Recently, the Consumer Financial Protection Bureau (the “Bureau”) issued CFPB Bulletin 2013-06: Responsible Business Conduct: Self-Policing, Self-Reporting, Remediation, and Cooperation. It provides guidance to those subject to Bureau enforcement authority on conduct that may warrant favorable consideration during a Bureau investigation. The Bureau expects companies to engage in “Responsible Business Conduct” which includes: (1) Self-Policing, (2) Self-Reporting, (3) Remediation, and (4) Cooperation. As discussed below, the Bureau may award a party affirmative credit for engaging in these activities, but those activities must substantially exceed the standard of what is required by law. The Bureau makes it clear that engaging in these activities will not guarantee any leniency or more favorable outcome. The Bureau believes that by engaging in these activities lenders can best protect consumers, which is the Bureau’s central concern.
The Bureau Expects a Heightened Level of Compliance
The Bureau expects all consumer finance companies to engage in responsible business conduct. The Bureau will not likely provide any favorable consideration, unless a company’s compliance program goes above and beyond the industry standards. The four activities are briefly discussed below, and the Bureau’s expectations outlined.
Self-policing is a proactive commitment to identifying and detecting potential violations of consumer finance laws through a robust compliance management system. In determining whether to provide favorable consideration for self-policing activities, the Bureau will look for the following:
- The nature of the violation, the length of the conduct, the number of occurrences, and whether the conduct was significant to profitability or business model.
- How was it discovered and by whom, what compliance measures were in place to prevent, identify or limit the conduct, and how were the compliance measures extraordinary and effective in identifying the conduct?
- Has there been a previous examination of compliance measures, and if so, what changes were made to upgrade compliance measures, and if not, how do the compliance measures rate against customary?
- Is there a corporate culture of compliance or did management ignore or negligently miss potential misconduct?
The Bureau views self-reporting as substantially advancing the Bureau’s goals by reducing the resources required to identify potential violations. The Bureau also recognizes that prompt self-reporting demonstrates a party’s commitment to responsibly address the conduct at issue. For favorable consideration, the Bureau will ask the following: =
- Was conduct fully disclosed to Bureau, other-regulators, and to affected consumers?
- Was conduct reported promptly and if delay was any information lost because of the delay?
- Was the conduct reported proactively or due to an impending investigation, supervisory activity, or in reaction to similar stimulus?
The Bureau expects full redress for those injured by violations, implementation of measures to prevent violations from recurring, and changing future practices for the protection of consumers. The Bureau will look at the following with regards to remediation:
- Was conduct immediately stopped and how long did it take to implement an effective response?
- What consequences for those responsible for the conduct?
- Was information preserved to identify the harm to consumers and to appropriately recompense those injured?
- How company provides assurances that conduct is unlikely to occur again?
- Have additional internal controls been improved to prevent a recurrence?
- What other changes were made to remove any incentive for the conduct?
Cooperation relates to the party’s interactions with the Bureau after the Bureau becomes aware of the conduct. In order to receive credit, a party must take substantial and material steps above and beyond that required by law. The Bureau will look for the following enhanced cooperation:
- Cooperation must be prompt, complete with the Bureau and any other relevant regulators.
- Should identify all related misconduct that may have occurred.
- Conduct a thorough, unlimited investigation to identify the nature, extent, origin, and consequences of the conduct and fully share results with the Bureau.
- Investigation by an unbiased, uninterested person.
- Provide documentation of investigation and response to the situation.
- Provide sufficient evidence to identify any other parties that may be responsible for the conduct.
- Voluntarily disclose information not directly requested by the Bureau.
In the end, the Bureau makes no guarantees or promises that engaging in Responsible Business Conduct will garner affirmative credit if a violation occurs, but under the intense scrutiny of the Bureau this guidance should be followed to demonstrate the company is willing to go the extra mile to protect consumers.