CFPB consent orders typically include injunctive relief (fencing-in provisions and compliance reporting) that last for five years (or longer). This type of relief can create a significant operating burden on an entity covered by the consent order and limit its potential growth and employee retention. These fencing-in or conduct provisions generally limit how a business can operate—sometimes forcing a company to operate under rules stricter than the applicable laws and regulations. Given these burdens, companies that have provided the required redress and have made compliance changes often contemplate seeking early termination of the order. Recent CFPB guidance has shed some additional light on how the CFPB views and considers such requests.
On October 5, 2020, the CFPB released a policy statement establishing a process by which an entity subject to a consent order may apply for early termination of the order. However, the Bureau cautioned that early termination is appropriate only in "exceptional circumstances" where it "can be accomplished in a manner that minimizes the risk of new violations of law or harm to consumers." The policy statement follows remarks by CFPB Director Kathleen Kraninger last year, in which she noted that the CFPB was working on guidance regarding the consent order termination process. Director Kraninger described consent orders as "vital for the Bureau to ensure compliance," but noted that the CFPB was "also committed to ensuring consent orders remain in effect only as long as needed to achieve their desired effects." The recent policy statement is the end result of efforts described by Director Kraninger to "provide clarity and consistency" to the CFPB's consent order policies.
In unveiling its new policy, the CFPB cited the burdens that consent orders impose upon entities subject to them, and the burden that monitoring consent orders imposes upon the Bureau itself. The Bureau also explained that the possibility of early termination of consent orders could act as an incentive for entities to "fully and promptly comply with Bureau Consent Orders and to improve their compliance management systems to avoid additional violations."
To be eligible for early termination of a consent order under the new policy, an applicant must satisfy the following criteria:
- Administrative adjudication only: The applicant must be subject to a consent order that the CFPB issued and approved pursuant to its administrative process. In other words, the policy does not apply to settlements approved and ordered by a court or to court orders entered as a result of litigation.
- Individual respondents ineligible: The applicant must be a corporate entity, as only such entities—not individuals—are eligible to apply for early termination under the policy.
- One-year waiting period: Entities may not apply for early termination under the policy within the first year after the entry of the consent order, or until at least six months after all compliance and redress plans required under the consent order have been fully implemented, whichever is later.
- Additional restrictions: Entities are not eligible for early termination under the policy when:
- The consent order imposes a ban on participating in a certain industry;
- The consent order involves violations of an earlier bureau order; or
- There has been any federal, state, or local criminal action related to the violations found in the consent order, in which the entity or any of its affiliates, officers, employees, or agents have been named as a defendant or as an unindicted co-conspirator.
- One time only: Absent "extraordinary circumstances," the entity must not have previously made a request for termination of the same consent order.
In addition to meeting these threshold criteria—the first requirement for early termination—an applicant for early termination must also demonstrate that it has fully complied with the consent order and that its compliance management system is "satisfactory" for the institutional product line (IPL) or compliance area (e.g., fair lending) at issue under the order. To be "satisfactory," a compliance system must be the equivalent of a "2" rating under the Uniform Interagency Consumer Compliance Rating System.
The CFPB's statement announcing the new policy included several caveats and qualifications, which indicate the need for caution in predicting how dramatically the policy will alter the landscape with respect to consent orders. The Bureau noted that the policy is not binding on it, and that the director "intends to retain complete discretion and sole authority to terminate Consent Orders." The Bureau also expressed its belief that "in most instances Consent Orders should run for their full negotiated term"—typically five years, but sometimes longer—while indicating that early termination of a consent order should be reserved for "exceptional circumstances." Thus, it remains to be seen how freely the CFPB will grant applications for early termination of consent orders. Nevertheless, the new policy does signal a greater awareness of the burdens imposed by consent orders, and potentially offers a new opportunity for entities subject to such orders to relieve those burdens sooner than they would otherwise have anticipated.
Anyone interested in taking advantage of the early termination process that meets the criteria to do so, should consider submitting its termination request.