who has not 
engaged in:
    (1) Assisting the initiating official in either determining whether 
to issue a Notice of Reasonable Cause, or presenting the initiating 
official's position in support of a Notice of Reasonable Cause, either 
in writing or in a supplemental oral response, to the Associate 
Director; or
    (2) Assisting the Associate Director in the preparation of a 
recommended determination.
    Director means the Director of the Bureau or his or her designee. 
If there is no Director, the term shall mean a person authorized to 
perform the functions of the Director under this part, or his or her 
designee.
    Executive Secretary means the Executive Secretary of the Bureau.
    Initiating official means an Assistant Director or a Bureau 
employee designated to act as an ``initiating official'' by an 
Assistant Director. If there is not an Assistant Director, the 
Associate Director may designate a Bureau employee to perform the 
functions of an initiating official under this part.
    Nonbank covered person means, except for persons described in 12 
U.S.C. 5515(a) and 5516(a):
    (1) Any person that engages in offering or providing a consumer 
financial product or service; and
    (2) Any affiliate of a person described in subparagraph (1) of this 
paragraph if such affiliate acts as a service provider to such person.
    Notice of Reasonable Cause and Notice mean a Notice issued under 
Sec.  1091.102.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, 
cooperative organization, or other entity.
    Respondent means a person who has been issued a Notice of 
Reasonable Cause under Sec.  1091.102.
    Response means the response to a Notice of Reasonable Cause filed 
by a respondent with the Associate Director under Sec.  1091.105.

Subpart B--Determination and Voluntary Consent Procedures


Sec.  1091.102  Issuance of Notice of Reasonable Cause.

    (a) An initiating official is authorized to issue a Notice of 
Reasonable Cause to a person stating that the Bureau may have 
reasonable cause to determine that the respondent is a nonbank covered 
person that is engaging, or has engaged,

[[Page 40376]]

in conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services.
    (b) A Notice of Reasonable Cause shall be based on:
    (1) Complaints collected through the system under 12 U.S.C. 
5493(b)(3); or
    (2) Information from other sources.
    (c) Except as provided in Sec.  1091.111, a Notice of Reasonable 
Cause shall contain the information set forth in Sec.  1091.103, and be 
served on respondent as described in Sec.  1091.104.


Sec.  1091.103  Contents of Notice.

    (a) A Notice of Reasonable Cause shall contain the following:
    (1) A description of the basis for the assertion that the Bureau 
may have reasonable cause to determine that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services, including a summary of the documents, 
records, or other items relied on by the initiating official to issue a 
Notice. Such summary will be consistent with the protection of 
sensitive information, including compliance with federal privacy law 
and whistleblower protections; and
    (2) A statement informing a respondent that:
    (i) A respondent may file with the Associate Director a written 
response to a Notice of Reasonable Cause no later than 30 days after 
the Notice is served on the respondent;
    (ii) The written response shall include the elements addressed in 
Sec.  1091.105(b);
    (iii) A respondent may request in its written response to a Notice 
an opportunity to present an in-person or telephonic supplemental oral 
response to the Associate Director as set forth in Sec.  1091.106;
    (iv) A failure timely to file a response to a Notice shall 
constitute a waiver of a respondent's right to respond, and may result 
in a default determination by the Director, based on the Notice, that a 
respondent is a nonbank covered person that is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services and 
the issuance of a decision and order subjecting a respondent to the 
Bureau's supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C);
    (v) The Associate Director shall serve a respondent with a notice 
of the date and time of a supplemental oral response, if a respondent 
has requested the opportunity to present a supplemental oral response, 
within 14 days of the Associate Director's receipt of a timely-filed 
response;
    (vi) If a respondent has not requested the opportunity to present a 
supplemental oral response, the Associate Director shall, not later 
than 45 days after receiving a timely-filed response, or not later than 
45 days after the service of a Notice of Reasonable Cause when a 
respondent fails to file a timely response, provide a recommended 
determination to the Director including either a proposed decision and 
order subjecting a respondent to the Bureau's supervisory authority 
pursuant to 12 U.S.C. 5514(a)(1)(C), or a proposed notification that 
the Bureau has determined not to subject a respondent to the Bureau's 
supervisory authority at that time, pursuant to Sec.  1091.108; and
    (vii) In connection with a proceeding under this part, including a 
petition for termination under Sec.  1091.113, all documents, records 
or other items submitted by a respondent to the Bureau, all documents 
prepared by, or on behalf of, or for the use of the Bureau, and any 
communications between the Bureau and a person, shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1).
    (b) A Notice shall be accompanied by a form of consent agreement by 
which a respondent may voluntarily consent to the Bureau's authority to 
supervise a respondent under 12 U.S.C. 5514. A completed and executed 
form of consent agreement under this paragraph:
    (1) Shall not constitute an admission that a respondent is a 
nonbank covered person that is engaging, or has engaged, in conduct 
that poses risks to consumers with regard to the offering or provision 
of consumer financial products or services;
    (2) Shall result in an order by the Director that a respondent is 
subject to the Bureau's supervisory authority under 12 U.S.C. 5514 for 
a period of two years from the date of such order; and
    (3) Shall include a provision that a respondent entering into a 
consent agreement waives any right to judicial review of such consent 
agreement.
    (c) Nothing in this section shall be construed as requiring the 
Bureau to produce any documents or other information to a respondent 
other than as set forth in this section.


Sec.  1091.104  Service of Notice.

    (a) A Notice of Reasonable Cause shall be served on a respondent as 
follows:
    (1) To individuals. A Notice shall be served on a respondent that 
is a natural person by delivering a copy of the Notice to the 
individual or to an agent authorized by appointment or by law to 
receive such a Notice. Delivery, for purposes of this paragraph, means 
handing a copy of a Notice to the individual; or leaving a copy at the 
individual's office with a clerk or other person in charge thereof; or 
leaving a copy at the individual's dwelling house or usual place of 
abode with some person of suitable age and discretion then residing 
therein; or sending a copy of a Notice addressed to the individual 
through the U.S. Postal Service by Registered Mail, Certified Mail or 
Express Mail delivery, or by third-party commercial carrier, for 
overnight delivery and obtaining a confirmation of receipt.
    (2) To corporations or entities. Notice shall be served on a person 
other than an individual by delivering a copy of a Notice to an 
officer, managing or general agent, or any other agent authorized by 
appointment or law to receive such a Notice, by any method specified in 
paragraph (a)(1) of this section.
    (3) Upon persons registered with the Bureau. In addition to any 
other method of service specified in paragraph (a)(1) or (2) of this 
section, Notice may be served on a person registered with the Bureau by 
sending a copy of a Notice addressed to the most recent business 
address shown on the person's registration form by U.S. Postal Service 
Certified, Registered, or Express Mail and obtaining a confirmation of 
receipt or attempted delivery.
    (4) Upon persons in a foreign country. Notice may be served on a 
person in a foreign country by any method specified in paragraph (a)(1) 
or (2) of this section, or by any other method reasonably calculated to 
give notice, provided that the method of service used is not prohibited 
by the law of the foreign country.
    (5) Record of service. The Bureau shall maintain a record of 
service of a Notice on a respondent, identifying the party given 
Notice, the method of service, the date of service, the address to 
which service was made, and the person who made service. If service is 
made in person, the certificate of service shall state, if available, 
the name of the individual to whom a Notice was given. If service is 
made by U.S. Postal Service Registered Mail, Certified Mail, or Express 
Mail, the Bureau shall maintain the confirmation of receipt or 
attempted delivery.
    (6) Waiver of service. In lieu of service as set forth in paragraph 
(a)(1) or (2) of this section, a person may be provided a copy of a 
Notice by First Class Mail or other reliable means if a written waiver 
of service is obtained from the person to be served. In the case of a 
respondent that is not a natural person,

[[Page 40377]]

a written waiver may be provided by an officer, managing or general 
member, or partner authorized to represent the respondent.
    (b) The initiating official shall promptly submit a copy of a 
Notice and a copy of the certificate of service to the Associate 
Director.


Sec.  1091.105  Response.

    (a) Timing. Within 30 days of service of a Notice, a respondent 
shall file any response with the Associate Director according to the 
instructions set forth in a Notice.
    (b) Content of the response. (1) The response shall set forth the 
basis for a respondent's contention that the respondent is not a 
nonbank covered person that is engaging, or has engaged, in conduct 
that poses risks to consumers with regard to the offering or provision 
of consumer financial products or services.
    (2) The response shall include all documents, records, or other 
evidence a respondent wishes to use to support the arguments or 
assertions set forth in the response.
    (3) Any request to present a supplemental oral response, including 
the respondent's preference for a telephonic or in-person supplemental 
oral response, must be included in the response. A respondent's failure 
to request to present a supplemental oral response shall constitute a 
waiver of the opportunity to present a supplemental oral response.
    (4) A response shall include an affidavit or declaration, made by 
the individual respondent if a natural person, or, if a corporate or 
other entity that is not a natural person, by an officer, managing or 
general member, or partner authorized to represent the respondent, 
affirming that the response is true and accurate and does not contain 
any omissions that would cause the response to be materially 
misleading.
    (5) Notwithstanding any other provisions of this paragraph, a 
respondent may respond to a Notice of Reasonable Cause by voluntarily 
consenting to the Bureau's authority to supervise the respondent under 
12 U.S.C. 5514 by completing and executing the consent agreement form 
provided to the respondent with a Notice of Reasonable Cause in 
accordance with Sec.  1091.103(b).
    (c) Default. Failure of a respondent to file a response within the 
time period set forth in paragraph (a) of this section shall constitute 
a waiver of the respondent's right to respond, and shall, based on the 
Notice, authorize the Associate Director, without further notice to the 
respondent, to issue a proposed decision and order as provided in Sec.  
1091.108(c)(1) and the Director to issue a decision and order as 
provided in Sec.  1091.109(a)(1).
    (d) Waiver. A respondent shall be deemed to have waived the right, 
at any future stage of an Associate Director's or the Director's 
consideration of a matter, and in any petition for judicial review of 
an order issued pursuant to Sec.  1091.109(a)(1), to rely on any 
argument, record, document, or other information that the respondent 
does not raise or include in its response.
    (e) No Discovery. There shall be no discovery in connection with a 
response.


Sec.  1091.106  Supplemental oral response.

    (a) A respondent may request in a response under Sec.  1091.105 the 
opportunity to present to the Associate Director a supplemental oral 
response in support of a respondent's assertion that the respondent is 
not a nonbank covered person that is engaging, or has engaged, in 
conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services.
    (b) The conduct of a supplemental oral response shall be subject to 
the following procedures:
    (1) A supplemental oral response shall be, at the respondent's 
preference, by telephone or in person at the Bureau's headquarters in 
Washington, DC. If a respondent requests in its written response a 
supplemental oral response but does not specify whether such response 
shall be conducted via telephone or in person, the supplemental oral 
response will be conducted by telephone unless otherwise directed by 
the Associate Director;
    (2) The Associate Director may impose any limitations on the 
conduct of a supplemental oral response, including but not limited to 
establishing a time limit for the presentation of a supplemental oral 
response, and limiting the subjects to be addressed in a supplemental 
oral response;
    (3) There shall be no discovery permitted or witnesses called in 
connection with a supplemental oral response;
    (4) If a respondent is a corporate or other entity, and not a 
natural person, the respondent shall be represented in any supplemental 
oral response by:
    (i) An officer, managing or general member, or partner authorized 
to represent the respondent; or
    (ii) An attorney in good standing of the bar of the highest court 
of any State.
    (5) If a respondent is a natural person, the respondent shall be 
represented in any supplemental oral response by:
    (i) Himself or herself; or
    (ii) An attorney in good standing of the bar of the highest court 
of any State.
    (6) The Associate Director shall cause an audio recording of a 
supplemental oral response to be made by a court reporter. A respondent 
may purchase a copy or transcript of the recording at the respondent's 
own expense.
    (c) The initiating official may participate in any supplemental 
oral response conducted under this section.
    (d) The Associate Director shall serve on a respondent, within 14 
days after the Associate Director receives the respondent's timely-
filed response requesting a supplemental oral response, a notice 
setting forth the date, time, and general information relating to the 
conduct of a supplemental oral response. The date of a supplemental 
oral response shall be scheduled not less than ten days after the date 
the respondent is served with the notice of supplemental oral response.
    (e) The notice of supplemental oral response shall be served on a 
respondent pursuant to Sec.  1091.107.
    (f) The Associate Director shall send a copy of the notice of 
supplemental oral response to the initiating official.
    (g) A respondent's failure to participate in a supplemental oral 
response scheduled by the Associate Director shall constitute the 
respondent's waiver of the opportunity to present a supplemental oral 
response.


Sec.  1091.107  Manner of filing and serving papers.

    Unless otherwise specified by the Associate Director or Director, a 
respondent shall file the response and any other paper with the 
Executive Secretary at the mailing or electronic address provided by 
the Bureau, and the Associate Director and Director shall serve any 
paper, other than a Notice as set forth in Sec.  1091.104, on a 
respondent, by:
    (a) Electronic transmission upon any condition specified by the 
Associate Director or Director; or
    (b) Any of the following methods if a respondent demonstrates 
electronic filing is not practicable and the Associate Director or 
Director permits:
    (1) Personal delivery;
    (2) Delivery through a reliable commercial courier service or 
overnight delivery service; or
    (3) Mailing the papers by U.S. Postal Service First Class, 
Registered, Certified, or Express Mail.

[[Page 40378]]

Sec.  1091.108  Recommended determination.

    (a) If a respondent did not voluntarily consent to the Bureau's 
supervision authority, and did not request the opportunity to present a 
supplemental oral response, not later than 45 days after receipt of a 
timely-filed response, or not later than 45 days after the service of a 
Notice of Reasonable Cause when a respondent fails to file a timely 
response, the Associate Director shall make a recommended determination 
whether there is reasonable cause for the Bureau to determine that the 
respondent is a nonbank covered person that is engaging, or has 
engaged, in conduct that poses risks to consumers with regard to the 
offering or provision of consumer financial products or services which 
should result in an order subjecting the respondent to the Bureau's 
authority under 12 U.S.C. 5514(a)(1)(C).
    (b) If a respondent did request the opportunity to present a 
supplemental oral response, not later than 90 days after service of a 
Notice of Reasonable Cause, the Associate Director shall make a 
recommended determination whether there is reasonable cause for the 
Bureau to determine that the respondent is a nonbank covered person 
that is engaging, or has engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer 
financial products or services which should result in an order 
subjecting the respondent to the Bureau's authority under 12 U.S.C. 
5514(a)(1)(C).
    (c) Upon making the recommended determination described in 
paragraphs (a) or (b) of this section, the Associate Director shall 
submit to the Director either:
    (1) A proposed decision and order that would subject a respondent 
to the Bureau's supervisory authority pursuant to 12 U.S.C. 
5514(a)(1)(C) if adopted by the Director; or
    (2) A proposed notification that a respondent should not be 
subjected to the Bureau's supervisory authority under 12 U.S.C. 
5514(a)(1)(C) based on the proceedings. Such a notification shall have 
no precedential effect and shall not prevent the issuance of another 
Notice of Reasonable Cause pursuant to either Sec.  1091.102, or the 
procedures set forth in Sec.  1091.111, at any time, or from issuance 
of a decision and order based on another Notice recommending that a 
respondent be subject to the Bureau's authority pursuant to either of 
those sections.
    (d) Any proposed decision and order issued by the Associate 
Director pursuant to paragraph (c)(1) of this section shall set forth:
    (1) A statement that the Associate Director has preliminarily 
determined based on reasonable cause that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services;
    (2) The basis for the Associate Director's determination; and
    (3) A proposed order directing that, pursuant to this 
determination, as of a specified date a respondent shall be subject to 
the Bureau's supervisory authority under 12 U.S.C. 5514.
    (e) The Associate Director shall include with the recommended 
determination submitted to the Director copies of the following:
    (1) The Notice of Reasonable Cause;
    (2) The record of service of a Notice of Reasonable Cause;
    (3) A respondent's response and any documents, records, or other 
items filed with the written response;
    (4) Any document, record, or other item considered by the Associate 
Director to be material in making a recommended determination; and
    (5) An audio recording of a supplemental oral response, if a 
supplemental oral response was conducted, and/or a transcript if a 
transcript was prepared at a respondent's request or if requested by 
the Director.
    (f) The requirement that the Associate Director provide to the 
Director the items described in paragraph (e) of this section shall 
confer no substantive rights on a respondent and any omission of an 
item may be cured by the Associate Director to the extent applicable.


Sec.  1091.109  Determination by the Director.

    (a) Not later than 45 days after receipt of the Associate 
Director's recommended determination, the Director shall, after 
considering the recommended determination and all documents, records, 
and other items submitted therewith by the Associate Director, make a 
determination either adopting without revision, modifying, or rejecting 
the Associate Director's recommended determination, and shall issue to 
respondent, with copies to the Associate Director and the initiating 
official:
    (1) A decision and order subjecting the respondent to the Bureau's 
supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C); or
    (2) A notification that the Director has determined that the 
respondent is not subject to the Bureau's supervisory authority under 
12 U.S.C. 5514(a)(1)(C) as a result of the proceedings. Such 
notification shall have no precedential effect and shall not prevent 
the issuance of another Notice of Reasonable Cause pursuant to either 
Sec.  1091.102, or the procedures set forth in Sec.  1091.111, at any 
time, or the issuance of an order based on another Notice subjecting 
the respondent to the Bureau's authority pursuant to either of those 
sections.
    (b) Any decision and order issued by the Director pursuant to 
paragraph (a)(1) of this section shall include:
    (1) A statement that the Director adopts the Associate Director's 
proposed decision and order without revision as the Director's decision 
and order, or that the Director rejects or modifies the Associate 
Director's proposed determination for reasons set forth by the 
Director;
    (2) A statement that the Director has determined that the Bureau 
has reasonable cause to determine that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services;
    (3) The basis for the Director's determination, which may be an 
adoption of the basis set forth in the Associate Director's proposed 
decision;
    (4) An order directing that, pursuant to this determination, as of 
a specified date a respondent shall be subject to the Bureau's 
supervisory authority under 12 U.S.C. 5514 and informing a respondent 
that the respondent may petition for termination of the Bureau's 
supervisory authority no sooner than two years from the date of the 
order, and no more than annually thereafter; and
    (5) A copy of the recommended determination issued by the Associate 
Director.
    (c) Only decisional employees may advise and assist the Director in 
the consideration and disposition of a proceeding under this part.
    (d) A decision and order issued pursuant to paragraph (a)(1) of 
this section shall constitute final agency action under 5 U.S.C. 704.
    (e) Any item required to be served on a respondent under this 
section shall be served pursuant to Sec.  1091.107.


Sec.  1091.110  Voluntary consent to Bureau's authority.

    (a) Notwithstanding any other provision, pursuant to a consent 
agreement agreed to by the Bureau, a person may voluntarily consent to 
the Bureau's supervisory authority under 12 U.S.C. 5514, and such 
voluntary consent agreement shall not be subject to any right of 
judicial review.

[[Page 40379]]

    (b) The consent agreement of any person, pursuant to paragraph (a) 
of this section, that specifies the duration of time that such person 
will be subject to the Bureau's authority under 12 U.S.C. 5514 shall 
not be eligible for a petition for termination of order pursuant to 
Sec.  1091.113, and a consent agreement shall state that a respondent 
entering into a consent agreement waives any right to judicial review 
of such consent agreement.


Sec.  1091.111  Notice and response included in adjudication proceeding 
otherwise brought by the Bureau.

    (a) Notwithstanding Sec. Sec.  1091.102 through 1091.106, the 
Bureau may, in its discretion, provide the notice and opportunity to 
respond required by 12 U.S.C. 5514(a)(1)(C) in a notice of charges 
otherwise brought by the Bureau pursuant to 12 CFR 1081.200 and the 
adjudication proceedings pursuant to part 1081. Also, a person may 
agree to submit to the Bureau's supervisory authority under 12 U.S.C. 
5514(a)(1)(C) as part of a consent order entered into in connection 
with an adjudication proceeding or civil action.
    (b) If the Bureau chooses to proceed in the manner described in 
paragraph (a) of this section, it shall so indicate in the notice of 
charges, and any order of the Director resulting from the notice of 
charges shall constitute the order referred to in 12 U.S.C. 
5514(a)(1)(C).
    (c) If the Bureau proceeds pursuant to paragraph (a) of this 
section, the provisions of Sec. Sec.  1091.101 through 1091.110, and 
1091.113 through 1091.115 will be inapplicable to such proceeding.


Sec.  1091.112  No limitation on relief sought in civil action or 
administrative adjudication.

    Nothing in this part shall be construed to limit the relief the 
Bureau may seek in any civil action or administrative adjudication, 
including but not limited to, seeking an order to have a person deemed 
subject to the Bureau's supervisory authority under 12 U.S.C. 5514, 
including for the reasons set forth in 12 U.S.C. 5514(a)(1)(C).

Subpart C--Post-Determination Procedures


Sec.  1091.113  Petition for termination of order.

    (a) Any person subject to an order issued pursuant to Sec.  
1091.109(a)(1) may, no sooner than two years after issuance of such an 
order and no more frequently than annually thereafter, petition the 
Director for termination of the order.
    (b) A petition for termination submitted pursuant to paragraph (a) 
of this section shall set forth the reasons supporting termination of 
the order, including any actions taken by a respondent since issuance 
of the order to address the conduct that led to issuance of the order, 
and may include any supporting information or evidence that the 
petitioner believes is relevant to the Director's determination of the 
matter.
    (c) A petition for termination shall be filed by the petitioner 
with the Executive Secretary at the mailing or electronic address 
provided by the Bureau.
    (d) The Director shall, promptly upon receipt of a petition for 
termination, send a copy of the same to the initiating official.
    (1) The initiating official may, within 30 days of his or her 
receipt of a copy of a petition for termination, file with the Director 
a response to the petition stating whether the initiating official 
recommends that the order be terminated, or modified, or that the 
petition for termination be denied and the basis for such 
recommendation.
    (2) The initiating official shall serve a copy of the response to a 
petition for termination on the petitioner pursuant to Sec.  1091.107 
at the time of filing it with the Director.
    (e) Not later than 90 days after submission of a petition under 
paragraph (a) of this section, the Director shall issue a written 
decision either terminating or modifying the order, or denying the 
petition. If the Director modifies the order or denies the petition, 
the Director shall explain the basis for his or her decision with 
respect to the petition and send the written decision to the petitioner 
and the initiating official.
    (1) The Director shall serve the written decision on a petition for 
termination of order on a respondent pursuant to Sec.  1091.107.
    (2) The Director shall send a copy of the written decision on a 
petition for termination of order to the Associate Director and 
initiating official promptly upon issuing the written decision.
    (3) The decision of the Director made pursuant to paragraph (e) of 
this section shall constitute final agency action under 5 U.S.C. 704.

Subpart D--Time Limits and Deadlines


Sec.  1091.114  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by 
this part, or by order of the Associate Director or Director, the date 
of the act or event that commences the designated period of time is not 
included. The last day so computed is included unless it is a Saturday, 
Sunday, or Federal holiday as set forth in 5 U.S.C. 6103(a). When the 
last day is a Saturday, Sunday, or Federal holiday, the period runs 
until the end of the next day that is not a Saturday, Sunday, or 
Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays 
are included in the computation of time, except when the time period 
within which an act is to be performed is ten days or less, not 
including any additional time allowed for in paragraph (c) of this 
section.
    (b) Filing or service of papers. Filing and service are deemed to 
be effective:
    (1) In the case of personal service or same day commercial courier 
delivery, upon actual receipt by the person served;
    (2) In the case of overnight commercial delivery service, U.S. 
Postal Service Express Mail delivery, or First Class, Registered, or 
Certified Mail, upon deposit in or delivery to an appropriate point of 
collection; or
    (3) In the case of electronic transmission, including email, upon 
transmission.
    (c) Calculation of time for service and filing of responsive 
papers. Whenever a time limit is measured by a prescribed period from 
the service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by U.S. Postal Service First Class, 
Registered, or Certified Mail, add three calendar days to the 
prescribed period;
    (2) If service is made by Express Mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic transmission, add one calendar 
day to the prescribed period.


Sec.  1091.115  Change of time limits and confidentiality of 
proceedings.

    (a) Except as otherwise provided by law, the Associate Director 
until the issuance of a recommended determination, or the Director at 
any time thereafter, at their respective discretion, may extend the 
time limits prescribed by this part or by any notice or order issued 
pursuant to this part. Any request for an extension of a time limit by 
a respondent must be for good cause shown, in writing, and filed with 
the Associate Director or Director, as appropriate. The mere filing of 
a written request for an extension does not alleviate a respondent of 
the obligation to meet an applicable time limit absent written 
confirmation that an extension has been granted.
    (b) Deadlines for action by the initiating official, Associate 
Director, or the Director established in this part confer no 
substantive rights on respondents.

[[Page 40380]]

    (c) In connection with a proceeding under this part, including a 
petition for termination under Sec.  1091.113, all documents, records 
or other items submitted by a respondent to the Bureau, all documents 
prepared by, or on behalf of, or for the use of the Bureau, and any 
communications between the Bureau and a person, shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1).

    Dated: June 17, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-15485 Filed 7-2-13; 8:45 am]
BILLING CODE 4810-AM-P