Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination; Public Release of Decisions and Orders, 70703-70707 [2022-25139]
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70703
Rules and Regulations
Federal Register
Vol. 87, No. 223
Monday, November 21, 2022
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1091
[Docket No. CFPB–2022–0024]
Supervisory Authority Over Certain
Nonbank Covered Persons Based on
Risk Determination; Public Release of
Decisions and Orders
Bureau of Consumer Financial
Protection.
ACTION: Final rule.
AGENCY:
The Consumer Financial
Protection Bureau (Bureau) has
procedures for establishing supervisory
authority over a nonbank covered
person based on a risk determination,
which the Bureau recently amended in
April 2022 (Updated Procedural Rule).
The Updated Procedural Rule added a
new process to the procedures, for the
Bureau to consider making final
decisions and orders in these
proceedings public, in whole or in part.
While the Bureau strongly believes in
supervisory confidentiality, these
particular decisions and orders present
unique circumstances that implicate
important public interests in
transparency. The Updated Procedural
Rule did not affect the confidentiality of
supervisory examinations or other
aspects of the supervisory process. The
Bureau is making specific changes to
that rule in response to comments, in
order to clarify the standard that will
govern whether a decision or order will
be publicly released, as well as to give
respondents in proceedings additional
time to provide input on that issue.
DATES: This rule is effective on
November 21, 2022.
FOR FURTHER INFORMATION CONTACT:
Christopher Shelton, Senior Counsel,
Legal Division, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
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I. Overview
Among other sources of supervisory
authority, the Bureau can supervise a
nonbank covered person that the Bureau
‘‘has reasonable cause to determine, by
order, after notice to the covered person
and a reasonable opportunity for such
covered person 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.’’ 1 The Bureau issued a
procedural rule in 2013 to govern these
proceedings, which is codified at 12
CFR part 1091.2 Under the original
procedures, the Director’s final decision
or order in the proceeding generally
could not be publicly released.
The Updated Procedural Rule that the
Bureau issued in April 2022 amended
these procedures, creating a process for
the Director to consider whether to
publicly release a final decision or
order.3 The Updated Procedural Rule
was exempt from the notice-andcomment requirements of the
Administrative Procedure Act (APA),
because it was a rule of agency
organization, procedure, and practice.
Consequently, it was effective upon
publication. However, the Bureau
invited the public to submit comments.
The Bureau received nineteen
comments. Many of the comments
raised substantive issues regarding the
entities that commenters believe the
Bureau should designate, or how the
Bureau should approach the ‘‘risks to
consumers’’ standard. These comments
are welcome, but the Bureau is not
addressing those substantive issues in
this procedural rulemaking.
After considering the comments on
the Updated Procedural Rule, the
Bureau is making two changes. First, as
urged by several commenters, the
Bureau is codifying a standard in the
rule to govern the determination of
whether to publicly release a decision or
order. Second, at the request of one
commenter, the Bureau is extending the
1 12 U.S.C. 5514(a)(1)(C). 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. Id.
2 78 FR 40351 (July 3, 2013); see also 85 FR 75194
(Nov. 24, 2020) (updating certain cross-references to
12 CFR part 1070). The 2013 procedural rule
discussed the background and legal authority for 12
CFR part 1091 in more detail.
3 87 FR 25397 (Apr. 29, 2022).
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time period that the rule gives to
respondents to file a submission on the
issue of public release. Part II of this
preamble discusses in more detail the
significant comments that the Bureau
received.
II. Discussion
A. General Comments on Public Release
of Decisions and Orders
The preamble to the Updated
Procedural Rule explained that a central
principle of the supervisory process is
confidentiality. At the same time, final
decisions and orders in part 1091
proceedings present unique
considerations compared to other
supervisory activity. There is a public
interest in transparency when it comes
to these potentially significant rulings
by the Director as head of the agency.
Also, if a decision or order is publicly
released, it would be available as a
precedent in future proceedings.
Accordingly, the Bureau found that
there should be a procedural
mechanism to determine whether all or
part of a decision or order should be
publicly released.
Several trade associations and a credit
union supported this approach. One
association stated that public release
would benefit all financial institutions
by providing more clear examples of the
types of acts and practices that pose
risks to consumers. Another association
noted that it was opposed to any erosion
of confidentiality in the supervisory
process itself, but it agreed with the
Bureau that public release in this
unique context could be insightful for
both the public and other stakeholders.
Similarly, a third association supported
the change but emphasized that
examinations should be confidential.
Other trade associations, a law firm,
and an individual opposed any public
release. One trade association expressed
concern that public release would harm
the Bureau’s subsequent supervisory
relationship with respondents. Several
comments argued that public release
would harm the reputations of
companies. Relatedly, some commenters
argued that the Bureau’s risk
determinations would be based on
incomplete information about the
respondent’s practices, so there may be
uncertainty about what specific
practices the Bureau would find
unlawful after a full investigation.
According to these commenters, this
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could create uncertainty in the market
and discourage lawful conduct and/or
products that are beneficial to
consumers. One comment also argued
that the possibility of public release of
the final decision could discourage the
respondent from being candid when
responding to a notice of reasonable
cause issued by the Bureau. Some
comments asserted that the approach
the Updated Procedural Rule takes to
respondents in risk-designation
proceedings is inconsistent with the
approach the Bureau takes to other
supervised entities. Finally, some
commenters argued that the rule was
inconsistent with the approach of other
financial regulators, although these
comments did not cite specific
examples.
After considering these comments, the
Bureau continues to believe that there
should be a process to publicly release
final decisions and orders, in whole or
in part, under appropriate
circumstances. As the preamble to the
Updated Procedural Rule explained, the
public has an interest in understanding
these consequential decisions. It can
also be important for both the Bureau
and the respondent in a riskdetermination proceeding to be able to
cite publicly available precedents from
previous proceedings and assess
whether or not they are analogous. This
promotes consistency and
predictability.4 And the Bureau is not
persuaded that public release—subject
to the Director’s authority to withhold
or redact information when
appropriate—would be harmful, for the
reasons explained below.
First, public release of decisions and
orders should generally cause no harm
to the supervisory process, and those
situations where there is a risk of harm
can be addressed on a case-specific
basis by withholding or redacting the
relevant details. As background, the
D.C. Circuit has explained that
supervisory examinations are an
informal process, where ‘‘bank
management must be open and
forthcoming in response to the inquiries
of bank examiners, and the examiners
must in turn be frank in expressing their
concerns about the bank.’’ 5 That
informal give and take requires
confidentiality. However, a final
4 One trade association asserted that the relevant
decisions or orders have no precedential value
because they would not be binding in a future
proceeding, and also that each case is unique. The
Bureau disagrees that precedents are only relevant
when they are binding. The Bureau agrees that
cases may or may not be analogous to one another,
and some cases may turn on unique facts, but that
can be true in any body of precedent.
5 In re Subpoena Served upon the Comptroller of
the Currency, 967 F.2d 630, 634 (D.C. Cir. 1992).
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decision or order by the Bureau’s
Director, which requires a respondent to
submit to supervision, is very different
in character from the collaborative backand-forth between examiners and
company employees that is the heart of
the supervisory process.
Nonetheless, after considering the
comments, the Bureau does foresee one
circumstance where the need for
supervisory confidentiality could
potentially counsel against releasing
information. Hypothetically, if the
Director’s decision or order were to
include information about specific
potential violations of law by the
respondent, or specific potential
compliance management deficiencies,
and if that information were not
otherwise publicly available (such as in
a prior enforcement action by the
Bureau or another regulator), that could
be a situation where the risk of harm to
the supervisory process potentially
outweighs the public interest in
transparency. That is because publicly
revealing this information might signal
the specific focus of subsequent
confidential examinations. Accordingly,
redactions may be warranted in that
circumstance, as discussed further in
part II.C of this preamble, below.
At the same time, the Bureau notes
that Congress authorized the Bureau to
make a risk designation when it has
‘‘reasonable cause to determine’’ that
there are ‘‘risks to consumers.’’ 6
Congress did not require the Bureau to
make findings that a respondent has
violated the law or has compliance
management deficiencies—instead, that
is part of the purpose of subsequent
examinations of the respondent.
The Bureau’s risk-designation
authority gives the Bureau’s supervision
program the ability to move as quickly
as the marketplace. For instance, fastgrowing companies in nontraditional
areas of the consumer finance market
may be engaged in novel activities that
warrant supervisory attention because of
their risks to consumers. And there can
also be supervisory gaps in more
traditional areas of the market that
ought to be filled. Through the
supervisory process, CFPB examiners
can work with the company in question
to fully understand and manage its
risks. This preferably would occur
before there has been any violation of
law or consumer harm, rather than after.
Accordingly, the Bureau does not
anticipate that most decisions and
orders would include the kind of
specific information about potential
violations of law or compliance
6 12
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management deficiencies that warrant
redactions.
With respect to commenters’ concerns
about reputational harm, there is no
reason to believe that proceedings under
part 1091—which provide a fair
opportunity for the respondent to
present its position to the agency and
which are subject to judicial review—
are more likely than any other legal
proceeding to result in inaccurate
findings the release of which would
unfairly harm the respondent’s
reputation. In addition, to the extent the
Bureau redacts nonpublic information
about specific potential violations of
law or specific potential compliance
management deficiencies, for the
supervisory reasons discussed above
and in part II.C below, any reputational
concerns would be attenuated.7
The Bureau emphasizes that the mere
fact that the Bureau designates a
nonbank covered person for supervision
is not an allegation of wrongdoing. As
a comparison, Congress decided that
insured depository institutions and
insured credit unions with more than
$10 billion in assets would be subject to
Bureau supervision, and the Bureau has
published a list of those institutions on
its website, for informational purposes,
since the transfer of authority to the
Bureau in 2011.8 The fact that those
depository institutions and credit
unions are subject to Bureau
supervision does not mean that they are
engaged in violations of law. Similarly,
an order designating a nonbank covered
person for supervision only means that
the Bureau believes that supervision is
warranted, based on the statutory
standard for those designations. Like
with all institutions that it supervises,
the Bureau will then use the
confidential supervisory process to,
among other things, assess the nonbank
covered person’s compliance with
Federal consumer financial law.
The Bureau is also not persuaded by
the comments arguing that public
release would create uncertainty in the
market. These comments assume that
market participants would
misunderstand the nature of the
Bureau’s findings, and so they would be
7 Relatedly, a law firm argued that respondents
would have to expend substantial resources
preparing for and addressing the reputational
impact of public release. The Bureau agrees that
respondents may choose to incur some publicrelations-management and other costs to publicly
respond to a public decision or order, but that is
true of any adverse government decision and not an
appropriate rationale, in itself, for keeping such
decisions secret from the public.
8 See Institutions Subject to the Bureau’s
Supervisory Authority, https://
www.consumerfinance.gov/compliance/
supervision-examinations/institutions/.
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better off having no information about
the Bureau’s views. But the comments
do not explain why market participants
cannot be trusted to read the Bureau’s
decisions for themselves, to assess what
significance those decisions may or may
not have. It seems doubtful that a
regulated entity would achieve greater
certainty by remaining uninformed of its
regulator’s activities, or that the market
as a whole functions more effectively
when it has to guess about the market
regulator’s activities.9
The Bureau also does not believe that
it is necessary, as a general matter, for
the final order to be confidential in
order for the initiating official to
formulate a notice of reasonable cause
under part 1091 and for a respondent to
effectively respond to that notice. It is
conceivable that a complete guarantee of
confidentiality might result in
respondents providing some amount of
additional information in their
responses. But a proceeding under part
1091 does not depend to the same
degree as an examination on complete
confidentiality. The Bureau believes
that the public interest in transparency
regarding the Director’s decision or
order will generally outweigh this
consideration.
There is also no inconsistency
between the approach that the Bureau is
taking to respondents in riskdesignation proceedings compared to
other supervised entities. As noted
above, the Bureau publicly releases a
list of the insured depository
institutions and insured credit unions
that meet the $10 billion asset threshold
to be subject to its supervisory
authority. The Bureau does not
currently publish such a list for the
categories of nonbank covered persons
that fall under its supervisory authority
by statute or rule. A principal reason is
that there is no available process to
definitely establish whether a nonbank
covered person engages in business
activities that bring the nonbank
covered person within those categories,
other than when the Bureau initiates a
specific confidential examination. That
difficulty does not arise when the
Bureau’s Director has issued a final
decision or order in a part 1091
proceeding. The Bureau emphasizes that
it is committed to protecting
examination confidentiality for all
9 On a similar note, a trade-association comment
expressed concern that public release could inspire
private lawsuits against respondents. It is true that
Congress has chosen to make several of the laws
that the Bureau administers privately enforceable
by consumers. Such litigation may be meritorious
or non-meritorious. There is no reason to believe
that the Bureau’s considered findings, informed by
a fair administrative process, will increase the
proportion of non-meritorious litigation.
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categories of entities that it supervises,
in accordance with its confidentiality
rules.10
Finally, there is no inconsistency
between the Bureau and other financial
regulators in this context. Generally, the
prudential regulators supervise
institutions based on their status as
banks or credit unions, so the role that
Congress assigned to the Bureau in
extending supervision to nonbank
covered persons based on their risks to
consumers is unique. A roughly
analogous situation is when the
Secretary of the Treasury, the Chair of
the Federal Reserve Board, the Director
of the Bureau, and the other members of
the Financial Stability Oversight
Council make a determination that a
nonbank financial company will
become subject to Federal Reserve
supervision, because that company
‘‘could pose a threat to the financial
stability of the United States.’’ 11 The
Council normally publishes a detailed
explanation of its reasons. Any member
of the public can read those reasons on
the Council’s web page.12
In summary, the Bureau is not
persuaded by these commenters’
arguments that public release of
decisions and orders, in appropriate
circumstances, would be harmful.
However, as discussed in part II.C
below, the Director will consider
arguments that there are reasons why a
particular decision or order should be
withheld or redacted.13
10 12 CFR part 1070. In a related vein, one trade
association argued that the Bureau’s approach to
final orders in risk-designation proceedings is
inconsistent with the fact that it treats civil
investigative demands (CIDs) issued by the Office
of Enforcement as generally confidential. This
objection overlooks the fact that when the Director
as head of the agency rules on petitions to modify
or set aside CIDs, the Bureau normally posts the
Director’s orders on its website in the interest of
transparency. 12 CFR 1080.6(g).
11 12 U.S.C. 5323(a)(1), (b)(1).
12 Financial Stability Oversight Council,
Designations, https://home.treasury.gov/policyissues/financial-markets-financial-institutions-andfiscal-service/fsoc/designations. Of course, many
features of the Council’s determinations are
dissimilar to the Bureau’s risk determinations
because of differences between the financialstability and consumer-protection contexts, so the
Bureau does not intend to suggest they are
analogous in all respects. The Bureau further notes
that, even if the Bureau’s approach were different
from other agencies (which it is not), the Bureau is
free to pursue the approach that best achieves its
view of its own statutory mission.
13 A trade association argued that a decision
highlighting a respondent’s need to enhance
cybersecurity could invite cybercrime. This kind of
case-specific concern is properly analyzed on a
case-by-case basis, under the standard discussed
later in this preamble.
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70705
B. Alternatives to Public Release
Proposed by Commenters
Some commenters who opposed
public release advocated for
alternatives. These included: releasing
only the names of supervised nonbanks
but not the final decisions and orders
themselves; relying on potential
lawsuits seeking judicial review of
decisions and orders to make
information about them publicly
available; adding anonymized
summaries of decisions and orders to
the Bureau’s Supervisory Highlights
publication; or including anonymized
findings from subsequent exams of
designated entities in Supervisory
Highlights.
Ultimately, these alternatives would
be inadequate to meet the goals of the
Updated Procedural Rule. Releasing
only the names of designated entities, or
allowing only those proceedings that are
challenged in court to enter the public
domain, would provide the public with
much less insight into the Bureau’s use
of its risk-designation authority and
much less in the way of precedents to
inform future risk-designation
proceedings. Similarly, summarizing the
Director’s decisions and orders in an
anonymized form in Supervisory
Highlights would involve removing all
potentially identifying information,
which would likely deprive the public
of information and context to
understand the Director’s decision
regarding whether the individual entity
satisfies the statutory standard for risk
designation.
The Bureau does agree with
commenters that significant findings
from exams of designated entities, like
significant findings from other Bureau
exams, will be eligible for potential
inclusion in Supervisory Highlights if
that is appropriate under the
circumstances and can be done while
maintaining the entities’ anonymity.
Anonymity is important in that
circumstance, because exam findings for
an individual entity are part of the
collaborative back-and-forth of the
supervisory process and do not
represent a final Director decision. The
Director’s final decision and order is
different, for the reasons explained
above. And although using Supervisory
Highlights to release public summaries
of significant exam findings is valuable,
doing so would provide no direct
insight into the Director’s original
decision to make a risk designation, so
it is not a substitute for releasing the
decision.
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C. Standard for When the Bureau Would
Publicly Release a Decision or Order
In the preamble to Updated
Procedural Rule, the Bureau noted that
rule did not codify a standard to govern
public release. However, the preamble
explained that the Bureau generally
anticipated applying Exemptions 4 and
6 of the Freedom of Information Act to
information submitted by respondents
that is reflected in final decisions and
orders.14 Exemption 4 applies to ‘‘trade
secrets and commercial or financial
information obtained from a person and
privileged or confidential,’’ while
Exemption 6 applies to ‘‘personnel and
medical files and similar files the
disclosure of which would constitute a
clearly unwarranted invasion of
personal privacy.’’ 15 The Bureau stated
that it would also consider (in the
context of making individual
determinations regarding public release)
whether there are other reasons to not
publicly release the decision or order, in
whole or in part.
The Bureau specifically invited
comments on whether it should amend
the rule to codify a standard for
determinations regarding public release.
Commenters generally supported doing
so, although there was disagreement
among commenters about the best
standard. One trade association stated
that FOIA Exemptions 4 and 6 could
reasonably apply to a wide variety of
sensitive information and would give
respondents ample means to limit the
contents of a public order. Other
commenters argued that FOIA
Exemptions 4 and 6 are too limited,
might not cover certain sensitive data,
and are uncertain in scope.
After considering the comments, the
Bureau is codifying a standard in the
rule, which is that the Director will not
release information in a decision or
order to the extent it would be exempt
from disclosure under FOIA Exemptions
4 and 6 or the Director determines there
is other good cause. This standard is
similar to the approach that the Bureau
articulated in the preamble to the
Updated Procedural Rule and requested
comment upon. This approach will
provide assurance to respondents that
the Bureau will protect the categories of
information included in those two FOIA
exemptions, while not foreclosing
respondents from raising, or the Director
from invoking, other grounds that may
arise. The Bureau disagrees with some
commenters that the scope of
Exemptions 4 and 6 is too uncertain,
given that these exemptions are
14 5
U.S.C. 552(b)(4), (b)(6).
15 Id.
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routinely applied by agencies and
courts, or that the exemptions are too
narrow, given that they are the method
Congress has chosen to protect
commercial interests and personal
privacy interests in the FOIA context.16
However, the standard adopted by the
Bureau does not foreclose respondents
from arguing that information not
within those exemptions ought to be
withheld for ‘‘good cause.’’
A potential example of ‘‘good cause’’
is the supervisory considerations noted
in part II.A above. The Bureau generally
expects to redact information about
specific potential violations of law, or
specific potential compliance
management deficiencies, where the
information is not otherwise publicly
available, and where the Bureau
concludes there is a risk of harm to the
supervisory process that outweighs the
public interest in transparency.
D. Input by Respondents Into the
Determination Regarding Public Release
Section 1091.115(c)(2) of the Updated
Procedural Rule provided that, within
seven business days 17 of service of the
decision or order, the respondent had
the option of filing a submission on the
issue of public release, and then the
Director would determine whether the
decision or order would be released on
the Bureau’s website, in whole or in
part.18
16 A law firm argued that the Bureau should add
FOIA Exemption 3 to the list of exemptions, but the
Bureau concludes that would create confusion.
Exemption 3 resolves potential conflicts between
FOIA disclosure and certain other federal statutes.
5 U.S.C. 552(b)(3). It contains requirements that
may not be appropriate in a non-FOIA context. For
instance, if a federal statute is ‘‘enacted after the
date of enactment of the OPEN FOIA Act of 2009,’’
such a statute can only provide a basis for
withholding records from a FOIA requester under
Exemption 3 if it ‘‘specifically cites to’’ Exemption
3. 5 U.S.C. 552(b)(3)(B). But placing such a
condition on applicable statutes is not necessarily
appropriate in this non-FOIA context. Any statutory
requirements are best addressed within the category
of ‘‘good cause,’’ since compliance with an
applicable statute would necessarily be ‘‘good
cause,’’ rather than by relying on Exemption 3.
17 Under the general rule for counting days in part
1091, the seven-day interval does not include
intermediate Saturdays, Sundays, and Federal
holidays. 12 CFR 1091.114(a). This preamble uses
the term ‘‘business days’’ for convenience.
18 The preamble to the Updated Procedural Rule
also noted two other features of how
§ 1091.115(c)(2) operates. First, the Director’s
authority regarding public release can be delegated
to a designee of the Director under existing
§ 1091.101. Second, the Updated Procedural Rule
did not extend the staff separation-of-functions
requirement in § 1091.109(c), which applies to the
Director’s final decision and order, to the Director’s
subsequent determination regarding public release.
Doing so would not be required by law, and the
routine determination of whether to post material
on the Bureau’s website is not sufficiently
significant to warrant doing so. The Bureau did not
receive comments opposing these two features of
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A law firm argued that the Bureau
should conduct a formal adjudicatory
process when deciding whether to
publicly release a decision or order—
separate from and in addition to the
substantive part 1091 proceeding—in
which a decisionmaker other than the
Director would conduct a hearing. The
Bureau believes that the process
established by the rule provides
respondents with a full opportunity to
raise any concerns regarding public
release. The process proposed by the
law firm would be cumbersome and
disproportionate, resulting in excessive
delay, unnecessary costs for the
government, and additional legal fees
for respondents.19
The law firm argued, in the
alternative, that the seven-business-day
interval for respondents to file their
submissions regarding public release
should be extended. The law firm cited
some examples where other agencies
provide companies with ten business
days to address confidentiality issues in
those agencies’ programs. While the
Bureau believes that the burden on a
respondent to assess whether the text of
a single decision or order contains
confidential information is likely to be
limited, it will err on the side of caution
by extending the interval to ten business
days.
E. Discussion of Impacts of the Rule
The preamble to the Updated
Procedural Rule explained that it will
have limited effects on the public.
Nonbank covered persons that are
respondents may incur incidental costs,
if they choose to prepare submissions
on the issue of public release. The
preamble stated that the rule itself did
not trigger public release of decisions
and orders, since it simply established
a procedure to consider that issue. It
further noted that, if the Bureau does
ultimately decide to release a decision
or order, that should generally benefit
covered persons, consumers, and other
members of the public by giving them
the rule, and the Bureau is retaining them. Some
commenters, although not appearing to oppose the
latter feature, disputed the description of the
determination as routine. However, it is routine for
federal agencies to decide whether to release or
withhold information regarding regulated entities.
19 The same comment cites examples of other
agencies’ practice that appear to be inconsistent
with its argument that a formal adjudicatory process
with a hearing is necessary. The comment cites,
with approval, three agencies’ processes for
deciding whether to release business information
under FOIA. Under those three agencies’ FOIA
regulations, like the Bureau’s FOIA regulations, the
agency generally provides notice to the submitter of
the business information and an opportunity for the
submitter to file an objection to the potential FOIA
disclosure, and the regulations do not reference any
trial-type hearing. 29 CFR 1610.19; 31 CFR 1.5; 45
CFR 5.42; 12 CFR 1070.20.
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a better understanding of the Bureau’s
decisionmaking. This discussion from
the Updated Procedural Rule remains
applicable to this rule, which adds a
standard for making the determination
on public release and extends the
interval for respondents to make
submissions on that issue.
One trade association responded to
the Bureau’s observation that the
Updated Procedural Rule did not itself
trigger public release of decisions and
orders, arguing that the Bureau was
ignoring the consequences of the rule.
However, the statement with which this
trade association took issue is accurate:
the Updated Procedural Rule did not
cause public release by itself. The
Bureau agrees that the procedures in
that rule and this rule enable public
release, and in both rules the Bureau has
considered the consequences of such
public release.
Other comments that relate to the
impacts of public release of decisions
and orders are addressed in part II.A
above.
lotter on DSK11XQN23PROD with RULES1
F. Interagency Consultation
In formulating both the Updated
Procedural Rule and this rule, the
Bureau has consulted the prudential
regulators and the Federal Trade
Commission.
reporting, or disclosure requirements on
covered entities or members of the
public that would be collections of
information requiring approval by the
Office of Management and Budget under
the Paperwork Reduction Act.23
DEPARTMENT OF TRANSPORTATION
List of Subjects in 12 CFR Part 1091
Expunction Policy for Certain Civil
Penalty Actions, Military Referrals, and
Foreign Referrals
Administrative practice and
procedure, Consumer protection, Credit,
Trade practices.
Authority and Issuance
Accordingly, the rule that amended
12 CFR part 1091, which was published
at 87 FR 25397 on April 29, 2022, is
adopted as final with the following
changes:
PART 1091—PROCEDURAL RULE TO
ESTABLISH SUPERVISORY
AUTHORITY OVER CERTAIN
NONBANK COVERED PERSONS
BASED ON RISK DETERMINATION
1. The authority citation for part 1091
continues to read as follows:
■
Authority: 12 U.S.C. 5512(b)(1),
5514(a)(1)(C), 5514(b)(7).
2. In § 1091.115, revise paragraph
(c)(2) to read as follows:
■
III. Regulatory Requirements
The preamble to the Updated
Procedural Rule explained that, as a rule
of agency organization, procedure, or
practice, it was exempt from the noticeand-comment rulemaking requirements
of the APA.20
Because no notice of proposed
rulemaking was required, the Regulatory
Flexibility Act does not require an
initial or final regulatory flexibility
analysis.21 Moreover, the Bureau’s
Director certifies that this rule will not
have a significant economic impact on
a substantial number of small entities.
Therefore, an analysis is also not
required for that reason.22 As a result of
the rule, respondents in the relevant
proceedings may choose to make
submissions on the issue of public
release. Some of these respondents may
be small entities under the Regulatory
Flexibility Act, but they would
represent a very small fraction of small
entities in consumer financial services
markets. Accordingly, the number of
small entities affected is not substantial.
The Bureau has also determined that
this rule does not impose any new or
revise any existing recordkeeping,
§ 1091.115 Change of time limits and
confidentiality of proceedings.
*
*
*
*
*
(c) * * *
(2) Publication of final decisions and
orders by the Director. The Director will
make a determination regarding whether
a decision or order under
§ 1091.103(b)(2), 1091.109(a), or
1091.113(e) will be publicly released on
the Bureau’s website, in whole or in
part. The respondent may file a
submission regarding that issue, within
ten days after service of the decision or
order. The Director will not release
information in a decision or order to the
extent it would be exempt from
disclosure under 5 U.S.C. 552(b)(4) or
(b)(6) or the Director determines there is
other good cause. The Director may also
decide that the determination regarding
public release will itself be released on
the website, in whole or in part. Section
1091.109(c) is not applicable to
determinations under this paragraph.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2022–25139 Filed 11–18–22; 8:45 am]
BILLING CODE 4810–AM–P
20 5
U.S.C. 553(b).
U.S.C. 603, 604.
22 5 U.S.C. 605(b).
21 5
VerDate Sep<11>2014
15:56 Nov 18, 2022
23 44
Jkt 259001
70707
PO 00000
U.S.C. 3501–3521.
Frm 00005
Fmt 4700
Sfmt 4700
Federal Aviation Administration
14 CFR Parts 11, 91, and 111
[Docket No. FAA–2022–1546]
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Policy statement.
AGENCY:
The FAA will expunge
records of civil penalty actions against
individuals settled with no finding of
violation, referrals of apparent
violations by U.S. service members to
the U.S. Armed Forces, and referrals of
apparent violations by individual
foreign certificate users to foreign
aviation authorities.
DATES: This notification of enforcement
policy is effective December 1, 2022.
FOR FURTHER INFORMATION CONTACT: Cole
R. Milliard, Attorney, Enforcement
Division, AGC–300, Office of the Chief
Counsel, Federal Aviation
Administration, 800 Independence
Avenue SW, Washington, DC 20591;
telephone (202) 267–3452;
Cole.Milliard@faa.gov; or James Barry,
Manager, Policy/Audit/Evaluation,
AGC–300, Office of the Chief Counsel,
Federal Aviation Administration, 800
Independence Avenue SW, Washington,
DC 20591; telephone (202) 267–8198;
James.Barry@faa.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
In 1991, the FAA adopted a policy of
expunging records of certain closed
legal enforcement actions against
individuals.1 The policy provided for
the expunction of certain legal
enforcement action records for
individuals who hold airman
certificates and those who do not, such
as passengers. In 2011, the FAA
suspended the expunction policy 2
based on the Airline Safety and Federal
Aviation Administration Extension Act
of 2010 (‘‘Act’’).3 The Act amended the
Pilot Records Improvement Act by
requiring the FAA to create a pilot
records database (‘‘PRD’’) for air carriers
to use for pilot background checks. The
Act further required the FAA to
1 See FAA Enforcement Records; Expunction
Policy, 56 FR 55788 (Oct. 29, 1991).
2 See FAA Policy Statement on Expungement of
Certain Enforcement Actions, 76 FR 7893 (Feb. 11,
2011).
3 Public Law 111–216, 124 Stat. 2348 (2010).
E:\FR\FM\21NOR1.SGM
21NOR1
]]>Agencies
[Federal Register Volume 87, Number 223 (Monday, November 21, 2022)]
[Rules and Regulations]
[Pages 70703-70707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25139]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 87, No. 223 / Monday, November 21, 2022 /
Rules and Regulations
[[Page 70703]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1091
[Docket No. CFPB-2022-0024]
Supervisory Authority Over Certain Nonbank Covered Persons Based
on Risk Determination; Public Release of Decisions and Orders
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (Bureau) has
procedures for establishing supervisory authority over a nonbank
covered person based on a risk determination, which the Bureau recently
amended in April 2022 (Updated Procedural Rule). The Updated Procedural
Rule added a new process to the procedures, for the Bureau to consider
making final decisions and orders in these proceedings public, in whole
or in part. While the Bureau strongly believes in supervisory
confidentiality, these particular decisions and orders present unique
circumstances that implicate important public interests in
transparency. The Updated Procedural Rule did not affect the
confidentiality of supervisory examinations or other aspects of the
supervisory process. The Bureau is making specific changes to that rule
in response to comments, in order to clarify the standard that will
govern whether a decision or order will be publicly released, as well
as to give respondents in proceedings additional time to provide input
on that issue.
DATES: This rule is effective on November 21, 2022.
FOR FURTHER INFORMATION CONTACT: Christopher Shelton, Senior Counsel,
Legal Division, at 202-435-7700. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Overview
Among other sources of supervisory authority, the Bureau can
supervise a nonbank covered person that the Bureau ``has reasonable
cause to determine, by order, after notice to the covered person and a
reasonable opportunity for such covered person 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.'' \1\ The Bureau issued a procedural rule in 2013 to govern
these proceedings, which is codified at 12 CFR part 1091.\2\ Under the
original procedures, the Director's final decision or order in the
proceeding generally could not be publicly released.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5514(a)(1)(C). 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. Id.
\2\ 78 FR 40351 (July 3, 2013); see also 85 FR 75194 (Nov. 24,
2020) (updating certain cross-references to 12 CFR part 1070). The
2013 procedural rule discussed the background and legal authority
for 12 CFR part 1091 in more detail.
---------------------------------------------------------------------------
The Updated Procedural Rule that the Bureau issued in April 2022
amended these procedures, creating a process for the Director to
consider whether to publicly release a final decision or order.\3\ The
Updated Procedural Rule was exempt from the notice-and-comment
requirements of the Administrative Procedure Act (APA), because it was
a rule of agency organization, procedure, and practice. Consequently,
it was effective upon publication. However, the Bureau invited the
public to submit comments.
---------------------------------------------------------------------------
\3\ 87 FR 25397 (Apr. 29, 2022).
---------------------------------------------------------------------------
The Bureau received nineteen comments. Many of the comments raised
substantive issues regarding the entities that commenters believe the
Bureau should designate, or how the Bureau should approach the ``risks
to consumers'' standard. These comments are welcome, but the Bureau is
not addressing those substantive issues in this procedural rulemaking.
After considering the comments on the Updated Procedural Rule, the
Bureau is making two changes. First, as urged by several commenters,
the Bureau is codifying a standard in the rule to govern the
determination of whether to publicly release a decision or order.
Second, at the request of one commenter, the Bureau is extending the
time period that the rule gives to respondents to file a submission on
the issue of public release. Part II of this preamble discusses in more
detail the significant comments that the Bureau received.
II. Discussion
A. General Comments on Public Release of Decisions and Orders
The preamble to the Updated Procedural Rule explained that a
central principle of the supervisory process is confidentiality. At the
same time, final decisions and orders in part 1091 proceedings present
unique considerations compared to other supervisory activity. There is
a public interest in transparency when it comes to these potentially
significant rulings by the Director as head of the agency. Also, if a
decision or order is publicly released, it would be available as a
precedent in future proceedings. Accordingly, the Bureau found that
there should be a procedural mechanism to determine whether all or part
of a decision or order should be publicly released.
Several trade associations and a credit union supported this
approach. One association stated that public release would benefit all
financial institutions by providing more clear examples of the types of
acts and practices that pose risks to consumers. Another association
noted that it was opposed to any erosion of confidentiality in the
supervisory process itself, but it agreed with the Bureau that public
release in this unique context could be insightful for both the public
and other stakeholders. Similarly, a third association supported the
change but emphasized that examinations should be confidential.
Other trade associations, a law firm, and an individual opposed any
public release. One trade association expressed concern that public
release would harm the Bureau's subsequent supervisory relationship
with respondents. Several comments argued that public release would
harm the reputations of companies. Relatedly, some commenters argued
that the Bureau's risk determinations would be based on incomplete
information about the respondent's practices, so there may be
uncertainty about what specific practices the Bureau would find
unlawful after a full investigation. According to these commenters,
this
[[Page 70704]]
could create uncertainty in the market and discourage lawful conduct
and/or products that are beneficial to consumers. One comment also
argued that the possibility of public release of the final decision
could discourage the respondent from being candid when responding to a
notice of reasonable cause issued by the Bureau. Some comments asserted
that the approach the Updated Procedural Rule takes to respondents in
risk-designation proceedings is inconsistent with the approach the
Bureau takes to other supervised entities. Finally, some commenters
argued that the rule was inconsistent with the approach of other
financial regulators, although these comments did not cite specific
examples.
After considering these comments, the Bureau continues to believe
that there should be a process to publicly release final decisions and
orders, in whole or in part, under appropriate circumstances. As the
preamble to the Updated Procedural Rule explained, the public has an
interest in understanding these consequential decisions. It can also be
important for both the Bureau and the respondent in a risk-
determination proceeding to be able to cite publicly available
precedents from previous proceedings and assess whether or not they are
analogous. This promotes consistency and predictability.\4\ And the
Bureau is not persuaded that public release--subject to the Director's
authority to withhold or redact information when appropriate--would be
harmful, for the reasons explained below.
---------------------------------------------------------------------------
\4\ One trade association asserted that the relevant decisions
or orders have no precedential value because they would not be
binding in a future proceeding, and also that each case is unique.
The Bureau disagrees that precedents are only relevant when they are
binding. The Bureau agrees that cases may or may not be analogous to
one another, and some cases may turn on unique facts, but that can
be true in any body of precedent.
---------------------------------------------------------------------------
First, public release of decisions and orders should generally
cause no harm to the supervisory process, and those situations where
there is a risk of harm can be addressed on a case-specific basis by
withholding or redacting the relevant details. As background, the D.C.
Circuit has explained that supervisory examinations are an informal
process, where ``bank management must be open and forthcoming in
response to the inquiries of bank examiners, and the examiners must in
turn be frank in expressing their concerns about the bank.'' \5\ That
informal give and take requires confidentiality. However, a final
decision or order by the Bureau's Director, which requires a respondent
to submit to supervision, is very different in character from the
collaborative back-and-forth between examiners and company employees
that is the heart of the supervisory process.
---------------------------------------------------------------------------
\5\ In re Subpoena Served upon the Comptroller of the Currency,
967 F.2d 630, 634 (D.C. Cir. 1992).
---------------------------------------------------------------------------
Nonetheless, after considering the comments, the Bureau does
foresee one circumstance where the need for supervisory confidentiality
could potentially counsel against releasing information.
Hypothetically, if the Director's decision or order were to include
information about specific potential violations of law by the
respondent, or specific potential compliance management deficiencies,
and if that information were not otherwise publicly available (such as
in a prior enforcement action by the Bureau or another regulator), that
could be a situation where the risk of harm to the supervisory process
potentially outweighs the public interest in transparency. That is
because publicly revealing this information might signal the specific
focus of subsequent confidential examinations. Accordingly, redactions
may be warranted in that circumstance, as discussed further in part
II.C of this preamble, below.
At the same time, the Bureau notes that Congress authorized the
Bureau to make a risk designation when it has ``reasonable cause to
determine'' that there are ``risks to consumers.'' \6\ Congress did not
require the Bureau to make findings that a respondent has violated the
law or has compliance management deficiencies--instead, that is part of
the purpose of subsequent examinations of the respondent.
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5514(a)(1)(C).
---------------------------------------------------------------------------
The Bureau's risk-designation authority gives the Bureau's
supervision program the ability to move as quickly as the marketplace.
For instance, fast-growing companies in nontraditional areas of the
consumer finance market may be engaged in novel activities that warrant
supervisory attention because of their risks to consumers. And there
can also be supervisory gaps in more traditional areas of the market
that ought to be filled. Through the supervisory process, CFPB
examiners can work with the company in question to fully understand and
manage its risks. This preferably would occur before there has been any
violation of law or consumer harm, rather than after.
Accordingly, the Bureau does not anticipate that most decisions and
orders would include the kind of specific information about potential
violations of law or compliance management deficiencies that warrant
redactions.
With respect to commenters' concerns about reputational harm, there
is no reason to believe that proceedings under part 1091--which provide
a fair opportunity for the respondent to present its position to the
agency and which are subject to judicial review--are more likely than
any other legal proceeding to result in inaccurate findings the release
of which would unfairly harm the respondent's reputation. In addition,
to the extent the Bureau redacts nonpublic information about specific
potential violations of law or specific potential compliance management
deficiencies, for the supervisory reasons discussed above and in part
II.C below, any reputational concerns would be attenuated.\7\
---------------------------------------------------------------------------
\7\ Relatedly, a law firm argued that respondents would have to
expend substantial resources preparing for and addressing the
reputational impact of public release. The Bureau agrees that
respondents may choose to incur some public-relations-management and
other costs to publicly respond to a public decision or order, but
that is true of any adverse government decision and not an
appropriate rationale, in itself, for keeping such decisions secret
from the public.
---------------------------------------------------------------------------
The Bureau emphasizes that the mere fact that the Bureau designates
a nonbank covered person for supervision is not an allegation of
wrongdoing. As a comparison, Congress decided that insured depository
institutions and insured credit unions with more than $10 billion in
assets would be subject to Bureau supervision, and the Bureau has
published a list of those institutions on its website, for
informational purposes, since the transfer of authority to the Bureau
in 2011.\8\ The fact that those depository institutions and credit
unions are subject to Bureau supervision does not mean that they are
engaged in violations of law. Similarly, an order designating a nonbank
covered person for supervision only means that the Bureau believes that
supervision is warranted, based on the statutory standard for those
designations. Like with all institutions that it supervises, the Bureau
will then use the confidential supervisory process to, among other
things, assess the nonbank covered person's compliance with Federal
consumer financial law.
---------------------------------------------------------------------------
\8\ See Institutions Subject to the Bureau's Supervisory
Authority, https://www.consumerfinance.gov/compliance/supervision-examinations/institutions/.
---------------------------------------------------------------------------
The Bureau is also not persuaded by the comments arguing that
public release would create uncertainty in the market. These comments
assume that market participants would misunderstand the nature of the
Bureau's findings, and so they would be
[[Page 70705]]
better off having no information about the Bureau's views. But the
comments do not explain why market participants cannot be trusted to
read the Bureau's decisions for themselves, to assess what significance
those decisions may or may not have. It seems doubtful that a regulated
entity would achieve greater certainty by remaining uninformed of its
regulator's activities, or that the market as a whole functions more
effectively when it has to guess about the market regulator's
activities.\9\
---------------------------------------------------------------------------
\9\ On a similar note, a trade-association comment expressed
concern that public release could inspire private lawsuits against
respondents. It is true that Congress has chosen to make several of
the laws that the Bureau administers privately enforceable by
consumers. Such litigation may be meritorious or non-meritorious.
There is no reason to believe that the Bureau's considered findings,
informed by a fair administrative process, will increase the
proportion of non-meritorious litigation.
---------------------------------------------------------------------------
The Bureau also does not believe that it is necessary, as a general
matter, for the final order to be confidential in order for the
initiating official to formulate a notice of reasonable cause under
part 1091 and for a respondent to effectively respond to that notice.
It is conceivable that a complete guarantee of confidentiality might
result in respondents providing some amount of additional information
in their responses. But a proceeding under part 1091 does not depend to
the same degree as an examination on complete confidentiality. The
Bureau believes that the public interest in transparency regarding the
Director's decision or order will generally outweigh this
consideration.
There is also no inconsistency between the approach that the Bureau
is taking to respondents in risk-designation proceedings compared to
other supervised entities. As noted above, the Bureau publicly releases
a list of the insured depository institutions and insured credit unions
that meet the $10 billion asset threshold to be subject to its
supervisory authority. The Bureau does not currently publish such a
list for the categories of nonbank covered persons that fall under its
supervisory authority by statute or rule. A principal reason is that
there is no available process to definitely establish whether a nonbank
covered person engages in business activities that bring the nonbank
covered person within those categories, other than when the Bureau
initiates a specific confidential examination. That difficulty does not
arise when the Bureau's Director has issued a final decision or order
in a part 1091 proceeding. The Bureau emphasizes that it is committed
to protecting examination confidentiality for all categories of
entities that it supervises, in accordance with its confidentiality
rules.\10\
---------------------------------------------------------------------------
\10\ 12 CFR part 1070. In a related vein, one trade association
argued that the Bureau's approach to final orders in risk-
designation proceedings is inconsistent with the fact that it treats
civil investigative demands (CIDs) issued by the Office of
Enforcement as generally confidential. This objection overlooks the
fact that when the Director as head of the agency rules on petitions
to modify or set aside CIDs, the Bureau normally posts the
Director's orders on its website in the interest of transparency. 12
CFR 1080.6(g).
---------------------------------------------------------------------------
Finally, there is no inconsistency between the Bureau and other
financial regulators in this context. Generally, the prudential
regulators supervise institutions based on their status as banks or
credit unions, so the role that Congress assigned to the Bureau in
extending supervision to nonbank covered persons based on their risks
to consumers is unique. A roughly analogous situation is when the
Secretary of the Treasury, the Chair of the Federal Reserve Board, the
Director of the Bureau, and the other members of the Financial
Stability Oversight Council make a determination that a nonbank
financial company will become subject to Federal Reserve supervision,
because that company ``could pose a threat to the financial stability
of the United States.'' \11\ The Council normally publishes a detailed
explanation of its reasons. Any member of the public can read those
reasons on the Council's web page.\12\
---------------------------------------------------------------------------
\11\ 12 U.S.C. 5323(a)(1), (b)(1).
\12\ Financial Stability Oversight Council, Designations,
https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/fsoc/designations. Of course, many
features of the Council's determinations are dissimilar to the
Bureau's risk determinations because of differences between the
financial-stability and consumer-protection contexts, so the Bureau
does not intend to suggest they are analogous in all respects. The
Bureau further notes that, even if the Bureau's approach were
different from other agencies (which it is not), the Bureau is free
to pursue the approach that best achieves its view of its own
statutory mission.
---------------------------------------------------------------------------
In summary, the Bureau is not persuaded by these commenters'
arguments that public release of decisions and orders, in appropriate
circumstances, would be harmful. However, as discussed in part II.C
below, the Director will consider arguments that there are reasons why
a particular decision or order should be withheld or redacted.\13\
---------------------------------------------------------------------------
\13\ A trade association argued that a decision highlighting a
respondent's need to enhance cybersecurity could invite cybercrime.
This kind of case-specific concern is properly analyzed on a case-
by-case basis, under the standard discussed later in this preamble.
---------------------------------------------------------------------------
B. Alternatives to Public Release Proposed by Commenters
Some commenters who opposed public release advocated for
alternatives. These included: releasing only the names of supervised
nonbanks but not the final decisions and orders themselves; relying on
potential lawsuits seeking judicial review of decisions and orders to
make information about them publicly available; adding anonymized
summaries of decisions and orders to the Bureau's Supervisory
Highlights publication; or including anonymized findings from
subsequent exams of designated entities in Supervisory Highlights.
Ultimately, these alternatives would be inadequate to meet the
goals of the Updated Procedural Rule. Releasing only the names of
designated entities, or allowing only those proceedings that are
challenged in court to enter the public domain, would provide the
public with much less insight into the Bureau's use of its risk-
designation authority and much less in the way of precedents to inform
future risk-designation proceedings. Similarly, summarizing the
Director's decisions and orders in an anonymized form in Supervisory
Highlights would involve removing all potentially identifying
information, which would likely deprive the public of information and
context to understand the Director's decision regarding whether the
individual entity satisfies the statutory standard for risk
designation.
The Bureau does agree with commenters that significant findings
from exams of designated entities, like significant findings from other
Bureau exams, will be eligible for potential inclusion in Supervisory
Highlights if that is appropriate under the circumstances and can be
done while maintaining the entities' anonymity. Anonymity is important
in that circumstance, because exam findings for an individual entity
are part of the collaborative back-and-forth of the supervisory process
and do not represent a final Director decision. The Director's final
decision and order is different, for the reasons explained above. And
although using Supervisory Highlights to release public summaries of
significant exam findings is valuable, doing so would provide no direct
insight into the Director's original decision to make a risk
designation, so it is not a substitute for releasing the decision.
[[Page 70706]]
C. Standard for When the Bureau Would Publicly Release a Decision or
Order
In the preamble to Updated Procedural Rule, the Bureau noted that
rule did not codify a standard to govern public release. However, the
preamble explained that the Bureau generally anticipated applying
Exemptions 4 and 6 of the Freedom of Information Act to information
submitted by respondents that is reflected in final decisions and
orders.\14\ Exemption 4 applies to ``trade secrets and commercial or
financial information obtained from a person and privileged or
confidential,'' while Exemption 6 applies to ``personnel and medical
files and similar files the disclosure of which would constitute a
clearly unwarranted invasion of personal privacy.'' \15\ The Bureau
stated that it would also consider (in the context of making individual
determinations regarding public release) whether there are other
reasons to not publicly release the decision or order, in whole or in
part.
---------------------------------------------------------------------------
\14\ 5 U.S.C. 552(b)(4), (b)(6).
\15\ Id.
---------------------------------------------------------------------------
The Bureau specifically invited comments on whether it should amend
the rule to codify a standard for determinations regarding public
release. Commenters generally supported doing so, although there was
disagreement among commenters about the best standard. One trade
association stated that FOIA Exemptions 4 and 6 could reasonably apply
to a wide variety of sensitive information and would give respondents
ample means to limit the contents of a public order. Other commenters
argued that FOIA Exemptions 4 and 6 are too limited, might not cover
certain sensitive data, and are uncertain in scope.
After considering the comments, the Bureau is codifying a standard
in the rule, which is that the Director will not release information in
a decision or order to the extent it would be exempt from disclosure
under FOIA Exemptions 4 and 6 or the Director determines there is other
good cause. This standard is similar to the approach that the Bureau
articulated in the preamble to the Updated Procedural Rule and
requested comment upon. This approach will provide assurance to
respondents that the Bureau will protect the categories of information
included in those two FOIA exemptions, while not foreclosing
respondents from raising, or the Director from invoking, other grounds
that may arise. The Bureau disagrees with some commenters that the
scope of Exemptions 4 and 6 is too uncertain, given that these
exemptions are routinely applied by agencies and courts, or that the
exemptions are too narrow, given that they are the method Congress has
chosen to protect commercial interests and personal privacy interests
in the FOIA context.\16\ However, the standard adopted by the Bureau
does not foreclose respondents from arguing that information not within
those exemptions ought to be withheld for ``good cause.''
---------------------------------------------------------------------------
\16\ A law firm argued that the Bureau should add FOIA Exemption
3 to the list of exemptions, but the Bureau concludes that would
create confusion. Exemption 3 resolves potential conflicts between
FOIA disclosure and certain other federal statutes. 5 U.S.C.
552(b)(3). It contains requirements that may not be appropriate in a
non-FOIA context. For instance, if a federal statute is ``enacted
after the date of enactment of the OPEN FOIA Act of 2009,'' such a
statute can only provide a basis for withholding records from a FOIA
requester under Exemption 3 if it ``specifically cites to''
Exemption 3. 5 U.S.C. 552(b)(3)(B). But placing such a condition on
applicable statutes is not necessarily appropriate in this non-FOIA
context. Any statutory requirements are best addressed within the
category of ``good cause,'' since compliance with an applicable
statute would necessarily be ``good cause,'' rather than by relying
on Exemption 3.
---------------------------------------------------------------------------
A potential example of ``good cause'' is the supervisory
considerations noted in part II.A above. The Bureau generally expects
to redact information about specific potential violations of law, or
specific potential compliance management deficiencies, where the
information is not otherwise publicly available, and where the Bureau
concludes there is a risk of harm to the supervisory process that
outweighs the public interest in transparency.
D. Input by Respondents Into the Determination Regarding Public Release
Section 1091.115(c)(2) of the Updated Procedural Rule provided
that, within seven business days \17\ of service of the decision or
order, the respondent had the option of filing a submission on the
issue of public release, and then the Director would determine whether
the decision or order would be released on the Bureau's website, in
whole or in part.\18\
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\17\ Under the general rule for counting days in part 1091, the
seven-day interval does not include intermediate Saturdays, Sundays,
and Federal holidays. 12 CFR 1091.114(a). This preamble uses the
term ``business days'' for convenience.
\18\ The preamble to the Updated Procedural Rule also noted two
other features of how Sec. 1091.115(c)(2) operates. First, the
Director's authority regarding public release can be delegated to a
designee of the Director under existing Sec. 1091.101. Second, the
Updated Procedural Rule did not extend the staff separation-of-
functions requirement in Sec. 1091.109(c), which applies to the
Director's final decision and order, to the Director's subsequent
determination regarding public release. Doing so would not be
required by law, and the routine determination of whether to post
material on the Bureau's website is not sufficiently significant to
warrant doing so. The Bureau did not receive comments opposing these
two features of the rule, and the Bureau is retaining them. Some
commenters, although not appearing to oppose the latter feature,
disputed the description of the determination as routine. However,
it is routine for federal agencies to decide whether to release or
withhold information regarding regulated entities.
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A law firm argued that the Bureau should conduct a formal
adjudicatory process when deciding whether to publicly release a
decision or order--separate from and in addition to the substantive
part 1091 proceeding--in which a decisionmaker other than the Director
would conduct a hearing. The Bureau believes that the process
established by the rule provides respondents with a full opportunity to
raise any concerns regarding public release. The process proposed by
the law firm would be cumbersome and disproportionate, resulting in
excessive delay, unnecessary costs for the government, and additional
legal fees for respondents.\19\
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\19\ The same comment cites examples of other agencies' practice
that appear to be inconsistent with its argument that a formal
adjudicatory process with a hearing is necessary. The comment cites,
with approval, three agencies' processes for deciding whether to
release business information under FOIA. Under those three agencies'
FOIA regulations, like the Bureau's FOIA regulations, the agency
generally provides notice to the submitter of the business
information and an opportunity for the submitter to file an
objection to the potential FOIA disclosure, and the regulations do
not reference any trial-type hearing. 29 CFR 1610.19; 31 CFR 1.5; 45
CFR 5.42; 12 CFR 1070.20.
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The law firm argued, in the alternative, that the seven-business-
day interval for respondents to file their submissions regarding public
release should be extended. The law firm cited some examples where
other agencies provide companies with ten business days to address
confidentiality issues in those agencies' programs. While the Bureau
believes that the burden on a respondent to assess whether the text of
a single decision or order contains confidential information is likely
to be limited, it will err on the side of caution by extending the
interval to ten business days.
E. Discussion of Impacts of the Rule
The preamble to the Updated Procedural Rule explained that it will
have limited effects on the public. Nonbank covered persons that are
respondents may incur incidental costs, if they choose to prepare
submissions on the issue of public release. The preamble stated that
the rule itself did not trigger public release of decisions and orders,
since it simply established a procedure to consider that issue. It
further noted that, if the Bureau does ultimately decide to release a
decision or order, that should generally benefit covered persons,
consumers, and other members of the public by giving them
[[Page 70707]]
a better understanding of the Bureau's decisionmaking. This discussion
from the Updated Procedural Rule remains applicable to this rule, which
adds a standard for making the determination on public release and
extends the interval for respondents to make submissions on that issue.
One trade association responded to the Bureau's observation that
the Updated Procedural Rule did not itself trigger public release of
decisions and orders, arguing that the Bureau was ignoring the
consequences of the rule. However, the statement with which this trade
association took issue is accurate: the Updated Procedural Rule did not
cause public release by itself. The Bureau agrees that the procedures
in that rule and this rule enable public release, and in both rules the
Bureau has considered the consequences of such public release.
Other comments that relate to the impacts of public release of
decisions and orders are addressed in part II.A above.
F. Interagency Consultation
In formulating both the Updated Procedural Rule and this rule, the
Bureau has consulted the prudential regulators and the Federal Trade
Commission.
III. Regulatory Requirements
The preamble to the Updated Procedural Rule explained that, as a
rule of agency organization, procedure, or practice, it was exempt from
the notice-and-comment rulemaking requirements of the APA.\20\
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\20\ 5 U.S.C. 553(b).
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Because no notice of proposed rulemaking was required, the
Regulatory Flexibility Act does not require an initial or final
regulatory flexibility analysis.\21\ Moreover, the Bureau's Director
certifies that this rule will not have a significant economic impact on
a substantial number of small entities. Therefore, an analysis is also
not required for that reason.\22\ As a result of the rule, respondents
in the relevant proceedings may choose to make submissions on the issue
of public release. Some of these respondents may be small entities
under the Regulatory Flexibility Act, but they would represent a very
small fraction of small entities in consumer financial services
markets. Accordingly, the number of small entities affected is not
substantial.
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\21\ 5 U.S.C. 603, 604.
\22\ 5 U.S.C. 605(b).
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The Bureau has also determined that this rule does not impose any
new or revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\23\
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\23\ 44 U.S.C. 3501-3521.
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List of Subjects in 12 CFR Part 1091
Administrative practice and procedure, Consumer protection, Credit,
Trade practices.
Authority and Issuance
Accordingly, the rule that amended 12 CFR part 1091, which was
published at 87 FR 25397 on April 29, 2022, is adopted as final with
the following changes:
PART 1091--PROCEDURAL RULE TO ESTABLISH SUPERVISORY AUTHORITY OVER
CERTAIN NONBANK COVERED PERSONS BASED ON RISK DETERMINATION
0
1. The authority citation for part 1091 continues to read as follows:
Authority: 12 U.S.C. 5512(b)(1), 5514(a)(1)(C), 5514(b)(7).
0
2. In Sec. 1091.115, revise paragraph (c)(2) to read as follows:
Sec. 1091.115 Change of time limits and confidentiality of
proceedings.
* * * * *
(c) * * *
(2) Publication of final decisions and orders by the Director. The
Director will make a determination regarding whether a decision or
order under Sec. 1091.103(b)(2), 1091.109(a), or 1091.113(e) will be
publicly released on the Bureau's website, in whole or in part. The
respondent may file a submission regarding that issue, within ten days
after service of the decision or order. The Director will not release
information in a decision or order to the extent it would be exempt
from disclosure under 5 U.S.C. 552(b)(4) or (b)(6) or the Director
determines there is other good cause. The Director may also decide that
the determination regarding public release will itself be released on
the website, in whole or in part. Section 1091.109(c) is not applicable
to determinations under this paragraph.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-25139 Filed 11-18-22; 8:45 am]
BILLING CODE 4810-AM-P
