CFPB’s Garnishment Order Makes a Muddle of Law, Procedure

Source: American Banker

On May 4, the Consumer Financial Protection Bureau finalized an enforcement order against Bank of America. In its zeal to bring the Consumer Financial Protection Act to the aid of consumer-debtors, the CFPB makes a muddle of state commercial law and civil procedure.

The CFPB garnishment order, to which BofA consented, assessed a civil money penalty of $10 million and required BofA to refund $592,000 in garnishment-related fees charged to its depositors — an astonishingly small recovery for consumers, given the 11-year duration of the alleged violations. Certainly, neither the fine nor the reimbursement was a particularly big deal for BofA, or anything that would ordinarily concern the rest of the banking industry.

As a settlement of a specific regulatory enforcement proceeding brought against BofA, the CFPB order is legally binding on no one other than BofA (and, perhaps, the CFPB itself). Its sweeping and detailed prescriptions are not supported by a factual or evidentiary record, by hearing or trial testimony or exhibits, or by input from outside industry experts or other affected parties, and apparently, have not been subjected to independent third-party review. As a consensual settlement of a particular regulatory dispute, the CFPB’s BofA order is, as a technical legal matter, entitled to zero precedential weight.

However, as with any public bank regulatory pronouncement, there is a significant danger that federal and state bank examiners, as well as debtors’ class action counsel, may seek to apply the detailed prescriptions of the CFPB garnishment order far beyond its consensual limits in an attempt to reach and regulate the banking industry generally. (Last year’s grudging banking agency acceptance of the difference between regulatory “law” and “guidance” comes to mind.)

Such an expansive application to other banks of terms of an agency’s negotiated settlement with one targeted institution — sometimes referred to as “trickle down” or “best practices” regulation, or regulation “by example” — would be an evasion of the notice and comment rulemaking procedures required of the CFPB and other federal banking agencies for broad policy pronouncements. Nevertheless, that device is employed all too frequently to extend ever more intrusive (and often misguided) regulation to the nation’s banks. And, of course, when, as here, the Consumer Financial Protection Act is invoked, there is always the concern that litigious debtors’ counsel may take the CFPB's garnishment order as a road map for “strike suits” and recovery of class action settlements and attorneys’ fees.