Shakespeare Meets ALJs: Much Ado About Nothing

In a recent oral argument before the U.S. Supreme Court, conservatives urged the Court to outlaw the use of administrative law judges (ALJs) in agency enforcement actions.  The Consumer Financial Protection Bureau is paying notice. On January 31, 2018, the CFPB reprised the ALJ debate in its second Request for Information under Acting Director Mick Mulvaney. This RFI asked:  should the CFPB shift course to litigate all of its enforcement cases in federal court and none before ALJs? Suffice it to say, there is less here than meets the eye.

In a comment letter by former regulators and scholars of financial regulation and consumer protection, David Zaring at Wharton points out that the CFPB barely even uses ALJs. In the six-plus years of its existence, the Bureau has only diverted eight initially contested matters to ALJs. All but two of those cases settled and in all but one--the PHH case--the monetary relief was modest. In short, the CFPB's use of ALJs is a tempest in a teapot.

Presumably fears about litigation disadvantage are fueling the attacks on ALJs. However, empirical studies (including one important one by Zaring) have consistently shown that defendants who appear before ALJs win almost as often as defendants who litigate agency actions in federal court. This suggests that the process defendants receive in ALJ proceedings is comparable to that in federal court. Not surprisingly, the Supreme Court has so held in case after case.

Further, making CFPB Enforcement attorneys litigate in federal court would be a monumental waste of resources for all involved. As Zaring documents, CFPB ALJs spend most of their time approving stipulation and consent orders in cases settled by defendants the day those cases were brought (some 110 to date). It makes no sense to force Enforcement and defendants to go to federal court to resolve these uncontested cases. And litigating before ALJs saves time and money for the Bureau and defendants alike. ALJ proceedings wrap up more quickly than federal court cases and at much lower cost to both sides.  One might think that that would appeal to the head of the Office of Management and Budget.

To put it differently, ALJ adjudications offer the same or more advantages that financial services companies tout when they defend mandatory arbitration clauses for consumers. That's serious food for thought.