[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

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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

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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\
---------------------------------------------------------------------------

    \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