Timothy A. Raty
Among the nearly dozen civil money penalties that the CFPB (or any court) is authorized to impose are the infamous “3 Tier” penalties set forth under 12 USCA § 5565 for violations of Federal consumer financial law. These penalties, as set forth in this section of statutory law, are as follows:
(1) In general. Any person that violates, through any act or omission, any provision of Federal consumer financial law shall forfeit and pay a civil penalty pursuant to this subsection.
(2) Penalty amounts.
(A) First tier. For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.
(B) Second tier. Notwithstanding paragraph (A), for any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues.
(C) Third tier. Notwithstanding subparagraphs (A) and (B), for any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues. (§ 5565[c])
While other provisions of this section of law require the CFPB (or any court) to take into consideration “mitigating factors,” such as the gravity of the violation, the size of financial resources of the violator, etc. (see Ibid. § 5565[c][3]), both the CFPB and the courts are allowed wide discretion in imposing these penalties, particularly the potentially-draconian $1,000,000 per day “Third tier” penalty.
Now – due to the requirements of the Inflation Adjustment Act (104 Stat. 890 [1990]), and subsequent adjustments to such Act (particularly the “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015”; 129 Stat. 584, § 701 [2015]; adding notes to 28 USCA § 2461) – the CFPB is increasing the dollar amount of these penalties (effective January 15, 2017) to the following:
- Tier 1 – $5,526
- Tier 2 – $27,631
- Tier 3 – $1,105,241
(see 82 FR 3601 [2017])
This is an important reminder that violations of Federal law are to be taken seriously. Failure to comply can lead to severe penalties and financial loss.