[Federal Register Volume 78, Number 88 (Tuesday, May 7, 2013)]
[Rules and Regulations]
[Pages 26489-26504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10320]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1075

[Docket No. CFPB-2013-0011]
RIN 3170-AA38


Consumer Financial Civil Penalty Fund

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule.

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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 rule implements the 
relevant statutory 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.

DATES: This rule is effective May 7, 2013.

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, Sec.  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 law 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), 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.

II. Summary of the Rule

    This rule implements section 1017(d)(2) of the Dodd-Frank Act, 12 
U.S.C. 5497(d)(2), by specifying 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. In addition, 
the rule sets forth procedures the Bureau will follow for allocating 
and distributing funds from the Civil Penalty Fund.

[[Page 26490]]

    First, the rule describes the roles of Bureau officials involved in 
managing the Civil Penalty Fund. It establishes the position of Civil 
Penalty Fund Administrator (Fund Administrator) and provides that the 
Fund Administrator will report to the Chief Financial Officer. In 
addition, the rule provides that the Civil Penalty Fund Governance 
Board--the body comprised of senior Bureau officials established by the 
Director to advise on matters relating to the Civil Penalty Fund--may 
advise or direct the Fund Administrator on the administration of the 
Civil Penalty Fund. The Fund Administrator must follow any written 
directions that the Civil Penalty Fund Governance Board provides.
    Second, the rule identifies the category of victims who may receive 
payments from the Civil Penalty Fund and sets forth the amounts they 
may receive. Under the 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. In addition, the rule effectuates the intent of section 
1017(d)(2) of the Dodd-Frank Act to provide Civil Penalty Fund payments 
only to compensate victims for the harms they suffered from a violation 
for which penalties were imposed. In addition, as envisioned by section 
1017(d)(2), the Bureau will make payments to victims from the Civil 
Penalty Fund only to the extent practicable. The rule identifies that 
part of victims' harm that the Bureau believes to be potentially 
practicable to calculate, and thus susceptible to compensation under 
section 1017(d)(2). The rule also establishes procedures for 
determining that compensable harm. When possible, the amount of 
compensable harm that a victim suffered from a violation will be 
determined based on the objective terms of the order imposing a civil 
penalty for the violation. If the amount of harm cannot be determined 
based on the terms of the order alone, a victim's compensable harm is 
the victim's out-of-pocket loss that resulted from the violation, 
unless that amount would be impracticable to determine.
    The rule further provides that the Bureau will use funds in the 
Civil Penalty Fund to compensate only victims' uncompensated harm. 
Under the rule, a victim's uncompensated harm is the victim's 
compensable harm, less any compensation for that harm that the victim 
has received or is reasonably expected to receive.
    Third, the rule establishes a two-stage procedure for expending 
money in the Civil Penalty Fund. First, the Fund Administrator will 
allocate funds for payments to victims and, if appropriate, for 
consumer education and financial literacy programs. At the allocation 
stage, the Fund Administrator will assign amounts to classes of 
victims--that is, to groups of similarly situated victims who suffered 
the same or similar violations for which the Bureau obtained relief in 
an enforcement action. The Fund Administrator will allocate funds to a 
class only to the extent that payments to class members would be 
practicable. Second, the Fund Administrator will designate a payments 
administrator to distribute allocated funds to individual victims in 
the classes to which funds have been allocated. Again, a payments 
administrator will make payments to individual victims only to the 
extent practicable. The rule identifies specific ways in which payments 
to individual victims or to a class of victims might be impracticable.
    For funds allocated to consumer education and financial literacy 
programs, the Bureau has adopted criteria \1\--not contained in this 
rule--for selecting the particular consumer education or financial 
literacy programs to be funded.
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    \1\ The criteria are available at: http://files.consumerfinance.gov/f/201207_cfpb_civil_penalty__criteria.pdf.
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    Under the rule, the Fund Administrator will allocate funds from the 
Civil Penalty Fund on a six-month schedule. The Fund Administrator is 
responsible for establishing the schedule of six-month periods. 
Following the end of any given six-month period, the funds available 
for allocation are those present in the Civil Penalty Fund as of the 
end of that period, minus funds already allocated and certain other 
funds. In general, the Fund Administrator may allocate the available 
funds to those classes of victims that had uncompensated harm as of the 
end of that six-month period, unless making payments to that class 
would be impracticable. If sufficient funds are available, the Fund 
Administrator will allocate to all such classes of victims enough money 
to provide full compensation to the victims in those classes to whom it 
is practicable to make payments. If funds remain, the Fund 
Administrator may allocate a portion of those remaining funds for 
consumer education and financial literacy programs.
    The Bureau anticipates that at times the available funds in the 
Civil Penalty Fund may not be sufficient to provide full compensation 
to all classes of victims to which it is practicable to make payments. 
The Bureau has endeavored to establish equitable, transparent, and 
efficient procedures for allocating funds in those circumstances. Under 
the rule, classes of victims that first had uncompensated harm during 
the six-month period that most recently ended will receive priority in 
such ``lean'' periods. If funds remain after allocating sufficient 
funds to provide full compensation to all victims in those classes, 
classes of victims from the previous six-month period will receive 
second priority, and so forth until no funds remain. At times, there 
may not be sufficient funds to give full compensation to all classes of 
victims from a single six-month period. In those circumstances, the 
rule specifies that funds will be allocated in a way designed to 
ensure, to the degree possible, that victims in those classes will 
receive compensation--through redress and Civil Penalty Fund payments--
for an equal percentage of their compensable harm.
    In addition, to preserve flexibility in special circumstances, the 
rule authorizes the Fund Administrator, in her discretion, to depart 
from these procedures, including by declining to make, or altering the 
amount of, any allocation provided for by the rule. However, if the 
Fund Administrator exercises that discretion, funds that otherwise 
would have been allocated to a class of victims cannot instead be 
allocated to consumer education and financial literacy programs in that 
period. Rather, the Fund Administrator may allocate funds to consumer 
education and financial literacy programs during that six-month period 
only to the same extent she could have had she not exercised that 
discretion.
    In addition to establishing procedures governing the allocation of 
funds from the Civil Penalty Fund, the rule also establishes procedures 
governing the distribution of allocated funds to eligible victims. In 
particular, the rule directs the Fund Administrator to designate a 
payments administrator to distribute payments to eligible victims in a 
class to which Civil Penalty Fund funds have been allocated. Under the 
rule, the Fund Administrator will instruct the payments administrator 
to propose a plan for distributing the payments. The Fund Administrator 
may require the plan to include procedures for determining payment 
amounts, for locating and notifying victims, for making payments, and 
for potentially eligible victims to contact the payments administrator. 
Upon the Fund Administrator's approval of a distribution plan, the 
payments

[[Page 26491]]

administrator will distribute payments to victims in accordance with 
the plan to the extent practicable. If funds remain after distributing 
payments to victims in a class, the payments administrator will 
distribute those remaining allocated funds, to the extent practicable, 
among eligible victims in that class up to the amount of their 
remaining uncompensated harm. Any remaining funds that cannot be 
distributed among victims in the class in that way will be returned to 
the Civil Penalty Fund for future allocation.
    Fourth, the rule sets forth several circumstances in which it will 
be deemed impracticable to make payments to victims or to classes of 
victims.
    Finally, the rule requires the Fund Administrator to issue regular 
reports on the disposition of funds in the Civil Penalty Fund. Those 
reports will be made available on www.consumerfinance.gov.

III. Legal Authority

    The Bureau is issuing 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.
    This rule is in part an interpretative rule and in part a rule 
relating to agency procedure and practice. Accordingly, the rule is not 
subject to the 30-day delayed effective date for substantive rules 
under section 553(d) of the Administrative Procedure Act, 5 U.S.C. 
553(d). Even if this requirement applied, the Bureau finds there is 
good cause for this rule to take effect immediately upon publication in 
the Federal Register. The principal purpose of delaying an effective 
date is to provide regulated persons an opportunity to prepare, such as 
by bringing their operations into compliance with new requirements. But 
this rule does not impose any obligations or prohibitions on the 
public, and the public therefore needs no time to prepare for the 
rule's effective date. Meanwhile, making the rule immediately effective 
allows the Bureau to begin as soon as possible the process of 
allocating funds in the Civil Penalty Fund to victims.

IV. Section-by-Section Description

Section 1075.100 Scope and Purpose

    This section describes the scope and purpose of the rule. It 
explains that the rule implements section 1017(d)(2) of the Dodd-Frank 
Act by describing the conditions under which victims will be eligible 
for payment from the Civil Penalty Fund and the amounts of the payments 
they may receive. This section further explains that this rule 
establishes procedures for allocating funds in the Civil Penalty Fund 
to classes of victims and to consumer education and financial literacy 
programs, and for distributing allocated funds to individual victims. 
The rule also requires the Fund Administrator to issue regular reports 
on the Civil Penalty Fund.

Section 1075.101 Definitions

    This section defines terms used in the rule.
    Bureau. The rule provides that the term ``Bureau'' means the Bureau 
of Consumer Financial Protection.
    Bureau enforcement action. The rule provides that the term ``Bureau 
enforcement action'' means any judicial or administrative action or 
proceeding in which the Bureau has obtained relief with respect to a 
violation.
    Chief Financial Officer. The rule states that the term ``Chief 
Financial Officer'' means the Chief Financial Officer of the Bureau or 
any Bureau employee to whom that officer has delegated authority to act 
under this part. The rule further states that, in the absence of a 
Chief Financial Officer, the Director shall designate an alternative 
official of the Bureau to perform the functions of the Chief Financial 
Officer under this part.
    Civil Penalty Fund. The rule provides that the term ``Civil Penalty 
Fund'' means the Consumer Financial Civil Penalty Fund established by 
12 U.S.C. 5497(d).
    Civil Penalty Fund Governance Board. The rule provides that the 
term ``Civil Penalty Fund Governance Board'' refers to the body, 
comprised of senior Bureau officials, established by the Bureau's 
Director to advise on matters relating to the Civil Penalty Fund.
    Class of victims. The rule defines the term ``class of victims'' to 
mean a group of similarly situated victims who suffered harm from the 
same or similar violations for which the Bureau obtained relief in a 
Bureau enforcement action. Under this definition, a single Bureau 
enforcement action could involve multiple classes of victims. For 
example, the Bureau might obtain relief for multiple different 
violations in a single action. The set of victims harmed by one 
violation might overlap with the set of victims harmed by another 
violation, but each set could constitute a distinct class for purposes 
of this rule.
    Defendant. The rule states that the term ``defendant'' means a 
party in a Bureau enforcement action that is found or alleged to have 
committed a violation. This includes parties that generally are 
referred to as ``respondents'' in administrative enforcement actions.
    Final order. The rule provides that the term ``final order'' means 
a consent order or settlement issued by a court or by the Bureau, or an 
appealable order issued by a court or by the Bureau as to which the 
time for filing an appeal has expired and no appeals are pending. The 
rule makes clear that for purposes of this definition, ``appeals'' 
include petitions for reconsideration, review, rehearing, and 
certiorari.
    This rule's definition of ``final order'' differs from the 
definition of that term in the Bureau's Rules of Practice for 
Adjudication Proceedings, which provide that an order may be considered 
``final'' even if a petition for reconsideration or review is pending. 
For purposes of this rule, the Bureau has chosen to define ``final 
order'' as an order that is subject to no further review because the 
terms of an order in part determine whether victims may receive 
payments from the Civil Penalty Fund and, if so, in what amount. Thus, 
it is important that the terms of the final order not be subject to 
change. Otherwise, the Bureau would risk making Civil Penalty Fund 
payments that might turn out, as a result of appellate decisions, to 
have exceeded the amount victims may receive under the rule.
    Person. The rule incorporates the definition of ``person'' set 
forth in section 1002(19) of the Dodd-Frank Act. Thus, the rule states 
that the term ``person'' means an individual, partnership, company, 
corporation, association (incorporated or unincorporated), trust, 
estate, cooperative organization, or other entity.
    Redress. The rule states that the term ``redress'' means any 
amounts that a final order requires a defendant to distribute, credit, 
or otherwise pay to those harmed by a violation, or to pay to the 
Bureau or another intermediary for distribution to those harmed by the 
defendant's violation. The rule makes clear that redress includes but 
is not limited to restitution, refunds, and damages. A case brought by 
a party other than the Bureau--such as another federal agency, a 
state's attorney

[[Page 26492]]

general, or a private plaintiff--may result in ``redress'' as defined 
by the rule.
    Victim. The rule defines ``victim'' to mean a person harmed as a 
result of a violation.
    Violation. The rule provides that the term ``violation'' means any 
act or omission that constitutes a violation of law for which the 
Bureau is authorized to obtain relief pursuant to 12 U.S.C. 5565(a).

Section 1075.102 Fund Administrator

102(a) In General
    Section 1075.102(a) establishes within the Bureau the position of 
Civil Penalty Fund Administrator (Fund Administrator) and provides that 
the Fund Administrator will report to the Chief Financial Officer and 
serve at that officer's pleasure. In addition, the Chief Financial 
Officer may, to the extent permitted by applicable law, relieve the 
Fund Administrator of the duties of that position without notice, 
without cause, and before naming a successor Fund Administrator.
102(b) Powers and Duties
    Section 1075.102(b) provides that the Fund Administrator will have 
the powers and duties assigned to that official by this rule.
102(c) Interpretation of These Regulations
    Section 1075.102(c) provides that the Civil Penalty Fund Governance 
Board may advise or direct the Fund Administrator on the administration 
of the Civil Penalty Fund, including regarding the interpretation of 
this part and its application to particular facts and circumstances. 
The Governance Board may provide this advice or direction on its own 
initiative or at the Fund Administrator's request. The rule makes clear 
that if the Governance Board issues to the Fund Administrator written 
directions regarding the administration of the Civil Penalty Fund, the 
Fund Administrator must follow those directions.
102(d) Unavailability of the Fund Administrator
    Section 1075.102(d) provides that if there is no Fund Administrator 
or if the Fund Administrator is otherwise unavailable, the Chief 
Financial Officer will perform the Fund Administrator's functions and 
duties. In accordance with Sec.  1075.101, the Chief Financial Officer 
may delegate to another Bureau employee the authority to perform the 
Fund Administrator's functions and duties in these circumstances.
Section 1075.103 Eligible Victims
    Section 1075.103 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, the Bureau 
interprets 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. If section 1017(d)(2) instead authorized the 
Bureau to make payments to victims of activities that are of the same 
type as activities for which civil penalties were imposed--even if no 
civil penalty was imposed for the particular activities that harmed the 
victim--it would be difficult to identify all such activities, assess 
whether those activities were sufficiently similar to activities that 
gave rise to a civil penalty, and identify the victims of those 
activities. By contrast, interpreting section 1017(d)(2) to authorize 
payments only to victims of particular violations for which civil 
penalties were imposed establishes a clear eligibility rule that is 
straightforward to apply.
    A victim's eligibility for payment from the Civil Penalty Fund and, 
as discussed below, the amount of any such payment do not depend on the 
amount of the civil penalty imposed or paid for the violation that 
harmed the victim. Section 1017 of the Dodd-Frank Act instructs the 
Bureau to deposit all amounts received as civil penalties into a single 
Civil Penalty Fund and authorizes payments from that Fund to the 
``victims'' of ``activities'' for which ``penalties'' have been 
imposed. By creating a single Civil Penalty Fund, the statute enables 
the pooling of penalties from multiple actions. The Bureau therefore 
interprets section 1017 to make a victim's eligibility for payments 
from the Civil Penalty Fund depend only on whether a final order 
imposed a civil penalty for the violation that harmed the victim, and 
not on whether the defendant actually paid the penalty imposed or on 
how much the defendant paid. Thus, a victim is not limited to receiving 
some portion of the particular civil penalty paid for the violation 
that harmed the victim, but rather may receive payment from any funds 
in the Civil Penalty Fund.

Section 1075.104 Payments to Victims

104(a) In General
    Section 1075.104(a) 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. This 
provision gives effect to the Bureau's interpretation 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 recognizes that section 1017(d)(2) authorizes 
payments to victims but does not specify what kinds of payments, in 
what amounts, or for what purposes. However, section 1017(d)(1)'s 
caption, ``Establishment of Victims Relief Fund,'' suggests that Civil 
Penalty Fund payments should provide relief to victims for harm 
suffered. Compensation for harm is a common purpose for payments to 
victims, and laws ordinarily do not go beyond that purpose to give 
victims windfall recoveries that exceed the harms they suffered.\2\ To 
be sure, some laws do provide for payments to victims in excess of 
harms suffered, usually to provide additional incentives for private 
parties to enforce the law or to enhance the deterrent effect of such 
private enforcement.\3\ Providing such payments here, however, would 
not further those goals: It would not incentivize victims to bring 
private enforcement actions, nor would it have any impact on deterrence 
because the size of the payments would not affect the size of the civil 
penalty that the defendant had to pay. Moreover, there is no indication 
in section 1017(d)'s text that the Civil Penalty Fund should provide 
victims payments beyond the extent of their harm.
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    \2\ See, e.g., Prudential Ins. Co. of Am. v. S.S. Am. Lancer, 
870 F.2d 867, 871 (2d Cir. 1989); Reilly v. United States, 863 F.2d 
149, 165 (1st Cir. 1988); Westerman v. Sears, Roebuck & Co., 577 
F.2d 873, 879 (5th Cir. 1978).
    \3\ See, e.g., Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 
220, 241 (1987) (explaining that ``the antitrust treble-damages 
provision gives private parties an incentive to bring civil suits 
that serve to advance the national interest in a competitive 
economy''); City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 
266-67 (1981) (``Punitive damages by definition are not intended to 
compensate the injured party, but rather to punish the tortfeasor 
whose wrongful action was intentional or malicious, and to deter him 
and others from similar extreme conduct.'').
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    The Bureau's interpretation also gives effect to the second 
sentence of section

[[Page 26493]]

1017(d)(2), which authorizes the Bureau to use funds in the Civil 
Penalty Fund for consumer education and financial literacy programs to 
the extent that payments to victims are not practicable. If the amount 
of individual victims' payments were not limited in some way, any one 
victim could receive the full amount in the Fund. Thus, so long as it 
was practicable to pay at least one victim--as it almost certainly 
always will be--funds would never become available for consumer 
education and financial literacy programs under section 1017(d)(2)'s 
second sentence. Therefore, for all the terms of section 1017(d)(2) to 
have effect, payments to victims must be subject to reasonable 
limitation. In light of the general principles discussed above, the 
Bureau believes that paying victims only to compensate them for harms 
suffered as a result of violations effectuates the statutory intent.
104(b) Victims' Uncompensated Harm
    In general, a victim's uncompensated harm is the amount of the 
victim's compensable harm, as described in Sec.  1075.104(c) and 
discussed below, minus any compensation for that harm that the victim 
has received or is reasonably expected to receive. To ensure that Civil 
Penalty Fund payments do not overcompensate victims, the Bureau will 
take account of compensation that victims have received from other 
sources. In addition, in some cases, some time may elapse between when 
an entity is directed to compensate victims, or when funds are 
allocated to compensate victims, and when the victims actually receive 
that compensation. The Bureau will take account of such compensation, 
even if victims have not yet received it. The Bureau understands 
section 1017(d)(2) to create a backstop that could provide compensation 
that victims otherwise would not receive. Thus, ``payments to victims'' 
should not include payments that would duplicate compensation that the 
victims are reasonably expected to receive in the future.
    Section 1075.104(b)(2) describes three categories of compensation 
that a victim ``has received or is reasonably expected to receive.'' 
First, paragraph (b)(2)(i) provides that a victim has received or is 
reasonably expected to receive any Civil Penalty Fund payment that the 
victim has previously received or will receive as a result of a 
previous allocation from the Civil Penalty Fund to the victim's class.
    Second, paragraph (b)(2)(ii) provides that a victim has received or 
is reasonably expected to receive any redress that a final order in a 
Bureau enforcement action orders to be distributed, credited, or 
otherwise paid to the victim, and that has not been suspended or waived 
and that the Chief Financial Officer has not determined to be 
uncollectible. The Bureau expects that defendants generally will pay 
the redress that they are ordered to pay in a Bureau enforcement 
action. Therefore, the Bureau generally considers it reasonable to 
anticipate that victims will receive any amount of compensation ordered 
in such an action. However, in some circumstances it will not be 
reasonable to expect a victim to receive some portion of the 
compensation ordered in a given action. In particular, victims will not 
likely receive a redress amount that the Bureau has suspended or 
waived. In addition, victims will not likely receive a redress amount 
that the Bureau has determined to be uncollectible in whole or in part.
    Third, paragraph (b)(2)(iii) provides that a victim has received or 
is reasonably expected to receive any other redress that the Bureau 
knows has been distributed, credited, or otherwise paid to the victim, 
or has been paid to an intermediary for distribution to the victim, to 
the extent that (1) such redress compensates the victim for the same 
harm as would be compensated by a Civil Penalty Fund payment, and (2) 
it is not unduly burdensome, in light of the amounts at stake, to 
determine the amount of that redress or the extent to which it 
compensates the victim for the same harm as would be compensated by a 
Civil Penalty Fund payment.
    The ``other redress'' covered by this provision includes redress 
paid to victims as a result of private litigation or enforcement 
actions by other regulators. Such redress would be subtracted from a 
victim's compensable harm only if the Bureau knows that the defendant 
has paid the other redress. The Bureau would not, pursuant to the rule, 
actively investigate what other redress victims have been paid. 
However, to the extent the Bureau does learn of other redress, such 
redress should be counted as compensation that victims have 
received.\4\
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    \4\ The Bureau anticipates it will learn of other redress as a 
matter of course in many cases. For example, the Bureau may require 
a defendant to notify the Bureau of any judgment or settlement 
involving violations related to the order.
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    In addition, under this provision, a victim is not ``reasonably 
expected to receive'' other redress that a party has been ordered to 
pay, but has not yet paid. While many defendants will actually pay the 
full amounts ordered, the Bureau recognizes that some may not. The 
Bureau has substantially less information about the likelihood that 
defendants will fully comply with the orders in actions brought by 
other parties than it does about compliance with orders in its own 
actions. The Bureau often will not know, for example, whether redress 
from such a non-Bureau action is uncollectible. And while the Bureau 
has the authority to seek enforcement of orders it obtains, the Bureau 
usually will not know what efforts other parties might undertake to 
enforce the orders obtained in their own actions. Given those 
uncertainties, the Bureau will not consider a victim to be reasonably 
likely to receive redress from other parties' actions until the 
defendant has actually paid that redress to an intermediary for 
distribution to the victims.
    Finally, the Bureau recognizes that in some circumstances it may 
not be practicable to assess the uncompensated harm of individual 
victims. In such cases, Sec.  1075.104(b)(3) provides that, for 
purposes of this rule, each individual victim's uncompensated harm will 
be the victim's share of the aggregate uncompensated harm of the 
victim's class.
104(c) Victims' Compensable Harm
    Section 1075.104(c) describes the amount of victims' compensable 
harm for purposes of this rule. As noted above, the Bureau interprets 
section 1017(d)(2) of the Dodd-Frank Act to authorize payments to a 
victim only up to the amount of harm that the victim suffered from the 
violation for which the Bureau obtained a civil penalty and for which 
the victim has not received and is not reasonably likely to receive 
other compensation. The Bureau also interprets that provision as 
directing the Bureau to make payments to victims only to the extent 
practicable.
    The Bureau believes that for payments to be ``practicable,'' it 
must be feasible to carry out all the steps involved in making the 
payments, and to do so efficiently and without excessive administrative 
cost in the context of a system of making payments to many victims of 
many different activities.\5\ The Dodd-Frank Act did not establish a 
tribunal or a formal procedure for distributing payments pursuant to

[[Page 26494]]

section 1017(d)(2). Indeed, the statute does not specify any mechanism 
for making the payments. But, in light of section 1017(d)(2)'s 
placement within a statutory section that generally deals with the 
Bureau's administrative operations, the Bureau interprets that 
provision to refer to payments that may be made through ordinary 
administrative mechanisms. ``Practicable,'' therefore, means capable of 
being carried out through such mechanisms.
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    \5\ Cf. 40 CFR 230.10(a)(2) (regulation specifying that an 
alternative is ``practicable'' for purpose of the Clean Water Act if 
``it is available and capable of being done after taking into 
consideration cost, existing technology, and logistics in light of 
overall project purposes''); Biodiversity Legal Found. v. Babbitt, 
146 F.3d 1249, 1255-56 (10th Cir. 1998) (statutory instruction to 
adhere to deadline to the degree ``practicable'' permitted agency to 
vary from deadline on the bases of what resources and funding were 
available and of how the agency assessed priorities).
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    Consistent with this interpretation, later sections of the rule, 
discussed below, direct the allocation and payment of funds only to the 
extent that payments to victims would be practicable. In addition, 
Sec.  1075.109 identifies circumstances in which payment may not be 
practicable. For payments to be practicable, the Bureau must be able to 
take measures that are reasonable in the context of the Civil Penalty 
Fund to determine the amount of victims' harm, and thus the amount of 
the payments the victims may receive. Given the nature of the Civil 
Penalty Fund and the likely volume of payments, making complex 
individualized determinations or subjective judgments about the nature 
or extent of victims' harm would entail significant administrative 
burden and delay. Calculating harm based on such determinations or 
judgments therefore would not be practicable. Instead, in this context, 
harm is practicable to calculate only if the Fund Administrator can 
determine it by applying objective standards on a classwide basis. For 
these reasons, the Bureau defines ``compensable harm'' to include only 
those amounts of harm that the Bureau deems practicable to calculate, 
in the sense just described. Section 1075.104(c) describes amounts of 
harm that the Bureau believes will be practicable to calculate and 
establishes procedures that the Fund Administrator will follow to 
determine compensable harm in each of several categories of cases.
    The measures of harm described in this section will not always 
correspond to the amount of harm for which the Bureau or injured 
victims could obtain compensation under the relevant laws and 
regulations and do not in any way reflect the Bureau's view on what 
kinds of harm are or should be compensable in litigation. Rather, these 
objective measures simply reflect what is practicable for the Fund 
Administrator to determine in the context of the Civil Penalty Fund.
    To the extent possible, the amount of a victim's compensable harm 
will be based on the objective terms of a final order. Referring to the 
terms of a final order will be practicable, and following the terms of 
orders will enable the Fund Administrator to determine a victim's 
compensable harm quickly and efficiently in most circumstances. In 
addition, by relying on the terms of a final order, the Fund 
Administrator can avoid making potentially subjective judgments about 
the nature of the harm that a class of victims has suffered and how to 
quantify and calculate that harm.
    There are several categories of cases in which the Fund 
Administrator will be able to rely on the terms of a final order. 
First, under paragraph (c)(1), 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, under paragraph (c)(2)(i), 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. A court or administrative tribunal's denial of a 
request for redress presumably reflects that body's conclusion that the 
Bureau has not proven that the victims' harm is legally compensable.
    Third, under paragraph (c)(2)(ii), 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. This paragraph 
will apply in cases where the Bureau does not seek any redress for a 
class of victims. For example, if the Bureau believed a defendant had 
too few financial resources to provide any meaningful redress to its 
victims, the Bureau might choose not to seek such redress and instead 
to pursue injunctive relief. However, the final order in such a case 
might still describe amounts of harm that victims suffered from the 
violations at issue. Relying on such a description would be practicable 
to the same extent as relying on an order of redress. When possible, 
such victims' harm--like the harm of victims for whom redress is 
ordered--will be determined according to the objective terms of a final 
order. Only when that is not possible will the Bureau look to external 
factors to assess victims' harm.
    Paragraph (c)(2)(iii) describes the amounts of harm that the Bureau 
believes could practicably be determined in those circumstances. Under 
this paragraph, each victim's compensable harm is equal to the victim's 
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.
    The restriction to out-of-pocket losses effectuates the 
``practicable'' standard for payments to victims because those losses 
are what would be ``practicable'' to determine in the context of 
disbursing funds from the Civil Penalty Fund. As discussed above, the 
Bureau believes that for payments to be ``practicable'' it should be 
possible for the Fund Administrator to calculate the appropriate 
payments on the basis of objective standards applicable on a classwide 
basis. In addition, the Fund Administrator should be able to obtain 
objective evidence of the harm with effort that is reasonable in this 
context. It follows that, when the Fund Administrator must assess harm 
on her own because no final order has specified an amount of harm, the 
Fund Administrator should assess only the amount of out-of-pocket loss. 
In general, the amounts that victims have spent out of pocket can be 
determined on the basis of documentary records that are straightforward 
to obtain. If, in exchange, victims have received some product or 
service of value, the objective value of that product or service should 
generally also be feasible to determine on a classwide basis. Measures 
of harm beyond out-of-pocket loss would tend to involve more 
individualized questions or more complex judgments than the Bureau 
practicably can make in administering the Civil Penalty Fund.\6\
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    \6\ The Bureau does not regard out-of-pocket losses as a general 
limitation on what remedy might be available to plaintiffs, such as 
the Bureau, in a given action to enforce federal consumer financial 
law. Other measures of harm often will be appropriate, depending on 
the circumstances. Out-of-pocket losses simply represents the 
Bureau's judgment about what would be practicable to calculate in 
the specific context of the Civil Penalty Fund.
---------------------------------------------------------------------------

    The Bureau recognizes, however, that it may not always be 
practicable to make a complete determination of victims' out-of-pocket 
losses. For instance, at times there may be no objective standard for 
assessing the value of a good or service the buyer received. As another 
example, in some cases, there may be no centralized records of the 
amounts buyers paid, and it may be too costly given the amounts at 
stake to seek that evidence from the individual buyers. Thus, under the 
rule, out-of-pocket losses are compensable harm only to the extent that 
they are practicable to determine.\7\
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    \7\ If one aspect of out-of-pocket losses is impracticable to 
determine, the Fund Administrator need not necessarily conclude that 
no harm can practicably be determined for the class. For example, if 
the value of a good or service received is impracticable to 
determine, the Fund Administrator may under the rule treat the 
amounts paid as the compensable harm if doing so would be 
reasonable.

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[[Page 26495]]

    The Bureau recognizes that many victims will have suffered harms in 
addition to those that the Civil Penalty Fund may compensate under this 
rule. For example, out-of-pocket loss may not be a complete measure of 
a particular victim's harm. But the Bureau does not understand the 
statute to guarantee complete compensation for victims. The Fund 
provides compensation only to the extent funds are available due to 
defendants' payment of civil penalties; and, pursuant to section 
1017(d), the Fund provides compensation only to the degree 
``practicable.'' The Bureau believes the rule faithfully interprets 
section 1017(d), and the rule does not preclude victims from receiving 
compensation from other sources in amounts greater than the Civil 
Penalty Fund might provide.

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

    Section 1075.105 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.
105(a) In General
    Section 1075.105(a) 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) directs the Fund Administrator, within 60 
days of this rule's effective date, to establish and publish on 
www.consumerfinance.gov a schedule for allocating funds in the Civil 
Penalty Fund. That schedule generally will establish six-month periods 
and identify the start and end dates of those periods, with each 
period's start date immediately following the end date of the previous 
period. The first two periods of this schedule, however, need not be 
six months long. Rather, they may be longer or shorter than six months 
so that future six-month periods may start and end on dates that better 
serve administrative efficiency. These first two periods are considered 
``six-month periods'' under this rule regardless of their actual 
length. The start date of the first period will be July 21, 2011.
    The Fund Administrator will allocate funds from the Civil Penalty 
Fund on the basis of this schedule. In addition, the amounts that will 
be available for allocation and the time when classes of victims may be 
considered for allocations will depend on the schedule.\8\ Section 
1075.105(b)(2) provides that, within 60 days after the end of a six-
month period, the Fund Administrator will allocate available funds in 
the Civil Penalty Fund in accordance with Sec. Sec.  1075.106 and 
1075.107. Consistent with those provisions, the Fund Administrator will 
allocate funds (1) to classes of victims that had uncompensated harm as 
of the last day of that six-month period and (2) to consumer education 
and financial literacy programs as appropriate.
---------------------------------------------------------------------------

    \8\ As explained in greater detail below, the schedule also in 
some cases governs which classes of victims will receive priority 
when there are insufficient funds available to compensate all 
victims fully.
---------------------------------------------------------------------------

    Thus, the Fund Administrator will allocate funds from the Civil 
Penalty Fund only once every six months. 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, the accidents of timing 
would dictate the results. The Bureau's method of allocating funds on a 
six-month schedule will give equal treatment to all classes from a 
given six-month period.\9\
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    \9\ The Bureau could, in principle, extend this principle of 
equal treatment by allocating funds less frequently than every six 
months. However, doing so would mean making payments to victims less 
frequently. The Bureau expects that a six-month schedule will 
eliminate the most significant effects of timing while still 
ensuring that victims receive payments reasonably quickly.
---------------------------------------------------------------------------

    The 60-day window for allocating funds after a six-month period 
gives the Fund Administrator time to collect and analyze available data 
in order to assess which classes of victims are eligible for Civil 
Penalty Fund payments and the amounts they may receive and to perform 
the calculations necessary to comply with Sec. Sec.  1075.106 and 
1075.107.
    The classes to which funds may be allocated are only those classes 
that had uncompensated harm as of the last day of the six-month period 
that most recently concluded. Although other classes might have come to 
have uncompensated harm between that day and the time when the Fund 
Administrator next makes allocations, it would be difficult, as a 
general rule, for the Fund Administrator to carry out the assessments 
and calculations necessary to quantify the uncompensated harm of such 
classes and to take that harm into account in determining how funds 
will be allocated. If the Fund Administrator continually had to account 
for new classes of victims with new amounts of uncompensated harm after 
the close of a six-month period, her calculations would continually 
change. Constantly making new calculations would waste resources and 
could make it difficult for the Fund Administrator to allocate funds 
within 60 days of the close of a six-month period. For these reasons, 
the Bureau concludes that it would be impracticable for the Fund 
Administrator to make payments for uncompensated harm that arose after 
the end of a six-month period. Accordingly, the Fund Administrator will 
consider a class for an allocation only after the end of the six-month 
period in which the class began to have uncompensated harm.
    Section 1075.105(b)(3) authorizes the Civil Penalty Fund Governance 
Board to change the schedule of six-month periods if it determines that 
a new schedule would better serve administrative efficiency. Under this 
provision, the Civil Penalty Fund Governance Board may change the 
schedule by directing the Fund Administrator to publish a new schedule 
on www.consumerfinance.gov. Any new schedule must comply with paragraph 
(b)(1)(i) of this section by establishing six-month periods and their 
start and end dates, with the start date of one period immediately 
following the end date of the preceding period. The first period of a 
new schedule may be shorter or longer than six months. That first 
period will constitute a ``six-month period'' under this part 
regardless of its actual length.
105(c) Funds Available for Allocation
    Section 1075.105(c) provides that the funds available for 
allocation following the end of a six-month period are those

[[Page 26496]]

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.
    Just as additional classes may become eligible between the end of a 
six-month period and the time when the Fund Administrator allocates 
funds following the end of that period, additional funds may be 
deposited into the Civil Penalty Fund during that interval. For the 
same reasons that the Bureau does not intend to allocate funds to such 
classes until the succeeding allocation, the Bureau likewise will not 
allocate such newly deposited funds until the succeeding allocation. 
Allocating funds involves calculations and assessments, and it would be 
difficult for the Fund Administrator to make those calculations and 
assessments based on a fluctuating, uncertain amount available for 
allocation.
    The provision does not permit re-allocation of funds that the Fund 
Administrator has already allocated. Although funds might remain on 
deposit in the Civil Penalty Fund for a period of time after they are 
allocated to a class of victims or to consumer education and financial 
literacy programs, such funds remain allocated and are not available 
for reallocation.
    In addition, this provision makes unavailable for allocation any 
funds that the Fund Administrator determines are necessary for 
authorized administrative purposes. The Bureau interprets section 
1017(d)(2) of the Dodd-Frank Act, 12 U.S.C. 5497(d)(2), to authorize 
the Bureau to use funds in the Civil Penalty Fund not only for the 
actual payments to victims themselves, but also for the administrative 
expenses incurred to make those payments. Nothing in section 1017 or 
any other provision of law bars the Bureau from using funds in the 
Civil Penalty Fund for such administrative expenses, nor is there any 
indication that such expenditures are allowed only with express 
authorization. In addition, no other source of funding more 
specifically provides for those expenses. The Bureau may therefore use 
funds in the Civil Penalty Fund for administrative expenses that it 
determines are necessary or incident to making payments to victims.\10\ 
To ensure that sufficient funds remain in the Civil Penalty Fund to pay 
such administrative expenses, the Bureau will exclude from the 
allocation process those funds that the Fund Administrator deems 
necessary for those expenses.
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    \10\ See Government Accountability Office, Principles of Federal 
Appropriations Law 4-20 (3d ed.) (quoting Comptroller General McCarl 
to Maj. Gen. Anton Stephan, Commanding Officer, District of Columbia 
Militia, 6 Comp. Gen. 619, 621 (1927)) (parenthetical explanation).
---------------------------------------------------------------------------

    Finally, this provision also makes unavailable for allocation any 
funds that the Bureau collected pursuant to an order that has not yet 
become a final order. This ensures that the Bureau does not allocate or 
spend amounts that it could have to return to the payer. In particular, 
a defendant in a Bureau enforcement action could pay a civil penalty 
into the Civil Penalty Fund before the order imposing the civil penalty 
becomes a final order. In such a case, if the defendant appealed and a 
court reversed the imposition of the civil penalty, the Bureau would 
have to pay the amount of the civil penalty back to the defendant.

Section 1075.106 Allocating Funds to Classes of Victims

    Section 1075.106 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.
106(a) Allocations When There Are Sufficient Funds Available To 
Compensate All Uncompensated Harm
    Section 1075.106(a) 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.
    This provision contains two limitations on the extent to which the 
Fund Administrator will allocate funds to compensate fully all victims. 
First, the Fund Administrator will not allocate funds to compensate 
uncompensated harm that arose after the end of the most recent six-
month period.\11\ As explained above, it would be impracticable for the 
Fund Administrator to make timely allocations if she had to revise the 
calculations continually to take account of newly arising uncompensated 
harm.
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    \11\ A class's uncompensated harm could increase after the end 
of a six-month period if, for example, the Bureau waives or deems 
uncollectible an amount of redress that the class had been 
reasonably expected to receive. Under the rule, the Fund 
Administrator will take account of any increase in a class's 
uncompensated harm only after the six-month period in which that 
increase occurred.
---------------------------------------------------------------------------

    Second, the Fund Administrator will allocate to each class only an 
amount sufficient to compensate the uncompensated harm of all victims 
in the class to whom it is practicable to make payments. As noted 
above, section 1017(d)(2) of the Dodd-Frank Act calls for payments to 
victims only to the degree that such payments are practicable. The 
Bureau recognizes that even if it is practicable to calculate the 
uncompensated harm of a class of victims, it may nonetheless be 
impracticable, in some circumstances, to make payments to particular 
victims in the class. Section 1075.109 describes a number of such 
circumstances, which will be discussed below in more detail. Pursuant 
to Sec.  1075.106(a), the Fund Administrator is authorized to take 
account of such circumstances at the time of allocation by reducing the 
allocation to a class on the ground that payments to some victims in 
the class will be impracticable.\12\
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    \12\ In many instances, the Fund Administrator will not know at 
the time of allocation whether it is practicable to make payments to 
particular individual victims. Sometimes, however, the Fund 
Administrator may have concrete information indicating that it will 
not be practicable to pay particular victims. If, for example, the 
Bureau previously distributed payments to a class and, despite 
reasonable efforts, could not locate some victims, the Fund 
Administrator might reasonably conclude, when making a further 
allocation, that it is not practicable to make payments to those 
unlocatable victims.
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106(b) Allocations When There Are Insufficient Funds Available To 
Compensate All Uncompensated Harm
    Section 1075.106(b) establishes the procedures 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.
106(b)(1) Priority to Classes of Victims From the Most Recent Six-Month 
Period
    Under Sec.  1075.106(b)(1), when there are insufficient funds 
available to provide all victims full compensation as described in 
paragraph (a), the Fund

[[Page 26497]]

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. The Bureau has specified this tiered allocation process 
because it will be more administratively efficient to determine the 
appropriate allocations for classes from single six-month periods than 
to determine the appropriate allocations for all classes at once.
    In addition, this process will result in lower administrative 
costs, both as an absolute matter and in terms of administrative cost 
per dollar distributed, than would a process requiring funds to be 
allocated among all classes. First, allocating the limited funds to a 
limited number of classes will mean that there will be fewer payments 
to make--and lower associated costs--than if the limited funds were 
allocated to more classes. Second, allocating the limited funds to a 
smaller number of classes generally will result in payments of greater 
amounts than if the Fund Administrator had instead allocated the 
limited funds more thinly among more classes. Making larger payments 
generally will be more cost-effective--in terms of administrative cost 
per dollar distributed--than making smaller payments.
106(b)(2) Assigning Classes of Victims to a Six-Month Period
    As explained above, Sec.  1075.106(b)(1) instructs 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) explains that 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).
    This 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.
    This provision corresponds to Sec.  1075.104(b), which defines a 
victim's uncompensated harm. As noted above, that section provides that 
a victim's uncompensated harm is the victim's compensable harm, minus 
any compensation for that harm that the victim has received or is 
reasonably expected to receive. In all cases, a class of victims will 
first have compensable harm under this rule, if any, as of the date an 
order in a Bureau enforcement action becomes final because, under Sec.  
1075.104(c), the terms of the final order determine the amount of 
victims' compensable harm or how that harm will be ascertained. In 
cases where no redress is ordered, victims also often will have 
uncompensated harm as of the date the order in the Bureau enforcement 
action becomes final because, at the time of the order, they will not 
be reasonably expected to receive redress for their compensable harm. 
In cases where redress is ordered, however, victims generally will have 
no uncompensated harm at the time of the order because at that time 
they generally will be reasonably expected to receive the redress 
ordered. Later events, however, could make it no longer reasonable to 
expect the victims to receive compensation. In particular, under Sec.  
1075.104(b), a victim will no longer be reasonably expected to receive 
redress amounts if the Bureau waives or suspends those amounts or deems 
them uncollectible. Thus, a victim may begin to have uncompensated harm 
when such an event occurs.
106(c) No Allocation to a Class of Victims If Making Payments Would Be 
Impracticable
    Section 1075.106(c) 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 interprets 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.
106(d) Fund Administrator's Discretion
106(d)(1)
    Section 1075.106(d)(1) 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 
section. This provision gives the Fund Administrator discretion to 
depart from the allocation procedures specified by Sec.  1075.106; it 
is not intended to authorize the Fund Administrator otherwise to depart 
from the provisions in this part, for example by giving victims 
payments greater than their uncompensated harm. With this provision, 
the Bureau simply aims to give the Fund Administrator the flexibility 
to depart from the allocation procedures established by Sec.  1075.106 
when the circumstances warrant. For example, the Fund Administrator 
might choose to deviate from Sec.  1075.106's allocation procedures if 
insufficient information is available, at the end of a given six-month 
period, to assess the total uncompensated harm for a class from that 
period. The Fund Administrator might choose to postpone allocating 
funds to that class until such time as the Fund Administrator has the 
necessary information. When the Fund Administrator does allocate funds 
to that class, she may, pursuant to this paragraph, prioritize the 
class for receiving allocations even though, according to Sec.  
1075.106(b)(2), the class's uncompensated harm arose some time 
previously.
    As another example, a class of victims might have had uncompensated 
harm in an earlier six-month period, but the amount of the class's 
uncompensated harm might increase in a later six-month period. For 
example, the Bureau might suspend some amount of redress on one date, 
at which point the class could have uncompensated harm equal to that 
suspended amount. Then, the Chief Financial Officer might later deem 
part of the non-suspended amount uncollectible, at which point the 
class could have additional uncompensated harm equal to that 
uncollectible amount. The Fund Administrator might prioritize the class 
with respect to the additional amount of uncompensated

[[Page 26498]]

harm, even though pursuant to Sec.  1075.106(b)(2) the class would be 
from the six-month period when it first had uncompensated harm.
    Because the Bureau cannot anticipate all the situations in which it 
may be reasonable to deviate from Sec.  1075.106's allocation 
procedures, it leaves the decision to deviate to the Fund 
Administrator's discretion. However, the Fund Administrator must 
provide the Civil Penalty Fund Governance Board a written explanation 
of the reason for departing from the ordinary allocation procedures.
106(d)(2)
    Section 1075.106(d)(2) 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. 
While the Fund Administrator may, exercising the discretion authorized 
by paragraph (d)(1), adjust the distribution of funds among various 
classes, she cannot increase the amount available in a given time 
period for consumer education and financial literacy programs.\13\
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    \13\ The Bureau notes that when the Fund Administrator 
determines that payments to some victims in a class or to an entire 
class would be impracticable, the Fund Administrator's decision to 
allocate fewer funds or no funds to the class is not an exercise of 
discretion under paragraph (d)(1). Consistent with section 
1017(d)(2) of the Dodd-Frank Act, the Bureau will not make or 
attempt to make payments that would be impracticable.
---------------------------------------------------------------------------

    The limitation on allocating funds to consumer education and 
financial literacy programs applies only to an allocation that occurs 
in the same time period described in Sec.  1075.105(b)(2) in which the 
Fund Administrator exercises her discretion under Sec.  1075.106(d)(1). 
This reflects the Bureau's interpretation of 12 U.S.C. 5497(d)(2) as 
authorizing it to use funds in the Civil Penalty Fund for consumer 
education and financial literacy programs whenever it is not currently 
practicable to use those funds for payments to victims instead. Under 
Sec.  1017(d)(2), funds may be used for consumer education and 
financial literacy programs even if it would have been practicable at 
some time in the past to use those funds for payments to victims.

Section 1075.107 Allocating Funds to Consumer Education and Financial 
Literacy Programs

107(a)
    Section 1075.107(a) 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 allocation to consumer education and financial literacy 
programs. The Fund Administrator is not required to allocate such 
remaining funds to consumer education and financial literacy programs 
and instead may keep some or all funds in reserve for future 
allocation.
    In the future, the Bureau may limit the amount of funds that the 
Fund Administrator may allocate to consumer education and financial 
literacy programs under this provision. In a notice of proposed 
rulemaking published in today's Federal Register, the Bureau seeks 
comment on whether it should impose any limits and, if so, what those 
limits should be.
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. The 
Bureau has developed, and posted at http://files.consumerfinance.gov/f/201207_cfpb_civil_penalty_fund_criteria.pdf, its criteria for 
selecting these programs. These criteria are beyond the scope of this 
rule.

Section 1075.108 Distributing Payments to Victims

    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 describes the process for distributing payments 
to victims.
108(a) Designation of a Payments Administrator
    Section 1075.108(a) 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.
108(b) Distribution Plan
    Section 1075.108(b) 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.
108(c) Contents of Plan
    Section 1075.108(c) 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. Specifically, the Fund Administrator may 
require a distribution plan to include:
    1. Procedures for determining the amount each victim will receive. 
Such procedures may, but need not, include a process for submitting and 
approving claims. The Bureau anticipates that a process for submitting 
and approving claims will not be required when it receives adequate 
data from a defendant to assess how much uncompensated harm each victim 
suffered.
    2. Procedures for locating and notifying victims eligible or 
potentially eligible for payment. These procedures can include contacts 
by mail, telephone, electronic communications, or other means that may 
be practicable to employ.
    3. The method or methods by which the payments will be made. 
Payment methods could include paper checks, electronic funds transfers, 
or other methods that may be practicable to employ.

[[Page 26499]]

    4. The method or methods by which potentially eligible victims may 
contact the payments administrator. Such methods can include a 
telephone number, email address, or other methods.
    5. Any other provisions that the Fund Administrator deems 
appropriate.
108(d) Distribution of Payments
    Section 1075.108(d) 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.
108(e) Disposition of Funds Remaining After Attempted Distribution to a 
Class of Victims
    Section 1075.108(e) 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). The Bureau believes that doing 
so will often be the most efficient use of remaining funds. The 
payments administrator will have recent and up-to-date information on 
the victims to whom it successfully made payments, and a second 
distribution to those victims would likely also be successful. 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.
    For example, assume a class is comprised of 100 victims who have 
suffered $200 in uncompensated harm each, for a total $20,000 
uncompensated harm for the class. The following chart shows how 
remaining funds would be distributed under four different scenarios 
\14\:
---------------------------------------------------------------------------

    \14\ 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.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Total funds
                                                                                   distributed      Allocated
                                                 Payment amount     Number of       (Payment       funds that
                                                 (each victim's    victims to       amount x     remain (Amount
         Amount allocated to the class            share of the    whom payments     Number of      allocated-         Disposition of remaining funds
                                                    allocated     successfully     victims to      Total funds
                                                     amount)          made        whom payments   distributed)
                                                                                      made)
--------------------------------------------------------------------------------------------------------------------------------------------------------
$10,000........................................            $100              75          $7,500          $2,500  Distributed among the 75 victims in the
                                                                                                                  class to whom payments can
                                                                                                                  successfully be made. The additional
                                                                                                                  payments will be $33.33 each, giving
                                                                                                                  victims a total of $133.33 each.
10,000.........................................             100              96           9,600             400  Returned to the Civil Penalty Fund. If
                                                                                                                  the remaining funds were distributed
                                                                                                                  among the 96 victims in the class to
                                                                                                                  whom payments could successfully be
                                                                                                                  made, each payment would be only
                                                                                                                  $4.17. Given the cost of making a
                                                                                                                  payment, it is likely not practicable
                                                                                                                  to distribute payments of that amount.
20,000.........................................             200              75          15,000           5,000  Returned to Civil Penalty Fund. The 75
                                                                                                                  victims to whom payments were
                                                                                                                  successfully made have already
                                                                                                                  received $200, which is full
                                                                                                                  compensation for their uncompensated
                                                                                                                  harm.
16,000.........................................             160              75          12,000           4,000  $3,000 is distributed among the 75
                                                                                                                  victims to whom payments can
                                                                                                                  successfully be made. That gives each
                                                                                                                  victim an additional $40, for a total
                                                                                                                  of $200, full compensation. The
                                                                                                                  remaining $1,000 will then be returned
                                                                                                                  to the Civil Penalty Fund.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Section 1075.109 When Payments to Victims Are Impracticable

    As noted above, section 1017(d)(2) of the Dodd-Frank Act authorizes 
the Bureau to use funds in the Civil Penalty Fund for consumer 
education and financial literacy programs to the extent that payments 
to victims are not ``practicable.'' Accordingly, pursuant to Sec. Sec.  
1075.106 and 1075.108 of this 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. This section identifies 
circumstances in which payments to victims will be deemed not 
practicable.
    In identifying these circumstances, the Bureau has considered the 
ordinary meaning of ``practicable'': ``reasonably capable of being 
accomplished; feasible.'' Black's Law Dictionary (9th ed. 2009). As a 
general matter, ``practicability'' is a flexible concept. What is 
practicable for an agency to accomplish depends, among other things, on 
the context and on the purpose the agency seeks to fulfill. As noted 
above, the Bureau will make Civil Penalty Fund payments to compensate 
many victims of many different activities for harm suffered from 
violations of law. Because, as discussed above, the Civil Penalty Fund 
pays for the administrative expenses incurred making payments to 
victims as well as for the payments themselves, administrative expenses 
should not be excessive. Therefore, the Bureau

[[Page 26500]]

concludes that in assessing whether payments to victims are practicable 
in this context, one factor it should consider is the cost of 
administering the payments relative to the amounts of the payments.\15\
---------------------------------------------------------------------------

    \15\ Cf. Consolidated Edison v. Bodman, 477 F. Supp. 2d 198, 
201-02 (D.D.C. 2007) (instruction to make payments ``insofar as 
practicable'' permitted agency to adjust payment schedule so that it 
would not be making small payments to a large number of claimants).
---------------------------------------------------------------------------

    This section has two paragraphs that implement this understanding 
of practicability by identifying circumstances in which the costs of 
making payments would 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.
109(a) Individual Payments
    Section 1075.109(a) sets forth several circumstances in which 
payments to individual victims will be deemed impracticable. This 
section draws in part on class-action case law that examines when it is 
not practicable to locate class members or to make payments to them. 
Under this section, it will be deemed impracticable to make a payment 
to an individual victim if:
    1. The payment to the victim would be of such a small amount that 
the victim would not be likely to redeem the payment.
    2. The payment to the victim is too small to justify the cost of 
locating the victim and making the payment. For example, if it will 
cost $10 to locate and make a payment to a victim, the Fund 
Administrator may deem it impracticable to make a $10 or $15 payment to 
that victim.
    3. The victim cannot be located with effort that is reasonable in 
light of the amount of the payment. This provision acknowledges that 
there are different methods a payments administrator could employ to 
attempt to locate a victim, and that each additional effort will carry 
additional cost. At some point, the additional cost is not reasonable 
given the amount of the payment that the victim would receive. In these 
circumstances, it will not be practicable to make a payment to the 
victim.
    4. The victim does not timely submit information that a 
distribution plan requires to be submitted before a payment will be 
made. For example, in some cases, the Bureau may not be able to get 
complete information from a defendant identifying the victims of a 
violation and the amounts of their harm. In those cases, a distribution 
plan may require that victims make claims for payment by submitting 
relevant information. If a victim fails to submit that information as 
required by the distribution plan, the payments administrator will not 
be able to determine whether the person is a victim and, if so, the 
amount of that person's uncompensated harm. In those circumstances, it 
will not be practicable to make a payment to that victim.
    5. The victim does not redeem the payment within a reasonable time. 
For example, if payments are made by check, the check will indicate 
that it will be void after a certain amount of time. If a victim does 
not redeem the payment within that amount of time, it may not be 
practicable to make a payment to that victim.
    6. The Fund Administrator determines that other circumstances make 
it unreasonable to make a payment to the victim. The Bureau 
acknowledges that there may be situations other than those specifically 
enumerated in which the costs of making a payment will not be 
reasonable in light of the benefits.
109(b) Payments to a Class of Victims
    Section 1075.109(b) sets forth several circumstances in which 
making payments to a class of victims will be deemed impracticable. 
Under this section, it will be deemed impracticable to make payments to 
a class of victims if:
    1. The expected aggregate actual payment to the class of victims is 
too small to justify the costs of locating the victims in the class and 
making payments to them. This could occur, for example, in some 
circumstances where the Fund Administrator expects to have limited 
success in distributing payments to a class. For instance, suppose that 
there are 1,000 victims in a class who each have $50 in uncompensated 
harm, and that it will cost $10 per victim to distribute payments. In 
addition, the Fund Administrator has information indicating she is 
likely to be able to locate only 100 victims, but she does not know 
which 100 victims. Thus, it would cost $10,000 to attempt to make 
payments to the class, and in the end victims would receive an 
aggregate payment of only $5,000 (100 victims x $50 each). In those 
circumstances, the costs of attempting to make payments to the class 
may be too great in light of the aggregate actual payment to the class.
    2. It would be impracticable under paragraph (a) of this section to 
make a payment to any victim in the class. This situation could arise, 
for example, where each victim's payment would be $10 or less and it 
would cost $10 or more per victim to distribute payments.
    3. The Fund Administrator determines that other circumstances make 
it unreasonable to make payments to the class.

Section 1075.110 Reporting Requirements

    Section 1075.110 requires the Fund Administrator to issue regular 
reports, 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.

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

A. Overview

    In developing the final rule, the Bureau has considered potential 
benefits, costs, and impacts, and 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.\16\
---------------------------------------------------------------------------

    \16\ 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.
---------------------------------------------------------------------------

    The rule establishes the position of Fund Administrator and 
delegates to that official certain powers and responsibilities relating 
to the administration of the Civil Penalty Fund. The rule also 
describes the victims who are eligible for payments from the Civil 
Penalty Fund and the amounts of payments they may receive. In 
particular, the rule explains the Bureau's understanding of what

[[Page 26501]]

payments would be ``practicable,'' within the meaning of the word as 
used in section 1017(d)(2) of the Dodd-Frank Act. The rule sets forth 
the procedures by which the Fund Administrator will allocate funds to 
classes of victims and, when funds are available, to programs for 
consumer education and financial literacy and provides mechanisms for 
paying the allocated funds to victims. Finally, the rule requires the 
Fund Administrator to report periodically on disbursements from the 
Civil Penalty Fund.

B. Potential Benefits and Costs to Consumers and Covered Persons

    The analysis considers the benefits, costs, and impacts of the rule 
against a statutory baseline. That is, the analysis evaluates the 
benefits, costs, and impacts of the rule as compared to the statute 
without an implementing rule.\17\
---------------------------------------------------------------------------

    \17\ 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.
---------------------------------------------------------------------------

    The rule does not impose any obligations on consumers or covered 
persons. The rule provides expeditious procedures for allocating funds 
from the Civil Penalty Fund to implement section 1017(d) of the Dodd-
Frank Act. Although a rule is not necessary to implement this statutory 
provision, the rule establishes consistent procedures applicable with 
respect to all victims who might receive payments from the Civil 
Penalty Fund. By explaining how funds will be allocated and 
distributed, the rule provides clarity and predictability to those 
consumers who are victims of unlawful activity and might anticipate 
payments from the Fund.
    Moreover, the efficiency of the rule's procedures should help keep 
the administrative costs of making payments relatively low. Because, as 
discussed above, the Bureau may pay such administrative expenses from 
the Civil Penalty Fund, reducing those costs will generally increase 
the amount of money available for payments to victims and, when 
appropriate, for consumer education and financial literacy programs. In 
addition, adopting a rule, instead of permitting the Fund Administrator 
to distribute payments to victims on an ad hoc basis, may have some 
distributional impacts. The Fund Administrator's case-by-case decisions 
might, by comparison to the results prescribed by the rule, lead to 
payments to different consumers of differing amounts, or could lead to 
greater or lesser amounts being available for consumer education and 
financial literacy programs.

C. Potential Specific Impacts of the Proposed Rule

    The final rule does not have a unique impact on rural consumers or 
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. Nor is the rule expected to reduce consumers' access to 
consumer financial products or services.

VI. Regulatory Requirements

    This rule relates to benefits, namely payments that victims may 
receive from the Civil Penalty Fund. Pursuant to 5 U.S.C. 553(a)(2), 
this rule is therefore exempt from the notice and comment rulemaking 
requirements of the Administrative Procedure Act (APA). In addition, 
this rule concerns matters of agency organization, procedure, and 
practice, and in part articulates the Bureau's interpretations of the 
Dodd-Frank Act. It is therefore also exempt from the APA's notice and 
comment rulemaking requirements pursuant to 5 U.S.C. 553(b).
    Because no notice of proposed rulemaking is required, the 
Regulatory Flexibility Act does not require an initial or final 
regulatory flexibility analysis. 5 U.S.C. 603(a), 604(a).

VII. Paperwork Reduction Act

    The Bureau has determined that this final rule does not impose 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.

List of Subjects in 12 CFR Part 1075

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

Authority and Issuance

0
For the reasons set forth in the preamble, the Bureau amends Chapter X 
in Title 12 of the Code of Federal Regulations by adding part 1075 to 
read as follows:

PART 1075--CONSUMER FINANCIAL CIVIL PENALTY FUND RULE

Sec.
1075.100 Scope and purpose.
1075.101 Definitions.
1075.102 Fund administrator.
1075.103 Eligible victims.
1075.104 Payments to victims.
1075.105 Allocating funds from the Civil Penalty Fund--in general.
1075.106 Allocating funds to classes of victims.
1075.107 Allocating funds to consumer education and financial 
literacy programs.
1075.108 Distributing payments to victims.
1075.109 When payments to victims are impracticable.
1075.110 Reporting requirements.

    Authority: 12 U.S.C. 5512(b)(1), 5497(d).


Sec.  1075.100  Scope and purpose.

    Section 1017(d)(1) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010, Public Law 111-203, 124 Stat. 1978 (12 
U.S.C. 5497(d)) (Dodd-Frank Act) establishes the ``Consumer Financial 
Civil Penalty Fund.'' This part describes the conditions under which 
victims will be eligible for payments from the Consumer Financial Civil 
Penalty Fund and the amounts of the payments they may receive. This 
part also establishes procedures and guidelines for allocating funds 
from the Consumer Financial Civil Penalty Fund to classes of victims 
and distributing such funds to individual victims, and for allocating 
funds to consumer education and financial literacy programs. This part 
also establishes reporting requirements.


Sec.  1075.101  Definitions.

    For the purposes of this part, the following definitions apply:
    Bureau means the Bureau of Consumer Financial Protection.
    Bureau enforcement action means any judicial or administrative 
action or proceeding in which the Bureau has obtained relief with 
respect to a violation.
    Chief Financial Officer means the Chief Financial Officer of the 
Bureau or any Bureau employee to whom that officer has delegated 
authority to act under this part. In the absence of a Chief Financial 
Officer of the Bureau, the Director shall designate an alternative 
official of the Bureau to perform the functions of the Chief Financial 
Officer under this part.
    Civil Penalty Fund means the Consumer Financial Civil Penalty Fund 
established by 12 U.S.C. 5497(d).
    Civil Penalty Fund Governance Board means the body, comprised of 
senior Bureau officials, established by the Director of the Bureau to 
advise on matters relating to the Civil Penalty Fund.
    Class of victims means a group of similarly situated victims who 
suffered harm from the same or similar violations for which the Bureau 
obtained relief in a Bureau enforcement action.

[[Page 26502]]

    Defendant means a party in a Bureau enforcement action that is 
found or alleged to have committed a violation.
    Final order means a consent order or settlement issued by a court 
or by the Bureau, or an appealable order issued by a court or by the 
Bureau as to which the time for filing an appeal has expired and no 
appeals are pending. For purposes of this definition, ``appeals'' 
include petitions for reconsideration, review, rehearing, and 
certiorari.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, 
cooperative organization, or other entity.
    Redress means any amounts--including but not limited to 
restitution, refunds, and damages--that a final order requires a 
defendant:
    (1) To distribute, credit, or otherwise pay to those harmed by a 
violation; or
    (2) To pay to the Bureau or another intermediary for distribution 
to those harmed by the violation.
    Victim means a person harmed as a result of a violation.
    Violation means any act or omission that constitutes a violation of 
law for which the Bureau is authorized to obtain relief pursuant to 12 
U.S.C. 5565(a).


Sec.  1075.102  Fund administrator.

    (a) In general. There is established the position of Civil Penalty 
Fund Administrator (Fund Administrator). The Fund Administrator will 
report to the Chief Financial Officer. The Chief Financial Officer may, 
to the extent permitted by applicable law, relieve the Fund 
Administrator of the duties of that position without notice, without 
cause, and prior to the naming of a successor Fund Administrator.
    (b) Powers and duties. The Fund Administrator will have the powers 
and duties assigned to that official in this part.
    (c) Interpretation of these regulations. (1) On its own initiative 
or at the Fund Administrator's request, the Civil Penalty Fund 
Governance Board may advise or direct the Fund Administrator on the 
administration of the Civil Penalty Fund, including regarding the 
interpretation of this part and its application to particular facts and 
circumstances.
    (2) The Fund Administrator must follow any written directions that 
the Civil Penalty Fund Governance Board provides pursuant to paragraph 
(c)(1) of this section.
    (d) Unavailability of the Fund Administrator. If there is no Fund 
Administrator or if the Fund Administrator is otherwise unavailable, 
the Chief Financial Officer will perform the functions and duties of 
the Fund Administrator.


Sec.  1075.103  Eligible victims.

    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.


Sec.  1075.104  Payments to victims.

    (a) In general. The Bureau will use funds in the Civil Penalty Fund 
for payments to compensate eligible victims' uncompensated harm, as 
described in to paragraph (b) of this section.
    (b) Victims' uncompensated harm. (1) A victim's uncompensated harm 
is the victim's compensable harm, as described in paragraph (c) of this 
section, minus any compensation for that harm that the victim has 
received or is reasonably expected to receive.
    (2) For purposes of paragraph (b)(1) of this section, a victim has 
received or is reasonably expected to receive compensation in the 
amount of:
    (i) Any Civil Penalty Fund payment that the victim has previously 
received or will receive as a result of a previous allocation from the 
Civil Penalty Fund to the victim's class;
    (ii) Any redress that a final order in a Bureau enforcement action 
orders to be distributed, credited, or otherwise paid to the victim, 
and that has not been suspended or waived and that the Chief Financial 
Officer has not determined to be uncollectible; and
    (iii) Any other redress that the Bureau knows that has been 
distributed, credited, or otherwise paid to the victim, or has been 
paid to an intermediary for distribution to the victim, to the extent 
that:
    (A) That redress compensates the victim for the same harm as would 
be compensated by a Civil Penalty Fund payment; and
    (B) It is not unduly burdensome, in light of the amounts at stake, 
to determine the amount of that redress or the extent to which it 
compensates the victim for the same harm as would be compensated by a 
Civil Penalty Fund payment.
    (3) If the Fund Administrator deems it impracticable to assess the 
uncompensated harm of individual victims in a class, each individual 
victim's uncompensated harm will be the victim's share of the aggregate 
uncompensated harm of the victim's class.
    (c) Victims' compensable harm. Victims' compensable harm for 
purposes of this part is as follows:
    (1) If a final order in a Bureau enforcement action ordered redress 
for a class of victims, the compensable harm of each victim in the 
class is equal to that victim's share of the total redress ordered, 
including any amounts that are suspended or waived.
    (2) If a final order in a Bureau enforcement action does not order 
redress for a class of victims, those victims' compensable harm is as 
follows:
    (i) 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.
    (ii) Except as provided in paragraph (c)(2)(i) of this section, if 
the final order in the Bureau enforcement action specifies the amount 
of the victims' 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.
    (iii) Except as provided in paragraph (c)(2)(i) of this section, if 
the final order in the Bureau enforcement action does not specify the 
amount of the victims' harm, each victim's compensable harm is equal to 
the victim's 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.


Sec.  1075.105  Allocating funds from the Civil Penalty Fund--in 
general.

    (a) In general. The Fund Administrator will allocate Civil Penalty 
Fund funds specified in paragraph (c) of this section to classes of 
victims and to consumer education and financial literacy programs as 
appropriate according to the schedule established in paragraph (b) of 
this section and the guidelines established in Sec. Sec.  1075.106 and 
1075.107.
    (b) Schedule for making allocations. (1) Within 60 days of May 7, 
2013, the Fund Administrator will establish, and publish on 
www.consumerfinance.gov, a schedule for allocating funds in the Civil 
Penalty Fund, in accordance with the following:
    (i) The schedule will establish six-month periods and identify the 
start and end dates of those periods. The start date of one period will 
be the day immediately after the end date of the preceding period.
    (ii) Notwithstanding paragraph (b)(1)(i) of this section, the first 
and second periods may be longer or shorter than six months to allow 
future six-month periods to start and end on dates that better serve 
administrative

[[Page 26503]]

efficiency. The first and second periods will constitute ``six-month 
periods'' under this part regardless of their actual length.
    (iii) The start date of the first period is July 21, 2011.
    (2) Within 60 days after the end of a six-month period, the Fund 
Administrator will allocate available funds in the Civil Penalty Fund 
in accordance with Sec. Sec.  1075.106 and 1075.107.
    (3) If the Civil Penalty Fund Governance Board determines that the 
schedule established under paragraph (b)(1) of this section should be 
changed to better serve administrative efficiency, it may change that 
schedule by directing the Fund Administrator to publish the new 
schedule on www.consumerfinance.gov. Any new schedule must comply with 
paragraph (b)(1)(i) of this section. The first period of any new 
schedule may be shorter or longer than six months. That first period 
will constitute a ``six-month period'' under this part regardless of 
its actual length.
    (c) Funds available for allocation. 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.


Sec.  1075.106  Allocating funds to classes of victims.

    (a) Allocations when there are sufficient funds available to 
compensate all uncompensated harm. 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.
    (b) Allocations when there are insufficient funds available to 
compensate all uncompensated harm. If the funds available under Sec.  
1075.105(c) are not sufficient to make the allocations described in 
paragraph (a) of this section, the Fund Administrator will allocate the 
available funds to classes of victims as follows:
    (1) Priority to classes of victims from the most recent six-month 
period. The Fund Administrator will first allocate funds to classes of 
victims from the most recently concluded six-month period, as 
determined under paragraph (b)(2) of this section. 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.
    (2) Assigning classes of victims to a six-month period. For 
purposes of this paragraph (b), the Fund Administrator will assign each 
class of victims to the six-month period in which the victims first had 
uncompensated harm as described in Sec.  1075.104(b). When a class of 
victims first had uncompensated harm as described in Sec.  1075.104(b) 
will be determined as follows:
    (i) 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 as described in Sec.  
1075.104(b) on the date the suspension or waiver became effective.
    (ii) If redress was ordered for a class of victims in a Bureau 
enforcement action but determined by the Chief Financial Officer to be 
uncollectible in whole or in part, the class of victims first had 
uncompensated harm as described in Sec.  1075.104(b) on the date the 
Chief Financial Officer made that determination.
    (iii) If no redress was ordered for a class of victims in a Bureau 
enforcement action, the class of victims first had uncompensated harm 
as described in Sec.  1075.104(b) on the date the order imposing a 
civil penalty became a final order.
    (c) No allocation to a class of victims if making payments would be 
impracticable. 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.
    (d) Fund Administrator's discretion. (1) 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 section. Whenever the Fund Administrator exercises this 
discretion, she will provide the Civil Penalty Fund Governance Board a 
written explanation of the reason for departing from the procedures 
specified by this section.
    (2) If, in allocating funds during a given time period described in 
Sec.  1075.105(b)(2), the Fund Administrator exercises her discretion 
under paragraph (d)(1) of this section, she may allocate funds to 
consumer education and financial literacy programs under 1075.107 
during that time period only to the same extent she could have absent 
that exercise of discretion.


Sec.  1075.107  Allocating funds to consumer education and financial 
literacy programs.

    (a) If funds available under Sec.  1075.105(c) remain after the 
Fund Administrator allocates funds as described in Sec.  1075.106(a), 
the Fund Administrator may allocate those remaining funds for consumer 
education and financial literacy programs.
    (b) The Fund Administrator shall not have 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.


Sec.  1075.108  Distributing payments to victims.

    (a) Designation of a payments administrator. Upon allocating Civil 
Penalty Fund funds to a class of victims pursuant to Sec.  1075.106, 
the Fund Administrator will designate a payments administrator who will 
be responsible for distributing payments to the victims in that class. 
A payments administrator may be any person, including a Bureau employee 
or contractor.
    (b) Distribution plan. The payments administrator must submit to 
the Fund Administrator a proposed plan for the distribution of funds 
allocated to a class of victims. The Fund Administrator will 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.
    (c) Contents of plan. The Fund Administrator will instruct the 
payments administrator to prepare a distribution plan and may require 
that plan to include:
    (1) Procedures for determining the amount each victim will receive. 
Such procedures may, but need not, include a process for submitting and 
approving claims.

[[Page 26504]]

    (2) Procedures for locating and notifying victims eligible or 
potentially eligible for payment.
    (3) The method or methods by which the payments will be made.
    (4) The method or methods by which potentially eligible victims may 
contact the payments administrator.
    (5) Any other provisions that the Fund Administrator deems 
appropriate.
    (d) Distribution of payments. 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.
    (e) Disposition of funds remaining after attempted distribution to 
a class of victims. If funds allocated to a class of victims remain 
after a payments administrator distributes payments to that class, the 
payments administrator will distribute those remaining funds as 
follows:
    (1) To the extent practicable, the payments administrator will 
distribute those remaining funds to victims in that class up to the 
amount of their remaining uncompensated harm as described in Sec.  
1075.104(b).
    (2) Any remaining funds that cannot be distributed pursuant to 
paragraph (e)(1) of this section will be returned to the Civil Penalty 
Fund.


Sec.  1075.109  When payments to victims are impracticable.

    (a) Individual payments. Making a payment to an individual victim 
will be deemed impracticable if:
    (1) The payment to the victim would be of such a small amount that 
the victim would not be likely to redeem the payment;
    (2) The payment to the victim is too small to justify the cost of 
locating the victim and making the payment;
    (3) The victim cannot be located with effort that is reasonable in 
light of the amount of the payment;
    (4) The victim does not timely submit information that a 
distribution plan requires to be submitted before a payment will be 
made;
    (5) The victim does not redeem the payment within a reasonable 
time; or
    (6) The Fund Administrator determines that other circumstances make 
it unreasonable to make a payment to the victim.
    (b) Payments to a class of victims. Making payments to a class of 
victims will be deemed impracticable if:
    (1) The expected aggregate actual payment to the class of victims 
is too small to justify the costs of locating the victims in the class 
and making payments to them;
    (2) It would be impracticable under paragraph (a) of this section 
to make a payment to any victim in the class; or
    (3) The Fund Administrator determines that other circumstances make 
it unreasonable to make payments to the class.


Sec.  1075.110  Reporting requirements.

    The Fund Administrator must issue regular reports, 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. These 
reports will be made available on www.consumerfinance.gov.

    Dated: April 26, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-10320 Filed 5-6-13; 8:45 am]
BILLING CODE 4810-AM-P