The CFPB has issued an interim final rule with a request for public comment on its new rules of practice for the issuance of temporary cease-and-desist orders (“Temporary C&Ds”). The Bureau is authorized to issue Temporary C&Ds under Section 1053(c) of the Dodd-Frank legislation. That provision, similar in many respects to the comparable provision in the Federal Deposit Insurance Act, authorizes a Temporary C&D as an adjunct to a cease-and-desist proceeding (the “case in chief”) brought under Section 1053(b) against a covered person or a service provider.
The interim final rule adds relatively little to the statutory language, which contemplates the bringing of such proceedings where a violation (or continuation thereof) alleged in the case in chief is determined by the Bureau to be likely to cause the respondent to be insolvent or otherwise to prejudice the interests of consumers prior to the completion of the case in chief. The Temporary C&D is effective immediately upon service and remains in effect unless modified or terminated administratively by the CFPB or set aside on judicial review. In essence, a Temporary C&D can be analogized to a temporary restraining order in a judicial proceeding; in each case, the underlying purpose is to preserve the status quo pendente lite.
An interesting new wrinkle in Section 1053(c)(3) is the issuance of a temporary C&D if the notice of charges filed in the case in chief specifies, on the basis of particular facts and circumstances, that the books and records of the covered person or service provider are so incomplete or inaccurate that the Bureau is unable to determine the financial condition of that person or the details or purpose of any transaction(s) that may have a material effect on such financial condition. Here, the purpose of the Temporary C&D is to require the cessation of any activity or practice giving rise to the inadequacies of the books and records or the taking of affirmative action to restore them to a complete and accurate state. Here, the interim final rule provides the order may be lifted administratively by the Director or his designee if the Bureau determines, by examination or otherwise, that the books and records are accurate and reflect the financial condition of the respondent.
As is the case with the comparable authority available to the prudential regulators, a Temporary C&D can be a two-edged sword — one that can even be used to the benefit the respondent in the case in chief if judicial review is sought. For a Temporary C&D, a respondent may seek judicial review immediately (and, in fact, must do so no later than 10 days after service or else judicial review is waived) before a federal district court, with all the procedural and evidentiary advantages that result. By contrast, if the case in chief is litigated, proceedings are administrative only, conducted before a hearing examiner, with such discovery and under such rules of evidence as the Bureau allows, and with a right of appeal to the Director. Only after the Director makes the final decision may judicial review be sought, and then only in a federal court of appeals under the deferential “substantial evidence” standard of review.