On November 7, 2011, the Consumer Financial Protection Bureau (“CFPB”) announced that it will provide financial companies and individuals who are the subject of potential enforcement actions with an “Early Warning Notice Letter.” A sample of the Early Warning Notice can be found here. The CFPB’s letter and process is similar to the Securities and Exchange Commission’s “Wells Notice” where companies and individuals typically receive written notice that the staff intends to recommend enforcement action against them. In the SEC’s Wells process, anyone receiving notice is apprised of the violations that the staff proposes; provided information regarding the basis for the charges, typically including access to the evidentiary record developed by the staff; and given an opportunity to respond to the proposed enforcement recommendation before it is presented to the Commissioners for approval. The CFPB indicates in CFPB Bulletin 2011-04 (Enforcement) that it will generally send the Early Warning Notice before the CFPB Office of Enforcement recommends that the CFPB commence enforcement proceedings.
The CFPB states that sending the Early Warning Notice is discretionary and it may be appropriate to bring actions without sending a notice in some situations, such as in cases of ongoing fraud or when the Office of Enforcement needs to act quickly. Like the SEC’s Wells Notice, the Early Warning Notice is not a due process right but instead is a procedure designed to improve the fairness and quality of the enforcement process. If the CFPB follows the SEC model, individuals and entities might not receive any notice in cases in which the Office of Enforcement is coordinating with criminal authorities or in which the enforcement staff is recommending emergency relief such as temporary restraining orders, asset freezes, and/or the appointment of receivers.
The CFPB explains that the response to an Early Warning Notice must be in writing and any factual assertions contained in it must be made under oath by someone with personal knowledge of such facts. Information submitted may be discoverable by third parties in accordance with applicable law, including the Freedom of Information Act. The response cannot exceed 40 pages and must be received by the CFPB no more than 14 calendar days after the notice. While the CFPB did not discuss any extensions of this 14-day period in CFPB Bulletin 2011-04 (Enforcement), the CFPB likely will allow a reasonable time for the parties to discuss the evidence and charges with the staff and provide a meaningful response. Similarly, the CFPB does not indicate whether the recipients of a Notice will be entitled to review the evidence obtained by the enforcement staff and does not specify what, if any, detail will be provided in connection with the Early Warning Notice.
The receipt of an Early Warning Notice Letter may give rise to disclosure obligations when received by regulated entities and affiliates, public companies, and others. Working with competent legal counsel throughout the process of an investigation by the CFPB, particularly after receiving an Early Warning Notice Letter, is critical because there may be ways to improve the outcome of the investigation and of the Notice process. Haynes and Boone’s Financial Regulatory Practice Group has lawyers with the necessary knowledge and experience to advise entities and individuals facing investigations by the CFPB and those who receive an Early Warning Notice.