As we wrote last week, the CFPB recently published a Fall 2015 Supervisory Highlights which included a summary of changes that have been made to the CFPB’s supervisory appeals process. The original supervisory appeal process was published three years ago in CFPB Bulletin 2012-07. The revised supervisory appeals process incorporates a number of changes. (Note that as of November 13, 2015, the URL / hyperlink within the Bureau’s Supervisory Highlights for this revised appeals process was incorrect / broken.) The Bureau’s summary of most of these changes is excerpted below.
We believe the most important change is that the revised appeals process does not permit a supervised entity to appeal “adverse [supervisory] findings . . . related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved” (emphasis added). The prior appeal process merely stated that the supervisory appeal process could not be used to appeal “enforcement actions” generally.
This development highlights the importance of preparing compelling responses to CFPB PARR letters, since it is now clear that a decision to resolve examination findings through a public enforcement action cannot be appealed. (The PARR letter – a notice of Potential Action and Request for Response – was discussed in the Summer 2015 edition of Supervisory Highlights.) The PARR letter notifies a supervised entity after an examination when “the Bureau is considering taking supervisory action, such as a non-public memorandum of understanding, or a public enforcement action, based on the potential violations identified” during the course of the examination and described in the letter.
The CFPB expects that examiners will share preliminary negative findings with the supervised entity throughout the examination, and that the company will respond with any relevant information to correct or inform such preliminary findings. The PARR letter supplements this process by affording supervised entities an opportunity to include in their response “any reasons of fact, law or policy as to why the Bureau should not take action against the entity” and to provide supporting documentation. In short, if examiners were not persuaded by the responses and arguments provided during the examination, the PARR letter response gives the supervised entity a second bite at the apple to make any relevant arguments as to why a heightened supervisory action or a public enforcement action should not be undertaken.
After reviewing a PARR letter response, if the Bureau’s senior leadership on the Action Review Committee decides that any issues identified during an examination should be resolved through a public enforcement action, the revised appeals process dictates that this decision cannot be appealed. Thus the PARR letter response is a company’s last chance to keep exam findings within the realm of a confidential, non-public, supervisory resolution. Companies should therefore carefully consider and prepare PARR letter responses with close guidance from counsel experienced in handling CFPB supervisory and enforcement matters to ensure the response is as thorough and strategically-sound as possible.
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The Supervisory Highlights summary of other changes to the appeals process notes that the revised policy:
- Expressly allows members of the Supervision, Enforcement, and Fair Lending (SEFL) Associate Director’s staff to participate on the appeal committee, replacing the existing requirement that an Assistant Director serve on the committee;
- Permits an odd number of appeal committee members in order to facilitate resolution of appeals;
- Limits oral presentations to issues raised in the written appeal;
- Provides additional information regarding how appeals will be decided, including the standard the committee will use to evaluate the appeal; and
- Changes the expected time to issue a written decision on appeals from 45 to 60 days.