5 minute read | May.25.2023
Heartburn, schadenfreude, existential dread – reading an enforcement action issued by one of your regulators can evoke these reactions even when your company wasn't the target. You may recognize similarities between your company’s practices and the facts described in the consent order. The knee-jerk reaction might be to change what you're doing. Sometimes that might be the right thing to do. Other times, it may not be.
For example, in May 2022, the CFPB fined Bank of America $10 million and ordered it to pay hundreds of thousands of dollars in restitution to consumers over alleged deficiencies in the bank’s garnishment-related practices. Over forty-plus pages, the CFPB described in detail what it viewed as errors in the bank’s garnishment practices and required the bank to make numerous changes. The order revealed that the CFPB’s view of the law conflicts with the long-established understanding shared by those in the industry and state courts around the country. Most notably, the order asserts that applicable garnishment exemptions are governed by the law of the state where the customer lives, contradicting the general rule that the law of the forum state determines what civil remedies are available. The order also ignores important distinctions among various states’ laws regarding how to determine where a bank account is located, and how that impacts or does not impact the jurisdictional reach of the state’s courts.
In short, the order puts every bank in a tough spot. It’s not as if they can disregard valid state court orders based on the CFPB’s enforcement action. At the same time, the order shows that the CFPB’s expectations do not align with long-standing and widespread practices in the industry. More broadly, it shows that the agency’s expectations conflict with basic legal principles because, just like every other recipient of a court order, banks are expected to comply. This presents real regulatory and enforcement risk to institutions, and there is no clear or easy answer on how to proceed.
Enforcement actions are tricky to interpret because they don’t carry the full force of law the way a regulation does. They are a one-sided view written by the government. They are not technically binding on anyone except the named company. But they provide a window into the agency’s view of the law and explain how the agency applied it to a specified fact pattern. What should you do with that information? Here are a few considerations to think about: