Federal Register, Volume 78 Issue 88 (Tuesday, May 7, 2013)

[Federal Register Volume 78, Number 88 (Tuesday, May 7, 2013)]
[Proposed Rules]
[Pages 26545-26556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10318]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1075

[Docket No. CFPB-2013-0012]
RIN 3170-AA38

Consumer Financial Civil Penalty Fund

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act or Act) establishes a ``Consumer Financial Civil
Penalty Fund'' (Civil Penalty Fund) into which the Consumer Financial
Protection Bureau (Bureau) must deposit any civil penalty it obtains
against any person in any judicial or administrative action under
Federal consumer financial laws. Under the Act, funds in the Civil
Penalty Fund may be used for payments to the victims of activities for
which civil penalties have been imposed under Federal consumer
financial laws. In addition, to the extent that such victims cannot be
located or such payments are otherwise not practicable, the Bureau may
use funds in the Civil Penalty Fund for the purpose of consumer
education and financial literacy programs. This proposal is related to
a final rule published elsewhere in today's Federal Register. That
final rule implements the statutory Civil Penalty Fund provisions by
articulating the Bureau's interpretation of what kinds of payments to
victims are appropriate and by establishing procedures for allocating
funds for such payments to victims and for consumer education and
financial literacy programs. This notice of proposed rulemaking seeks
comments on possible revisions, adjustments, or refinements to the
rule.

DATES: Comments must be received on or before July 8, 2013 to be
assured of consideration.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2013-
0012 or Regulatory Identification Number (RIN) 3170-AA38, by any of the
following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552.
Instructions: All submissions should include the agency name and
docket number or RIN for this rulemaking. Because paper mail in the
Washington, DC area and at the Bureau is subject to delay, commenters
are encouraged to submit comments electronically. In general, all
comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public
inspection and copying at 1700 G Street NW., Washington, DC 20552, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. You can

[[Page 26546]]

make an appointment to inspect the documents by telephoning (202) 435-
7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or Social
Security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Kristin Bateman, Attorney-Advisor,
Legal Division, Bureau of Consumer Financial Protection, 1700 G Street
NW., Washington, DC 20552, at (202) 435-7821.

SUPPLEMENTARY INFORMATION:

I. Background

Title X of the Dodd-Frank Act established the Bureau with a mandate
to regulate the offering and provision of consumer financial products
and services under the Federal consumer financial laws. Public Law 111-
203, section 1011(a) (2010), codified at 12 U.S.C. 5491(a). The Dodd-
Frank Act authorizes the Bureau, among other things, to enforce Federal
consumer financial laws through judicial actions and administrative
adjudication proceedings. 12 U.S.C. 5563, 5564. In those actions and
proceedings, a court or the Bureau may require a party that has
violated the law to pay a civil penalty. See, e.g., 12 U.S.C. 5565.
Section 1017(d)(1) of the Dodd-Frank Act establishes a separate
fund in the Federal Reserve, the ``Consumer Financial Civil Penalty
Fund'' (Civil Penalty Fund or Fund), into which the Bureau must deposit
civil penalties it collects from any person in any judicial or
administrative action under Federal consumer financial laws. 12 U.S.C.
5497(d)(1). Under the Act, amounts in the Fund may be used ``for
payments to the victims of activities for which civil penalties have
been imposed under the Federal consumer financial laws.'' 12 U.S.C.
5497(d)(2). In addition, ``[t]o the extent that such victims cannot be
located or such payments are otherwise not practicable,'' the Bureau
may use amounts in the Fund for consumer education and financial
literacy programs. Id.
Today, the Bureau is issuing a final rule entitled ``Consumer
Financial Civil Penalty Fund Rule'' (Final Rule) that implements this
section of the Dodd-Frank Act. Because the Final Rule is interpretive
and procedural and relates to benefits, it is exempt from the notice-
and-comment rulemaking requirements of the Administrative Procedure
Act. Nonetheless, the Bureau believes public input on the Final Rule
would be valuable. The Bureau therefore seeks comment on the choices
reflected in the Final Rule and on possible revisions, adjustments,
refinements, or other changes to the rule. This notice of proposed
rulemaking presents several such changes that the Bureau is
considering. In addition to those changes, the Bureau seeks comment on
all aspects of the Final Rule and suggestions for modifications or
alternatives.

II. Summary of the Proposal

Today, the Bureau is issuing a Final Rule to implement section
1017(d)(2) of the Dodd-Frank Act, 12 U.S.C. 5497(d)(2). As the
Supplementary Information to the Final Rule explains in greater detail,
the Final Rule specifies the conditions under which victims will be
eligible for payment from the Civil Penalty Fund and the amounts of the
payments that the Bureau may make to them. The Final Rule also
establishes procedures for allocating funds for payments to victims and
for consumer education and financial literacy programs, and for
distributing allocated funds to individual victims. This notice of
proposed rulemaking seeks comment on, and proposes to amend, the Final
Rule.
First, this notice of proposed rulemaking seeks comment on the
Final Rule's provision on the category of victims who are eligible for
payments. Under the Final Rule, a victim is eligible for payment from
the Civil Penalty Fund if a final order in a Bureau enforcement action
imposed a civil penalty for the violation or violations that harmed the
victim. The Bureau is considering whether it should make payments to a
broader category of victims: victims of any type of ``activities'' for
which civil penalties have been imposed under the Federal consumer
financial laws, even if no enforcement action imposed a civil penalty
for the particular ``activities'' that harmed the victim. The Bureau
also seeks comment on how, under this alternative approach, it might
identify the types of ``activities'' for which civil penalties were
imposed, and how it might identify the victims of those types of
activities who are eligible to receive Civil Penalty Fund payments.
Second, this notice of proposed rulemaking seeks comment on the
Final Rule's provisions on the amounts of the payments that victims may
receive. Under the Final Rule, the Bureau will use funds in the Civil
Penalty Fund for payments to compensate eligible victims' uncompensated
harm. The Bureau is considering whether it should instead pay victims a
share of the civil penalties collected for the particular violations
that harmed them. This notice also sets forth for comment two
variations on that alternative. Under one, the Bureau would pay victims
a share of the civil penalties collected for the particular violations
that harmed them, but only to the extent that those payments do not
exceed the victims' uncompensated harm. Under the other alternative,
victims could receive a share of the civil penalties collected for the
violations that harmed them, as well as additional amounts from the
Civil Penalty Fund, up to the amount of their uncompensated harm. Under
that alternative, when victims of a violation for which a civil penalty
is obtained had already received full compensation, the amount of that
civil penalty would become available for payments to victims of other
violations who had not received full compensation.
This notice also seeks comment on the Final Rule's provisions
regarding uncompensated harm. The Final Rule provides that a victim's
uncompensated harm is the victim's compensable harm, as described in
Sec. 1075.104(c), minus any compensation for that harm that the victim
has received or is reasonably expected to receive. This notice seeks
comment on possible amendments to the provisions regarding what amounts
a victim is ``reasonably expected to receive'' and what qualifies as
compensable harm. The Final Rule provides that a victim is ``reasonably
expected to receive,'' among other things, redress that does not arise
from a Bureau enforcement action if a party has paid such redress to an
intermediary for distribution to the victim. This notice seeks comment
on whether the Bureau should also deem victims reasonably likely to
receive any redress that a final judgment in a non-Bureau action orders
a party to pay, unless there is some indication that the party will not
pay it. The notice also seeks comment on whether it should change what
qualifies as a victim's compensable harm in cases where the amount of
that harm cannot be determined based on the terms of a final order
alone. Under the Final Rule, victims' compensable harm in those
circumstances is equal to their out-of-pocket losses. This notice seeks
comment on whether victims' compensable harm in those circumstances
should instead be whatever amount of harm the Fund Administrator
determines is practicable given the facts of the particular case.
Third, this notice seeks comment on the schedule that the Final
Rule establishes for allocating funds for

[[Page 26547]]

payments to victims and for consumer education and financial literacy
programs. Under the Final Rule, the Fund Administrator--a Bureau
employee charged with administering the Civil Penalty Fund--will
allocate funds in the Civil Penalty Fund to classes of victims and, as
appropriate, to consumer education and financial literacy programs
every six months. This seeks comment on whether the Fund Administrator
should allocate funds more or less frequently, or whether a different
method of timing allocations would be appropriate.
Fourth, this notice seeks comment on the procedures for allocating
funds to classes of victims, i.e., to groups of similarly situated
victims who suffered the same or similar violations for which the
Bureau obtained relief in an enforcement action. In particular, the
notice seeks comment on possible alternatives to the allocation
procedures that the Final Rule establishes for when sufficient funds
are not available to compensate fully the uncompensated harm of all
victims to whom it is practicable to make payments.
Under the Final Rule, classes of victims are assigned to six-month
periods based on when they first had uncompensated harm, and the Fund
Administrator will prioritize allocations to classes of victims from
the most recent six-month period. This notice describes and seeks
comment on several alternatives or modifications to these allocation
procedures. As one option, instead of prioritizing allocations to
certain classes, the Fund Administrator might attempt to allocate
available funds among all classes with uncompensated harm. As a second
alternative, the Fund Administrator could prioritize allocations to
classes of victims from the oldest, rather than most recent, six-month
periods. As a third alternative, the Fund Administrator could
prioritize allocations to classes in which individual victims have the
greatest amount of uncompensated harm. As a fourth alternative, at
times when insufficient funds are available to compensate fully the
uncompensated harm of all victims, the Fund Administrator could make a
discretionary decision about how to allocate the limited funds.
This notice also seeks comment on whether it should modify the
allocation procedures to specify the amounts to be allocated to each
class when the available funds are not sufficient to provide full
compensation for the uncompensated harm of all victims from all classes
from a single six-month period. In particular, the notice seeks comment
on whether, in those circumstances, the Fund Administrator should
allocate funds to the classes of victims from a single six-month period
in a manner designed to ensure, to the extent possible, that the
victims in those classes to whom it is practicable to make payments
will receive compensation, through redress and Civil Penalty Fund
payments, for an equal percentage of their compensable harm.
Fifth, this notice seeks comment on the provisions governing
allocations to consumer education and financial literacy programs.
Under the Final Rule, if the Fund Administrator allocates sufficient
funds to classes of victims to provide full compensation for the
uncompensated harm of all victims to whom it is practicable to make
payments, she may allocate any remaining funds to consumer education
and financial literacy programs. This notice seeks comment on whether
the rule should limit the amount of funds that the Fund Administrator
may allocate to consumer education and financial literacy programs in
these circumstances.
Sixth, this notice seeks comment on possible amendments to the
procedures that the Final Rule establishes for disposing of funds
allocated to a class of victims that remain undistributed after the
payments administrator has made, or attempted to make, payments to the
victims in that class. Under the Final Rule, such remaining funds will
be distributed to victims in the class to which the funds were
allocated, up to the amount of the victims' remaining uncompensated
harm. The Bureau seeks comment on whether it should instead require
such remaining funds to be returned to the Civil Penalty Fund.
Finally, this notice also generally invites comment on all aspects
of the Final Rule.

III. Legal Authority

The Bureau is proposing this rule pursuant to its authority under
section 1022(b)(1) of the Dodd-Frank Act, which authorizes the Bureau
to prescribe rules as may be necessary or appropriate to enable the
Bureau to administer and carry out the purposes and objectives of
Federal consumer financial law, 12 U.S.C. 5512(b)(1); and under section
1017(d) of the Dodd-Frank Act, which establishes the Civil Penalty Fund
and authorizes the Bureau to use amounts in that Fund for payments to
victims and for consumer education and financial literacy programs.

IV. Section-by-Section Description

Section 1075.100 Scope and Purpose

Section 1075.100 of the Final Rule describes the rule's scope and
purpose, as explained in greater detail in the Supplementary
Information to the Final Rule. The Bureau is not proposing changes to
this section.

Section 1075.101 Definitions

Section 1075.101 of the Final Rule defines terms used in the rule,
as described in greater detail in the SUPPLEMENTARY INFORMATION to the
Final Rule. The Bureau seeks comment on each of the definitions set
forth in the Final Rule and any suggested clarifications,
modifications, or alternatives.

Section 1075.102 Fund Administrator

As discussed in greater detail in the Supplementary Information to
the Final Rule, Sec. 1075.102 of the Final Rule establishes within the
Bureau the position of Civil Penalty Fund Administrator (Fund
Administrator) and describes that person's role and the role of the
Civil Penalty Fund Governance Board. The Bureau is not proposing
changes to this section.

Section 1075.103 Eligible Victims

Section 1075.103 of the Final Rule provides that a victim is
eligible for payment from the Civil Penalty Fund if a final order in a
Bureau enforcement action imposed a civil penalty for the violation or
violations that harmed the victim. This implements the Dodd-Frank Act,
which authorizes Civil Penalty Fund payments to ``the victims of
activities for which civil penalties have been imposed under the
Federal consumer financial laws.'' 12 U.S.C. 5497(d)(2). The Act does
not clearly specify whether the particular activities that affected a
particular victim must have been found to be violations in an
enforcement action before the victim may receive payments from the
Civil Penalty Fund. However, as explained in greater detail in the
Supplementary Information to the Final Rule, the Bureau has interpreted
section 1017(d)(2) of the Dodd-Frank Act as authorizing such payments
only to the victims of particular violations for which civil penalties
were imposed.
The Bureau seeks comment on the criteria for victims' eligibility
for payment from the Civil Penalty Fund, as well as suggestions for
modifications or alternatives. The Bureau also specifically seeks
comment on whether it should instead interpret section 1017(d)(2) of
the Dodd-Frank Act more broadly to authorize payments to

[[Page 26548]]

victims of any type of ``activities'' for which civil penalties were
imposed under the Federal consumer financial laws, even if no
enforcement action identified as a violation, or imposed a civil
penalty for, the particular ``activities'' that harmed the victim.
The Bureau also seeks comment on how it might identify the types of
``activities'' that would qualify as ``activities for which civil
penalties have been imposed'' under this alternative interpretation.
One possibility would be for such activities to include actions by a
defendant that are similar to actions by the same defendant that gave
rise to a civil penalty. Another possibility would be to define the
``activities'' for which civil penalties are imposed at a higher level
of generality. Under that approach, victims of a particular type of
activity--for example, deceptive marketing of credit card add-on
products or unlawful collection of advance fees in exchange for debt
settlement services--would qualify as victims of ``activities for which
civil penalties have been imposed'' so long as civil penalties had been
imposed for those kinds of violations.
More broadly interpreting ``activities for which civil penalties
have been imposed'' in either of these ways would make more victims
eligible for payment from the Fund. On the other hand, this approach
would be harder to administer, as it would not be as straightforward to
identify the ``activities'' for which civil penalties were imposed as
it would be to identify the violations for which civil penalties were
imposed. This approach--and the second proposed way of defining the
``activities'' for which civil penalties are imposed, in particular--
could require difficult subjective judgments about whether activities
were sufficiently similar to activities that gave rise to civil
penalties. The Bureau seeks comment on ways in which the Bureau might
mitigate these potential problems.

Section 1075.104 Payments to Victims

104(a) In General
Section 1075.104(a) of the Final Rule provides that the Bureau will
use funds in the Civil Penalty Fund for payments to compensate eligible
victims' uncompensated harm, as described in paragraph (b) of this
section. As explained in greater detail in the Supplementary
Information to the Final Rule, this provision gives effect to the
Bureau's interpretation of section 1017(d)(2) of the Dodd-Frank Act as
authorizing payments to victims only up to the amount necessary to
compensate them for the harm they suffered as a result of a violation.
The Bureau requests comment on this interpretation and suggestions
for modifications or alternatives. The Bureau also specifically seeks
comment on possible alternatives proposed here.
First, the Bureau seeks comment on whether it should base payments
not on the amount of a victim's uncompensated harm, but rather solely
on the size of the civil penalty paid for the violation that harmed the
victim. Under that alternative, each payment would be a share of the
civil penalty collected for the particular violation that harmed the
victim receiving the payment, without regard to whether the payment was
more or less than the victim's uncompensated harm. This approach would,
in effect, take the civil penalty collected from one defendant and
distribute it just to that defendant's victims. This differs from the
approach taken in the Final Rule, which pools civil penalties from
multiple cases for distribution to classes of eligible victims from all
cases, as the discussion of Sec. 1075.103 in the Supplementary
Information to the Final Rule explains in further detail.
The Bureau also seeks comment on how, under this alternative
approach, it would determine the share of a civil penalty that a victim
would receive. For example, victims could receive equal shares of the
civil penalty collected for the violation that harmed them, or they
could receive shares of the civil penalty in proportion to the amount
of harm they suffered from the violation.
The proposed alternative approach might be easier to administer
than the approach taken in the Final Rule, because the Fund
Administrator would consider individual civil penalty amounts and
individual classes of victims in isolation. The amount of each payment
also could be easier to calculate if victims simply received equal
shares of the civil penalty imposed for the violation or violations
that harmed them. In addition, under this proposed alternative,
payments could be made more quickly because there would be no reason to
wait to disburse funds after they are deposited in the Fund. Whenever a
defendant paid a civil penalty into the Fund, the Fund Administrator
could immediately allocate the amount of that penalty for distribution
to that defendant's victims.
On the other hand, this approach could undercompensate some victims
while overcompensating others. Victims of defendants with limited
financial resources, or victims of defendants who for other reasons do
not or cannot pay full redress or large penalties, likely would not
receive full compensation for their harm under this approach. At the
same time, victims of defendants who paid full redress would likely
receive windfall payments.
The Bureau is also considering, and seeks comment on, two
additional alternatives that would mitigate one or both of these
negative consequences. First, the Bureau could pay victims a share of
the civil penalties collected for the particular violations that harmed
them, but only to the extent that those payments do not exceed victims'
uncompensated harm. This could be somewhat more difficult to administer
than the first proposed alternative because it would require
calculation of victims' uncompensated harm, but it would avoid
overcompensating victims. It could also lead to under-compensation of
some victims, however. Under this approach, a victim could not receive
any more than a share of the civil penalty paid for the violation that
harmed the victim. If a victim's share of the civil penalty paid for
the violation that harmed the victim was not enough to provide full
compensation for the victim's uncompensated harm, the victim would not
be eligible for additional payments. In cases where the victims of a
violation for which a civil penalty was imposed had already received
full compensation, the civil penalty amount would not be used for
payments to victims of other violations, but would instead be used for
consumer education and financial literacy programs.
A second additional alternative would avoid overcompensating
victims while also giving all victims the opportunity to receive full
compensation for their uncompensated harm. Under this second
alternative, the Bureau could first pay victims their share of the
civil penalty collected for the violation that harmed them, up to the
amount of their uncompensated harm. Remaining amounts of that
individual civil penalty could then go into a common pool of funds
available for distribution to all eligible victims who have not yet
received compensation for their uncompensated harm. Those victims could
then receive additional amounts from that common pool up to the amount
of their uncompensated harm. This approach, like the approach taken in
the Final Rule, would neither under- nor over-compensate victims.
Unlike the approach taken in the Final Rule, however, this alternative
would ensure that funds from a particular defendant's civil penalty
would not be used to pay victims of other defendants if the victims of
that defendant had not yet received full compensation.

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104(b) Victims' Uncompensated Harm
As noted above and explained in further detail in the SUPPLEMENTARY
INFORMATION to the Final Rule, Sec. 1075.104(a) of the Final Rule
provides that the Bureau will use funds in the Civil Penalty Fund for
payments to compensate eligible victims' uncompensated harm. In
addition, some of the alternatives to that approach discussed above
would also base the amount of Civil Penalty Fund payments in part on
the amount of victims' uncompensated harm. Section 1075.104(b) of the
Final Rule describes what constitutes victims' uncompensated harm. The
Bureau seeks comment on this provision, as well as suggestions for
modifications or alternatives.
Under Sec. 1075.104(b) of the Final Rule, a victim's uncompensated
harm is the victim's compensable harm, as described in Sec.
1075.104(c), minus any compensation for that harm that the victim has
received or is reasonably expected to receive. As the Supplementary
Information to the Final Rule explains in greater detail, the Final
Rule describes three categories of compensation that a victim ``has
received or is reasonably expected to receive'' for purposes of this
provision. The Bureau specifically requests comment on what categories
of compensation a victim should be deemed ``reasonably expected to
receive.''
In particular, the Bureau invites comment on when victims should be
deemed ``reasonably expected to receive'' redress that does not arise
from a Bureau enforcement action. Under the Final Rule, a victim is
reasonably expected to receive such ``other'' redress only if a party
has paid that redress to an intermediary for distribution to the
victim. As the Supplementary Information to the Final Rule explains,
this does not include amounts that a party has been ordered to pay but
has not yet paid because the Bureau may not know whether a party is
actually likely to pay redress ordered in a case to which the Bureau is
not a party. As an alternative, the Bureau could instead deem victims
reasonably likely to receive redress ordered in a final judgment in a
non-Bureau action unless and until there is some indication that the
defendant will not pay, such as if the defendant fails to pay by the
time ordered. This approach could decrease the chances that a Civil
Penalty Fund payment would duplicate compensation that a victim
receives in the future as a result of other litigation.
104(c) Victims' Compensable Harm
As explained above, under the Final Rule, the Bureau will use funds
in the Civil Penalty Fund for payments to compensate victims for their
compensable harm, minus any compensation for that harm that they have
received or are reasonably expected to receive. Section 1075.104(c) of
the Final Rule describes the amount of victims' compensable harm for
purposes of this rule. The Bureau seeks comment on this provision, as
well as suggestions for modifications or alternatives.
As explained further in the SUPPLEMENTARY INFORMATION to the Final
Rule, the Bureau interprets section 1017(d)(2) of the Dodd-Frank Act as
directing the Bureau to make payments to victims only to the extent
that such payments are practicable. For payments to be practicable, the
Bureau must be able to determine the amount of the payments that the
victims may receive--which, under the Final Rule, depends on the amount
of the victims' harm--using means that are reasonable in the context of
the Civil Penalty Fund. Section 1075.104(c) accordingly defines
``compensable harm'' to include only those amounts of harm that are
practicable to calculate given the nature of the Civil Penalty Fund and
the likely volume of payments. In particular, Sec. 1075.104(c) of the
Final Rule reflects the Bureau's understanding that it will be
practicable to calculate only those harm amounts that can be determined
by applying objective standards on a classwide basis. Section
1075.104(c) implements this understanding by describing specific
measures by which harm may practicably be ascertained and by
establishing procedures that the Fund Administrator will follow to
determine compensable harm in each of several categories of cases.
Under the Final Rule, the amount of a victim's compensable harm
will be based on the objective terms of a final order to the extent
possible. Specifically, under the Final Rule, the Fund Administrator
will refer to the terms of a final order to determine victims'
compensable harm in three categories of cases. First, if a final order
in a Bureau enforcement action ordered redress for a class of victims,
the compensable harm of each victim in that class is equal to the
victim's share of the total redress ordered, including any amounts that
have been suspended or waived. Second, if the Bureau sought redress for
a class of victims but a court or administrative tribunal denied that
request for redress in the final order, the victims in that class have
no compensable harm. Third, if the final order in a Bureau enforcement
action neither ordered nor denied redress to victims but did specify
the amount of their harm, including by prescribing a formula for
calculating that harm, each victim's compensable harm is equal to that
victim's share of the amount specified.
The Final Rule also describes how the Fund Administrator will
determine the compensable harm of victims in classes for which the
final order does not order redress, deny a request for redress, or
specify the amount of harm--and thus for which it is not possible to
base the amount of compensable harm on the terms of the final order
alone. Under Sec. 1075.104(c)(2)(iii) of the Final Rule, the
compensable harm of victims of such classes is equal to their out-of-
pocket losses that resulted from the violation or violations for which
a civil penalty was imposed, except to the extent such losses are
impracticable to determine. As explained further in the SUPPLEMENTARY
INFORMATION to the Final Rule, this measure of harm is what would be
``practicable'' for the Bureau to determine in the context of
disbursing funds from the Civil Penalty Fund. In particular, out-of-
pocket losses generally may be measured by applying objective standards
on a classwide basis, and evidence of such losses generally will be
straightforward to obtain and assess without a need to make complex or
subjective judgments.
The Bureau specifically requests comment on whether the Final Rule
appropriately reflects what scope of harm would be practicable to
calculate in cases in which the amount of that harm cannot be based on
the terms of the final order alone. The Bureau also seeks suggestions
for alternative ways in which the Fund Administrator could practicably
determine victims' compensable harm in such cases, including
suggestions for alternative measures of harm that may be practicable to
calculate. The Bureau specifically requests comment on whether, rather
than specifying a consistent measure of harm that will be practicable
to determine in most cases, it should permit the Fund Administrator to
decide on a case-by-case basis what measure of harm would be
practicable to calculate given the circumstances of the particular
case. The Bureau also seeks comment on what factors could make harm
amounts practicable or impracticable to calculate. For example, harm
could be impracticable to calculate if the relevant evidence is hard to
find or gather. It may also be impracticable to calculate harm in the
context of the Civil Penalty Fund if the

[[Page 26550]]

harm or the relevant evidence requires subjective evaluation. In some
cases, calculating harm could be impracticable if doing so would
involve complex calculations, or if developing a formula for
calculating the amount of harm would require substantial economic
analysis.

Section 1075.105 Allocating Funds from the Civil Penalty Fund--In
General

Section 1075.105 of the Final Rule establishes basic procedures
that the Fund Administrator will follow when allocating funds in the
Civil Penalty Fund to classes of victims and to consumer education and
financial literacy programs. In particular, this section describes the
schedule for making allocations and specifies what funds will be
available for the allocations made on that schedule. The Bureau seeks
comment on this section and suggestions for modifications or
alternatives.
105(a) In General
Section 1075.105(a) of the Final Rule provides that the Fund
Administrator will allocate the funds specified in Sec. 1075.105(c) to
classes of victims and, as appropriate, to consumer education and
financial literacy programs according to the schedule described in
Sec. 1075.105(b) and the guidelines set forth in Sec. Sec. 1075.106
and 1075.107.
105(b) Schedule for Making Allocations
Section 1075.105(b)(1) of the Final Rule directs the Fund
Administrator to establish and publish on www.consumerfinance.gov a
schedule of six-month periods. As explained in greater detail in the
Supplementary Information to the Final Rule, that schedule will govern
when the Fund Administrator will allocate funds from the Civil Penalty
Fund, what amounts will be available for allocation, and when classes
of victims may be considered for allocations.
As the SUPPLEMENTARY INFORMATION to the Final Rule explains, the
Bureau has chosen to make payments on a six-month schedule in part
because it would be less fair to make payments on a continual basis, as
funds are deposited and as classes of victims with uncompensated harm
arise. If a class happened to have uncompensated harm for the first
time on a day shortly after the Bureau had just allocated a substantial
portion of the Civil Penalty Fund to some other class, victims in the
new class would receive relatively small payments. Conversely, if a
large amount were deposited into the Civil Penalty Fund, a class of
victims that next had uncompensated harm would be relatively likely to
receive full compensation for that harm. In both cases, coincidental
timing would dictate the results. Allocating funds on a six-month
schedule, by contrast, will give equal treatment to all classes from a
given six-month period. The Bureau seeks comment on the proposed
schedule for making allocations and suggestions for modifications or
alternatives. The Bureau specifically requests comment on whether the
periods under the schedule should be longer or shorter than six months,
and on whether a different method of timing allocations would be
appropriate.
105(c) Funds Available for Allocation
As the SUPPLEMENTARY INFORMATION to the Final Rule explains in
greater detail, Sec. 1075.105(c) of the Final Rule provides that the
funds available for allocation following the end of a six-month period
are those funds that were in the Civil Penalty Fund on the end date of
that six-month period, minus (1) any funds already allocated, (2) any
funds that the Fund Administrator determines are necessary for
authorized administrative expenses, and (3) any funds collected
pursuant to an order that has not yet become a final order. The Bureau
seeks comment on this provision and suggestions for modifications or
alternatives.
Section 1075.106 Allocating Funds to Classes of Victims
Section 1075.106 of the Final Rule describes how funds will be
allocated to classes of victims and establishes which victim classes
will get priority and how much money the Fund Administrator will
allocate to victim classes when there are not enough funds available to
provide full compensation to all eligible victims who have
uncompensated harm. The Bureau requests comment on this provision and
suggestions for modifications or alternatives.
106(a) Allocations When There Are Sufficient Funds Available To
Compensate All Uncompensated Harm
As the SUPPLEMENTARY INFORMATION to the Final Rule explains in
greater detail, Sec. 1075.106(a) of the Final Rule provides that, if
the funds available under Sec. 1075.105(c) are sufficient, the Fund
Administrator will allocate to each class of victims the amount
necessary to compensate fully the uncompensated harm, determined under
Sec. 1075.104(b) as of the last day of the most recently concluded
six-month period, of all victims in that class to whom it is
practicable to make payments.
The Bureau requests comment on this procedure for allocating funds
when the available funds are sufficient to compensate fully the
uncompensated harm of all victims to whom it is practicable to make
payments. The Bureau also requests suggestions for modifications or
alternatives.
106(b) Allocations When There Are Insufficient Funds Available To
Compensate All Uncompensated Harm
Section 1075.106(b) of the Final Rule establishes the procedures
that the Fund Administrator will follow when the funds available under
Sec. 1075.105(c) are not sufficient to provide full compensation as
described by paragraph (a). This section groups classes of victims
according to the six-month period in which the victims first had
uncompensated harm as described in Sec. 1075.104(b). Paragraph (b)(1)
specifies how classes of victims will receive priority according to
their respective six-month periods. Paragraph (b)(2) explains how the
Fund Administrator will identify the six-month period to which a class
of victims belongs.
The Bureau seeks comment on these procedures for allocating funds
when the available funds are not sufficient to compensate fully the
uncompensated harm of all victims to whom it is practicable to make
payments, and suggestions for modifications or alternatives.
106(b)(1) Priority to Classes of Victims From the Most Recent Six-Month
Period
Under Sec. 1075.106(b)(1) of the Final Rule, when there are
insufficient funds available to provide all victims full compensation
as described in paragraph (a), the Fund Administrator will prioritize
allocations to classes of victims from the most recent six-month
period. If funds remain after allocating to each class of victims from
that six-month period the amount necessary to compensate fully the
uncompensated harm, determined under Sec. 1075.104(b) as of the last
day of the most recently concluded six-month period, of all victims in
that class to whom it is practicable to make payments, the Fund
Administrator next will allocate funds to classes of victims from the
preceding six-month period, and so forth until no funds remain. As the
Supplementary Information to the Final Rule explains in greater detail,
this process of allocating funds to classes of victims from one six-
month period at a time will be more administratively efficient than
allocating funds to all classes at once and will reduce the total
administrative cost of distributing payments as well as the
administrative cost per dollar distributed to victims.

[[Page 26551]]

The Bureau seeks comment on this provision and suggestions for
alternatives or modifications. The Bureau also specifically seeks
comment on several proposed alternatives or modifications.
Alternatives to the method for prioritizing allocations. First, the
Bureau specifically seeks comment on several alternatives to the method
that the Final Rule prescribes for prioritizing allocations. As one
alternative, instead of prioritizing allocations to certain classes,
the Bureau could attempt to allocate funds among all classes with
uncompensated harm. That approach could distribute funds more evenly,
but could result in significantly smaller individual payments.
As another alternative, instead of prioritizing allocations to
classes of victims from more recent six-month periods, the Bureau could
prioritize allocations to classes of victims from older six-month
periods. On the one hand, giving priority to classes of victims from
more recent six-month periods ensures that funds go first to victims
who have not yet had an opportunity to receive payment from the Civil
Penalty Fund, and next to victims who have had only one previous
opportunity, and so forth. In addition, the records on classes of
victims from more recent periods may be more up-to-date than the
records on classes from older periods, and distributing funds to those
more recent classes might therefore be more successful and require less
cost and effort. Prioritizing allocations to classes from those more
recent periods thus may result in more funds reaching victims. On the
other hand, giving priority instead to classes of victims from older
six-month periods would enable funds to be distributed to the victims
in those classes before records age further and it becomes more
difficult and costly to make payments to those victims.
As yet another alternative, the Bureau could prioritize allocations
based on factors other than the six-month period in which a class
became eligible for allocations from the Civil Penalty Fund. For
example, the Bureau could prioritize allocations to the classes in
which individual victims have the greatest amount of uncompensated
harm. Under such an approach, the Bureau could assign classes to tiers
based on the average uncompensated harm of the victims in the class.
For example, classes of victims with an average uncompensated harm of
$10,000 or more could be one tier; classes of victims with an average
uncompensated harm of $1,000 to $9,999 could be another tier; and so
forth. The Fund Administrator could then allocate funds first to the
classes in the tier with the highest amount of average uncompensated
harm, and then successively to each lower tier to the extent funds
remain. This approach would ensure that victims with the largest amount
of uncompensated harm would get priority. The Bureau seeks comment on
this possible approach, and any modifications or alternatives, and on
what the dollar thresholds for the tiers of average uncompensated harm
should be under such an approach.
Another way in which the Bureau could prioritize allocations based
on factors other than a class's six-month period would be to leave it
to the Fund Administrator's discretion how to allocate funds at times
when insufficient funds are available to compensate fully the
uncompensated harm of all victims. This approach would give the Fund
Administrator flexibility to consider all relevant circumstances to
decide how to allocate funds most equitably. The Bureau seeks comment
on all of these possible alternatives for prioritizing allocations when
the available funds are not sufficient to compensate fully the
uncompensated harm of all victims to whom it is practicable to make
payments.
Modification to prescribe the amounts to be allocated. Second, the
Bureau also specifically seeks comment on whether it should modify
Sec. 1075.106(b) to provide more detail on the amounts to be allocated
when the available funds are not sufficient to provide full
compensation for the uncompensated harm of all victims to whom it is
practicable to make payments. The Final Rule specifies that the Fund
Administrator will allocate to each class of victims from a single six-
month period the amount necessary to compensate fully the uncompensated
harm, determined under Sec. 1075.104(b) as of the last day of the most
recently concluded six-month period, of all victims in that class to
whom it is practicable to make payments before allocating funds to
classes from an earlier six-month period. The Final Rule is silent,
however, on how funds will be allocated if insufficient funds are
available to provide such full compensation to all classes from a
single six-month period.
The Bureau seeks comment on whether it should modify Sec.
1075.106(b) to prescribe the amounts that the Fund Administrator will
allocate in those circumstances. In particular, the rule could direct
the Fund Administrator to allocate funds to the classes of victims from
a single six-month period in a manner designed to ensure, to the extent
possible, that the victims in those classes to whom it is practicable
to make payments will receive compensation, through redress and Civil
Penalty Fund payments, for an equal percentage of their compensable
harm, as described in Sec. 1075.104(c). Consistent with the approach
the Bureau takes generally in the Final Rule, that allocation would be
based on the amount of each class's uncompensated harm as of the last
day of the most recently concluded six-month period.
This allocation method could also apply if the Bureau adopted an
alternative way of prioritizing allocations--other than by six-month
period--as discussed above. For example, if the Bureau instead assigned
classes of victims to tiers based on the average amount of
uncompensated harm of the victims in the class, and prioritized
allocations based on those tiers, this proposed modification could
prescribe the amounts that the Fund Administrator would allocate to
classes of victims from a single such tier.
The following examples illustrate how this allocation method would
work. First, suppose there were two classes of victims from the most
recent six-month period, and there were not enough funds to compensate
fully the uncompensated harm of all victims in both classes. Imagine
that those classes had suffered the harm and had received the payments
reflected in this table:\1\
---------------------------------------------------------------------------

\1\ This chart is provided solely for explanatory purposes. The
numbers are hypothetical and are not based on any actual class of
victims that is or may be eligible for payment from the Civil
Penalty Fund.

[[Page 26552]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of
Total compensable
Number of Compensable Redress paid Each victim's uncompensated harm for which
victims harm per by defendant uncompensated harm of the each victim
victim to each victim harm class has received
compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Class 1................................................. 40 $250 $125 $125 $5,000 50%
Class 2................................................. 25 400 0 400 10,000 0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Under the proposed modification, the Fund Administrator would allocate
amounts in the Fund in a way designed to equalize, to the extent
possible, the percentage of compensable harm for which each victim
would receive compensation. Thus, if there were $7,500 in the Fund, the
Fund Administrator would allocate $1,250 to Class 1 and $6,250 to Class
2, such that the following would result:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of
Amount Total payments compensable
Number of Compensable Redress paid allocated to CPF payment to (redress + harm for which
victims harm per by defendant the class from each victim CPF) to each each victim
victim to each victim CPF victim will receive
compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Class 1................................. 40 $250 $125 $1,250 $31.25 $156.25 62.5%
Class 2................................. 25 400 0 6,250 250 250.00 62.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

In some circumstances, it will not be possible to equalize the
percentage of compensable harm for which each victim receives
compensation because one class of victims has already received
compensation in the form of redress, and there are not enough funds in
the Civil Penalty Fund to give comparable compensation to other victim
classes. In these circumstances, the Fund Administrator would not--and,
indeed, could not--actually achieve the goal of equalizing the
percentage of compensable harm for which all victims receive
compensation. Instead, under the proposed modification, the Fund
Administrator would simply allocate funds in a way that equalizes the
level of compensation across classes only to the extent possible. Thus,
for example, assume that in the above scenario, the defendant paid the
victims in Class 1 $200 each rather than $125 each:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of
Compensable Redress paid Each victim's Total compensable
Number of harm per by defendant uncompensated uncompensated harm that each
victims victim to each victim harm harm of the victim has had
class compensated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Class 1................................................. 40 $250 $200 $50 $2,000 80%
Class 2................................................. 25 400 0 400 10,000 0
--------------------------------------------------------------------------------------------------------------------------------------------------------

If there were $7,500 in the Fund, under the proposed modification,
the Fund Administrator would allocate it all to Class 2, such that the
following would result:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of
Amount Total payments compensable
Number of Compensable Redress paid allocated to CPF payment to (redress + CPF harm that each
victims harm per by defendant the class from each victim to each victim will
victim to each victim CPF victim) have
compensated
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case 1.................................. 40 $250 $200 $0 $0 $200 80%
Case 2.................................. 25 400 0 7,500 300 300 75
--------------------------------------------------------------------------------------------------------------------------------------------------------

This modification would not authorize or require the Fund
Administrator to recover any funds already distributed to victims or to
reverse a previous allocation to a class of victims, even if a class of
victims would receive or had already received compensation for a
greater percentage of their harm than other classes.
The Bureau seeks comment on this possible modification, as well as
suggestions for other ways in which to prescribe the amounts to be
allocated when insufficient funds are available to provide full
compensation for the uncompensated harm of all victims in classes from
a single six-month period.
106(b)(2) Assigning Classes of Victims to a Six-Month Period
As noted above, Sec. 1075.106(b)(1) of the Final Rule instruct the
Fund Administrator to allocate funds among classes of victims from a
single six-month period before allocating funds to classes of victims
from an earlier six-month period. Paragraph (b)(2) of this section of
the Final Rule explains that

[[Page 26553]]

for purposes of paragraph (b), a class of victims is ``from'' the six-
month period in which those victims first had uncompensated harm as
described in Sec. 1075.104(b). The provision further specifies how the
Fund Administrator will determine when a class of victims first had
such uncompensated harm.
First, if redress was ordered for a class of victims in a Bureau
enforcement action but suspended or waived in whole or in part, the
class of victims first had uncompensated harm, if it had any, on the
date the suspension or waiver became effective. Second, if redress was
ordered for a class of victims in a Bureau enforcement action, but the
Chief Financial Officer determined that redress to be uncollectible in
whole or in part, the class of victims first had uncompensated harm, if
it had any, on the date the Chief Financial Officer made that
determination. Finally, if no redress was ordered for a class of
victims in a Bureau enforcement action, the class of victims first had
uncompensated harm, if any, on the date the order imposing a civil
penalty became a final order. As the SUPPLEMENTARY INFORMATION to the
Final Rule explains in further detail, this provision corresponds to
the definition of uncompensated harm in Sec. 1075.104(b).
The Bureau seeks comment on this provision and suggestions for
modifications or alternatives.
106(c) No Allocation to a Class of Victims If Making Payments Would Be
Impracticable
Section 1075.106(c) of the Final Rule provides that,
notwithstanding any other provision in this section, the Fund
Administrator will not allocate funds available under Sec. 1075.105(c)
to a class of victims if she determines that making payments to that
class of victims would be impracticable. As noted above, the Bureau
understands the Dodd-Frank Act to direct payments from the Civil
Penalty Fund to victims only to the extent that such payments are
practicable. In some cases, it may be impracticable to make payments to
an entire class of victims; the Fund Administrator will not allocate
funds to such a class.
The Bureau requests comment on this provision and suggestions for
modifications or alternatives.
106(d) Fund Administrator's Discretion
Section 1075.106(d)(1) of the Final Rule provides that,
notwithstanding any provision in this part, the Fund Administrator, in
her discretion, may depart from the procedures specified by this
section, including by declining to make, or altering the amount of, any
allocation provided for by this part. As the SUPPLEMENTARY INFORMATION
to the Final Rule explains further, this provision is designed to give
the Fund Administrator the flexibility to depart from the allocation
procedures established by Sec. 1075.106 when the circumstances
warrant. Because the Bureau cannot anticipate all such circumstances,
the Final Rule does not delineate particular circumstances in which the
Fund Administrator may deviate from Sec. 1075.106's allocation
procedures, but rather leaves the decision to deviate to the Fund
Administrator's discretion. Under the Final Rule, whenever the Fund
Administrator exercises this discretion, she must provide the Civil
Penalty Fund Governance Board a written explanation of the reasons for
departing from the allocation procedures specified by this section.
The Final Rule makes clear that exercising this discretion cannot
increase the funds available in a given time period for allocation to
consumer education and financial literacy programs. Specifically, Sec.
1075.106(d)(2) of the Final Rule provides that, if the Fund
Administrator, in allocating funds during a given time period described
by Sec. 1075.105(b)(2), exercises her discretion under paragraph
(d)(1) of this section, she may allocate funds to consumer education
and financial literacy programs under Sec. 1075.107 during that time
period only to the same extent she could have absent that exercise of
discretion.
The Bureau seeks comment on this provision and suggestions for
modifications or alternatives.

Section 1075.107 Allocating Funds to Consumer Education and Financial
Literacy Programs

107(a)
Section 1075.107(a) of the Final Rule implements the second
sentence of section 1017(d)(2) of the Dodd-Frank Act, which authorizes
the Bureau to use funds in the Civil Penalty Fund for the purpose of
consumer education and financial literacy programs to the extent that
victims cannot be located or payments to victims are otherwise not
practicable. In particular, Sec. 1075.107(a) provides that, if funds
available under Sec. 1075.105(c) remain after the Fund Administrator
allocates funds as described in Sec. 1075.106(a), she may allocate the
remaining funds for consumer education and financial literacy programs.
An allocation under Sec. 1075.106(a) provides full compensation for
the uncompensated harm of all victims to whom it is practicable to make
payments. Thus, any funds remaining after such an allocation are
available for consumer education and financial literacy programs.
The Bureau seeks comment on this provision and suggestions for
modifications or alternatives. The Bureau specifically requests comment
on whether the provision should limit the amount of funds that the Fund
Administrator may allocate to consumer education and financial literacy
programs. In particular, the rule could instead authorize the Fund
Administrator to allocate only some portion of remaining funds to such
programs. Limiting the Fund Administrator's authority to allocate
remaining funds to consumer education and financial literacy programs
could help ensure that, when funds remain after allocating funds to
provide full compensation to all classes of victims to whom it is
practicable to make payments, a balance will remain in the Fund for
future victims. This would mitigate the risk that the Civil Penalty
Fund would later lack sufficient funds to provide full compensation to
classes of victims that become eligible for allocations in the future.
The Bureau also requests comment on what portion of remaining funds
the Fund Administrator should be able to allocate to consumer education
and financial literacy programs. One possible approach would be to
authorize the Fund Administrator to allocate a certain percentage of
remaining funds to consumer education and financial literacy programs.
Another possible approach would be to require a specified amount to
remain in the Fund and to authorize the Fund Administrator to allocate
only the funds that exceed that particular ``reserved'' amount to
consumer education and financial literacy programs. Yet another
possible approach could cap the amount that the Fund Administrator may
allocate to consumer education and financial literacy programs in any
given period. Other alternatives could combine these approaches, for
example, by authorizing the Fund Administrator to allocate a percentage
of the funds that exceed the reserved amount to consumer education and
financial literacy programs, but only up to a particular maximum
amount. The Bureau also requests comment on what the appropriate
percentage, reserved amount, and maximum amount would be under these
possible approaches.

[[Page 26554]]

107(b)
Section 1075.107(b) clarifies that the Fund Administrator's
authority to allocate funds for consumer education and financial
literacy programs does not include the authority to allocate funds to
particular consumer education or financial literacy programs or
otherwise to select the particular consumer education or financial
literacy programs for which allocated funds will be used. Instead, the
Fund Administrator's authority is limited to determining the amount
that is allocated for expenditure on those kinds of programs. As the
Supplementary Information to the Final Rule notes, the Bureau has
developed, and posted at http://files.consumerfinance.gov/f/x200Bx200B;--fpb--civil--penalty--fund--criteria.pdf, its criteria for
selecting these programs. These criteria are beyond the scope of this
rule. The Bureau is not proposing changes to this section.

Section 1075.108 Distributing Payments to Victims

As the SUPPLEMENTARY INFORMATION to the Final Rule explains, after
the Fund Administrator allocates funds to a class of victims, those
funds will be distributed to the individual victims in that class.
Section 1075.108 of the Final Rule describes the process for
distributing payments to victims.
108(a) Designation of a Payments Administrator
Section 1075.108(a) of the Final Rule provides that, upon
allocating funds to a class of victims under Sec. 1075.106, the Fund
Administrator will designate a payments administrator who will be
responsible for distributing payments to the victims in that class. The
payments administrator may be any person, including a Bureau employee
or contractor. The Bureau is not proposing changes to this paragraph.
108(b) Distribution Plan
Section 1075.108(b) of the Final Rule requires a payments
administrator to submit to the Fund Administrator a proposed plan for
distributing the funds that have been allocated to a class of victims.
The Fund Administrator will then approve, approve with modifications,
or disapprove the proposed distribution plan. If the Fund Administrator
disapproves a proposed plan, the payments administrator must submit a
new proposed plan. The Bureau is not proposing changes to this
paragraph.
108(c) Contents of Plan
Section 1075.108(c) of the Final Rule indicates that the Fund
Administrator will instruct the payments administrator to prepare a
distribution plan and sets forth several elements that the Fund
Administrator may require a distribution plan to include. The
Supplementary Information to the Final Rule, and the Final Rule itself,
provide further detail on the elements that the Fund Administrator may
require a distribution plan to include. The Bureau requests comment on
the contents of distribution plans and suggestions for modifications or
alternatives.
108(d) Distribution of Payments
Section 1075.108(d) of the Final Rule provides that the payments
administrator will make payments to victims in a class, except to the
extent such payments are impracticable, in accordance with the
distribution plan approved under paragraph (b) of this section and
subject to the Fund Administrator's supervision. The Bureau requests
comment on this provision and suggestions for modifications or
alternatives.
108(e) Disposition of Funds Remaining After Attempted Distribution to a
Class of Victims
Section 1075.108(e) of the Final Rule addresses the circumstance in
which some of the funds allocated to a class of victims remain
undistributed after the payments administrator has made, or attempted
to make, payments to the victims in that class. Funds might remain if
the payments administrator cannot make payments to all victims in a
class--because some victims cannot be located, because some victims do
not redeem their payments, or because of other similar circumstances.
To the extent practicable, the payments administrator will distribute
the remaining funds to victims in that class up to the amount of their
remaining uncompensated harm as described in Sec. 1075.104(b). As the
Supplementary Information to the Final Rule explains, distributing
remaining funds among victims in that class will often be the most
efficient use of remaining funds because the payments administrator
will have up-to-date information on the victims to whom it successfully
made payments, and a second distribution to those victims likely will
also be successful. Then, if funds remain after providing full
compensation for the uncompensated harm of such victims, the remaining
funds will be returned to the Civil Penalty Fund. Those funds will then
be available for future allocation. The Supplementary Information to
the Final Rule provides illustrative examples of how remaining funds
would be distributed under this provision of the Final Rule.
The Bureau requests comment on this provision and any suggestions
for modifications or alternatives.
The Bureau also specifically seeks comment on whether, instead of
distributing remaining funds among victims in the class who have not
yet received full compensation, it should return remaining funds to the
Civil Penalty Fund for future allocation. Although this approach may
not be as efficient as the approach taken in the Final Rule, it could
ensure that victims receive the level of compensation that an
allocation was designed to give them. Under this alternative, the
happenstance of how many victims in a class could not practicably be
paid would not affect the amount that other victims in that class would
receive.

Section 1075.109 When Payments to Victims Are Impracticable

As noted above, pursuant Sec. Sec. 1075.106 and 1075.108 of the
Final Rule, the Bureau will not make payments to individual victims
when doing so would be impracticable and will not allocate funds to a
class of victims to the extent making payments to that class would be
impracticable. Section Sec. 1075.109 of the Final Rule identifies
circumstances in which payments to victims will be deemed not
practicable.
For reasons explained in the SUPPLEMENTARY INFORMATION to the Final
Rule, whether payments to victims are practicable depends in part on
the costs of those payments, in comparison to the size of the payments.
Section 1075.109 of the Final Rule contains two paragraphs that
implement that understanding of practicability by identifying
circumstances in which the costs of making payments will likely be so
great, relative to the size of the payments, that making those payments
would be impracticable. The first paragraph discusses payments to
individual victims, and the second relates to payments to entire
classes of victims.
The Bureau seeks comment on the interpretation of ``practicable''
embodied in this section and suggestions for modifications or
alternatives. It also seeks comment on the circumstances in which
payments to individual victims or a class of victims will be
impracticable under this provision, as well as suggestions for
modifications or alternatives.

Section 1075.110 Reporting Requirements

Section 1075.110 requires the Fund Administrator to issue regular
reports,

[[Page 26555]]

on at least an annual basis, that describe how funds in the Civil
Penalty Fund have been allocated, the basis for those allocations, and
how funds that have been allocated to classes of victims have been
distributed. The section further provides that these reports will be
made available to the public on www.consumerfinance.gov.
The Bureau requests comment on the proposed requirement for the
Fund Administrator to issue reports on the Civil Penalty Fund and on
subjects to be addressed in the report, as well as suggestions for
modifications or alternatives to this provision.

V. Request for Comment

The Bureau invites comment on all aspects of the Final Rule, this
notice of proposed rulemaking, and the specific issues upon which
comment is solicited elsewhere herein, including on any appropriate
modifications or exceptions to the Final Rule.

V. Section 1022(b)(2) of the Dodd-Frank Act

In developing the proposed rule, the Bureau is considering
potential benefits, costs, and impacts, and has consulted or offered to
consult with the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of the Comptroller of
the Currency, the National Credit Union Administration, and the Federal
Trade Commission, including with regard to consistency with any
prudential, market, or systemic objectives administered by those
agencies.\2\ The analysis considers the benefits, costs, and impacts of
the alternatives discussed in the proposal against a baseline that
includes the Final Rule; that is, the analysis evaluates the benefits,
costs, and impacts of the alternatives discussed as compared to the
status quo where the provisions of the Final Rule remain in effect.\3\
---------------------------------------------------------------------------

\2\ Section 1022(b)(2)(A) of the Dodd-Frank Act, 12 U.S.C.
55212(b)(2), directs the Bureau, when prescribing a rule under the
Federal consumer financial laws, to consider the potential benefits
and costs of regulation to consumers and covered persons, including
the potential reduction of access by consumers to consumer financial
products or services; the impact on insured depository institutions
and credit unions with $10 billion or less in total assets as
described in section 1026 of the Dodd-Frank Act; and the impact on
consumers in rural areas. Section 1022(b)(2)(B) of the Dodd-Frank
Act directs the Bureau to consult with appropriate prudential
regulators or other Federal agencies regarding consistency with
prudential, market, or systemic objectives that those agencies
administer. The manner and extent to which these provisions apply to
a rulemaking of this kind that does not establish standards of
conduct is unclear. Nevertheless, to inform this rulemaking more
fully, the Bureau performed the described analyses and
consultations.
\3\ The Bureau has discretion in any rulemaking to choose an
appropriate scope of analysis with respect to potential benefits and
costs and the appropriate baseline.
---------------------------------------------------------------------------

This notice of proposed rulemaking seeks comment on several changes
or amendments to the Final Rule's provisions that the Bureau is
considering: the category of victims eligible for payments; the amounts
of the payments that victims may receive, including the method for
determining compensable harm; the schedule for allocating funds for
payments to victims and for consumer education and financial literacy
programs; the procedures for allocating funds to classes of victims;
the allocations to consumer education and financial literacy programs;
and the procedures for disposing of certain undistributed funds.
The alternatives discussed in this proposal would not impose any
obligations on consumers or covered persons. Nor would the considered
alternatives have any impact on consumers' access to consumer financial
products or services. Rather, the alternatives discussed would
potentially affect the total amount of money in the Civil Penalty Fund
that is available for victim payments or for consumer education and
financial literacy programs, as well as the allocation of funds between
various groups of consumers or between payments to victims and funding
for consumer education and financial literacy.
Those alternatives discussed in the proposal that would alter the
cost of administering the Fund, either directly or indirectly, could
potentially alter the total amount available for payments to victims
and for consumer education and financial literacy programs. For
example, under the Final Rule, victims' compensable harm is, in some
cases, equal to their out-of-pocket losses. This notice seeks comment
on whether victims' compensable harm in those circumstances should
instead be whatever amount of harm the Fund Administrator concludes is
practicable to determine given the facts of the particular case. Such
discretion regarding the method of determination could make it more (or
less) costly to administer victim payments, and with expenses paid from
the Fund, could leave less (or more) money for other payments.
Similarly, this notice seeks comment on whether the Bureau should pay
victims a share of the civil penalties collected for the particular
violations that harmed them, rather than the amount of their
uncompensated harm. Calculating the amounts that victims would receive
under that alternative could be less costly than calculating the
amounts that victims will receive under the Final Rule, and accordingly
could reduce the overall cost of administering the Fund. As a final
example, under the Final Rule, when there are not enough funds
available to provide full compensation to all eligible victims who have
uncompensated harm, the Fund Administrator will prioritize allocations
to classes of victims from the most recent six-month period. If the
Bureau instead allocated funds among all classes of eligible victims,
or prioritized allocations to classes of victims from older six-month
periods, that could increase the costs of administering the fund and
thereby impact the amounts available for payments to victims or for
funding for consumer education or financial literacy.
Rather than impact overall distributions from the Fund, most of the
alternatives discussed in this proposal would alter the allocation of
funds among various groups of consumers, either as payments to victims
or as funding for consumer education or financial literacy programs. In
the absence of specific cases to analyze (since by definition, future
cases have yet to be administered), this analysis cannot assess precise
changes to the allocation: instead, it assesses broader categories of
changes. For example, amendments that would allow the Bureau to make
payments to a broader category of victims, (e.g., victims of types of
``activities'' for which civil penalties have been imposed under the
Federal consumer financial laws, even if no enforcement action
identified those specific ``activities'' as violations and imposed
civil penalties for them) would possibly transfer some funds among
consumers: specifically, from victims in cases where to the Bureau has
imposed civil penalties to consumers in this broader category of
victims.
Amendments that would alter the amounts of the payments that any
group of victims would receive could leave other victims with more or
less compensation from the Fund, assuming the overall level of money in
the Fund is unchanged. For example, were the Bureau to alter the rule
to pay victims a share of the civil penalties collected for the
particular violations that harmed them, some consumers would receive
more or less money than under the current rule. Similarly, any changes
to the allocation procedures established for when sufficient funds are
not available to compensate fully the uncompensated harm of all victims
to whom it is

[[Page 26556]]

practicable to make payments could alter the total payments received by
various consumers. As a final example, any changes that limit the
amount of funds that the Fund Administrator may allocate to consumer
education and financial literacy programs would shift potential
benefits from consumers who benefit from these programs to other
consumers.
The revisions to the Final Rule discussed in this rule would not
have a unique impact on rural consumers. Since the amendments would not
have any impact on covered persons, they also have no impact on insured
depository institutions or insured credit unions with less than $10
billion in assets as described in section 1026(a) of the Dodd-Frank
Act.

VI. Regulatory Requirements

The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations. The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration pursuant to the Small Business Act.\4\
---------------------------------------------------------------------------

\4\ 5 U.S.C. 601(3). The Bureau may establish an alternative
definition after consultation with the Small Business Administration
and an opportunity for public comment.
---------------------------------------------------------------------------

The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities.\5\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\6\
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\5\ 5 U.S.C. 603-605.
\6\ 5 U.S.C. 609.
---------------------------------------------------------------------------

The undersigned certifies that this proposed rule would not have a
significant impact on a substantial number of small entities. The Final
Rule and proposed alternatives set forth only what Civil Penalty Fund
payments the Bureau will make to victims and the procedures for
allocating funds for such payments and for consumer education and
financial literacy programs. The rule would not impose any substantive
requirements on any small entities.

VII. Paperwork Reduction Act

The Bureau has determined that neither the Final Rule nor any of
the alternatives proposed in this notice of proposed rulemaking imposes
any new recordkeeping, reporting, or disclosure requirements on covered
entities or members of the public that would constitute collections of
information requiring approval under the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. Comments on this determination may be submitted to
the Bureau as instructed in the ADDRESSES section of this notice and to
the attention of the Paperwork Reduction Act Officer.

List of Subjects in 12 CFR Part 1075

Administrative practice and procedure, Authority delegations,
Consumer Financial Civil Penalty Fund, Consumer protection,
Organization and functions.

Dated: April 26, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-10318 Filed 5-6-13; 8:45 am]
BILLING CODE 4810-25-P