On May 4, the Consumer Financial Protection Bureau finalized an enforcement order against Bank of America. In its rush to make consumer financial protection law work for consumer debtors, the CFPB is muddling state commercial law and civil procedure.
The CFPB garnishment order, to which BofA consented, imposed a civil monetary penalty of $10 million and required BofA to reimburse $592,000 in garnishment-related costs charged to its depositors – a Surprisingly low recovery for consumers, given the 11-year duration of the alleged infringements. Granted, neither the fine nor the refund was a big deal for BofA, or anything that would normally concern the rest of the banking industry.
However, the remainder of the CFPB’s 46-page garnishment order is of more concern and how it could be used by the CFPB and other banking regulators, as well as debtor-depositor attorneys, at the ‘coming. The order — issued without a hearing, public notice or opportunity for comment, and without any judicial intervention — requires BofA to follow specific requirements when revamping its procedures for handling civil garnishment notices — judgment creditor notices ( and/or courts) to freeze and/or return all or part of a debtor’s deposit accounts to the bank.
The detailed requirements of the CFPB Garnishment Order conflict, in many respects, with applicable state law. For example, the order asserts that the law of the state where the affiant resides defines the applicable garnishment exemptions, contradicting the usual rule that the law of the forum state governs the terms and availability of civil remedies. . The order states that to issue a “facially valid” garnishment, a court must have jurisdiction over both the garnishee’s bank and the specific deposit account. This contradicts the state’s common law rule that jurisdiction over the garnishee’s bank is all that is required.
By basing specific procedural requirements on “applicable” state law, the CFPB fails to provide intelligible means of identifying such states and ignores significant differences between different states’ methods and criteria for determining “location.” from a bank deposit account.
Despite the order’s numerous inconsistencies with applicable state law, in issuing its garnishment order, the CFPB made no apparent attempt to comply with the letter or spirit of the statutory procedures for the federal agency’s preemption over the laws of the conflicting states. These steps could reasonably have included, for example, issuing a notice of state laws to anticipate and inviting input from the public and affected states.
The requirements of the CFPB’s garnishment order are inconsistent not only with BofA’s (apparently flawed) garnishment procedures, but also with the prevailing practices of even the most conscientious US banks. Upon receipt of a notice of garnishment, most banks check to see if the named debtor has a deposit account at the bank. If this is the case, the bank freezes the account, notifies the sender and the account holder and complies with the instructions received. They do not stop to compare the garnishment laws of various potentially relevant states or to determine which state’s garnishment law applies. They also do not keep detailed records of their handling of each notice of garnishment. Yet the CFPB order requires BofA to do all of these things and more.
As a settlement of a specific regulatory enforcement proceeding brought against BofA, the CFPB order is legally binding only on BofA (and, possibly, the CFPB itself). Its general and detailed prescriptions are not supported by a factual or evidentiary record, by testimony or exhibits at hearings or trials, or by contributions from outside industry experts or other affected parties. , and apparently have not been subject to independent third-party review. As a consensual resolution of a particular regulatory dispute, the CFPB’s BofA order is, as a technical legal matter, entitled to zero precedent weight.
However, as with any regulatory filing by a public bank, there is a significant risk that federal and state bank examiners, as well as debtors’ class action attorneys, will seek to enforce the detailed prescriptions of the garnishment order. stopping the CFPB well beyond its consensual limits in an attempt to reach out and regulate the banking industry in general. (Last year’s reluctant acceptance by bank agencies of the difference between regulatory “law” and “guidance” comes to mind.)
Such widespread application to other banks of the terms of an agency-negotiated settlement with a targeted institution—sometimes referred to as “cascade” or “best practice” regulation, or “by example” regulation—would be an evasion. advice and comment rulemaking procedures required of the CFPB and other federal banking agencies for policy statements. Nevertheless, this device is too often used to extend increasingly intrusive (and often misguided) regulation to the country’s banks. And, of course, when, as here, the Consumer Financial Protection Act is invoked, there is always the fear that litigious debtors’ attorneys will take the CFPB garnishment order as a roadmap for “strike action” and the recovery of class action settlements and attorneys’ fees.
If, despite its unprecedented basis, the garnishment order is sought to be extended and enforced by examiners or debtors’ counsel as a regulatory model, the effect will be to interpose depositary banks as arbiters rights of consumer-debtors and their creditors, a function that state courts are established and intended to perform. Thus placed in the middle, the banks will be doubly threatened – on the one hand, for their depositors and the CFPB, and on the other hand, for the judgment creditors of their depositors – not a comfortable place to be.