When is an Administrative Action Barred by the Dodd-Frank Act’s Three-Year Statute of Limitations? Never, According to the CFPB

statute-of-limitationsCorporate defendants are entitled to the protections afforded by statutes of limitations, which bar claims for conduct long-past and are “vital to the welfare of society.” See, e.g., Gabelli v. S.E.C., 133 S. Ct. 1216, 1221 (2013) (internal quotation omitted). A policy favoring clarity on when enforcement efforts end is manifest in statutes of limitations, which are intended to “promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.” Id. Where the plaintiff is the government, an expectation of timeliness is naturally more reasonable, given that – unlike private citizens – law enforcement agencies spend their days looking for evidence and have many powerful tools to detect misconduct.

Recently, however, the Consumer Financial Protection Bureau (“CFPB”) has doubled down on its position that the statute of limitations is inapplicable to enforcement actions brought in a certain category of proceedings. The CFPB’s enabling statute requires that any “action” under that statute must be brought within “3 years after the date of discovery of the violation to which an action relates.” 12 U.S.C. § 5564(g)(1).  Nonetheless, last year, in a case involving alleged violations of the Real Estate Settlement Procedures Act by a group of entities in the mortgage industry, Director Richard Cordray concluded that administrative proceedings are not subject to Section 1054’s three-year statute of limitations. The Director reasoned that the term “action” was used in Section 1054, which focuses on court actions, whereas the present administrative action against the companies was brought under Section 1053. Because Section 1053 does not contain an explicit statute of limitations, the Director concluded that the limitations period in Section 1054 did not apply to the asserted claims. See PHH Corp., et al., 2014-CFPB-0002, Decision of the Director at 10-11 (June 4, 2015). The companies appealed the case to the D.C. Circuit. Oral argument is set for April 12.

On the heels of that case, the CFPB has maintained its position in a separate action. On November 18, 2015, the CFPB filed claims alleging unfair, deceptive or abusive acts committed by Integrity, an online consumer loan company, and its former CEO. See Integrity Advance LLC, et al., 2015-CFPB-0029, Notice of Charges (June 19, 2015). In response to the motion to dismiss the claims as time-barred under Section 1054, the CFPB again argued that the term, “action,” is meant to refer to “civil actions in court, not to administrative proceedings like this one.” According to the CFPB, whatever the statute of limitation may be for purposes of civil litigation, an administrative proceeding is not bound by Section 1054’s statute of limitation.

Integrity responded that this reading would place form over substance, because the CFPB effectively could eviscerate a statute of limitation by choosing to file in an administrative proceeding rather than in federal district court. Integrity also argued that the term “action,” as used elsewhere in the enabling statute, formed the basis of the CFPB’s authority to recover costs or assert UDAAP claims in administrative proceedings. The statute’s overall use of “action,” therefore, shows that the term is not limited to court actions but also applies to administrative proceeding. In Integrity’s view, the CFPB was improperly interpreting the term “action” inconsistently in order to justify bringing time-barred claims. The Administrative Law Judge in the Integrity case has not yet ruled on this issue.

An interesting question that is not at issue in Integrity, however, is how Section 1054’s three-year statute of limitation interacts with the federal “catch-all” statute of limitations of five years for any “action” or “proceeding” for enforcement of civil penalties set forth in 28 U.S.C. § 2462. That five-year statute of limitations has been held to apply to administrative proceedings (in addition to court actions). See, e.g., 3M Co. v. Browner, 17 F.3d 1453, 1455-57 (D.C. Cir. 1994) (holding that 28 U.S.C. § 2462 applies to administrative proceedings). While the original order in PHH noted the statute of limitations under Section 2462, since none of the parties raised it, the Court did not rule on its applicability. Courts have yet to determine whether Section 2462 applies to claims brought by the CFPB. Going forward, parties interacting with the CFPB should be aware that, regardless of whether the CFPB may insist that Section 1054’s three-year limitation does not apply to administrative proceedings, in any event corporate defendants may invoke 28 U.S.C. § 2462’s five-year statute of limitation, at least in any action seeking civil penalties.

Until these complex questions are resolved, financial institutions should be alert to the possibility that the CFPB – if unrestrained by the courts – will continue bringing administrative enforcement actions for conduct long before the 3-year window prescribed in the CFPB’s enabling statute.

J.H. Jennifer Lee

J.H. Jennifer Lee

Jenny represents large and regional banks, card issuers, mortgage bankers or mortgage insurance companies, online lenders, Fin Tech firms, private equity firms with consumer-facing specialty finance strategies, or any “covered person” delineated in the Bureau’s statute, title X of the Dodd-Frank Act. As a lawyer who worked inside the Consumer Financial Protection Bureau (Bureau) Office of Enforcement for several years beginning with the Bureau’s founding, Jenny possesses unique experience that she draws upon to provide clients with defense strategies for enforcement by or litigation with the Bureau....

Kaleb McNeely

Kaleb McNeely

As an associate in the Trial Group, Kaleb practices primarily in the area of commercial litigation, representing clients in a variety of contractual and tort-related disputes.

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