2012 Winston & Strawn LLP

Transcription

1 2012 Winston & Strawn LLP

2 The CFPB: Current Enforcement Priorities and Investigation Readiness Brought to you by Winston & Strawn s Financial Services practice group 2012 Winston & Strawn LLP

3 Today s elunch Presenters Anthony DiResta Litigation Washington, D.C. adiresta@winston.com Jerry Loeser Litigation Chicago jloeser@winston.com Chris Costello Litigation New York cccostello@winston.com 2012 Winston & Strawn LLP 3

4 What We Will Cover Legal background of CFPB enforcement authority Recent CFPB enforcement actions CFPB Supervision and Examination Authority CFPB formal investigations Procedures and strategies involved in a CFPB investigation Production expectations of CFPB: Submission standards 2012 Winston & Strawn LLP 4

5 CFPB Enforcement Authority Violations of any provision of Federal consumer financial law Not Federal Trade Commission Act Title X of the Dodd-Frank Act Section 1031 UDAAP Enumerated consumer laws Laws for which authority was transferred to the CFPB 2012 Winston & Strawn LLP 5

6 18 Enumerated Laws Alternative Mortgage Transaction Parity Act Consumer Leasing Act Electronic Fund Transfer Act Equal Credit Opportunity Act Fair Credit Billing Act Fair Credit Reporting Act Home Owners Protection Act Fair Debt Collection Practices Act Private deposit insurance disclosure 2012 Winston & Strawn LLP 6

7 18 Enumerated Laws, continued Privacy provisions of the Gramm-Leach-Bliley Act Home Mortgage Disclosure Act Home Ownership and Equity Protection Act Real Estate Settlement and Procedures Act S. A. F. E. Mortgage Licensing Act Truth in Lending Act Truth in Savings Act Unfair and deceptive acts or practices regarding mortgage loans Interstate Land Sales Full Disclosure Act 2012 Winston & Strawn LLP 7

8 Additional Laws for Which Authority Was Transferred Fair and Accurate Credit Transactions Act Right to Financial Privacy Act Telemarketing and Consumer Fraud and Abuse Prevention Act 2012 Winston & Strawn LLP 8

9 UDAAP Section 1031 of the Dodd-Frank Act gives the CFPB authority to use its enforcement powers to prevent a person offering a consumer financial product or service or a service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for, or an offering of, a consumer financial product or service Winston & Strawn LLP 9

10 Consumer Financial Product or Service Offering or providing for use by consumers primarily for personal, family, or household purposes Credit (including extending, servicing, acquiring, selling, brokering) Full payout leases Real estate settlement, appraisals Deposit-taking, transmitting or exchanging funds, acting as a custodian Stored value, payment instruments Check cashing, check collection, check guaranties Payments or financial data processing Financial advice (other than securities-regulated advice) (including credit counseling and debt management) Collecting consumer report information Collecting consumer debt 2012 Winston & Strawn LLP 10

11 Statutory Definition of Abusive An act or practice that Materially interferes with the ability of a consumer to understand a term or condition of the product or Takes unreasonable advantage of A lack of understanding, on the part of the consumer, of the material risks, costs, or conditions of the product, The inability of the consumer to protect his or her interests in selecting or using the product, or The reasonable reliance of the consumer on a person offering the product to act in the interests of the consumer Winston & Strawn LLP 11

12 Enforcement Actions Before the election, the CFPB had undertaken three major publicly announced consent settlements with three major credit card issuers over add-on products : Capital One Bank (U.S.A.) ($210 million in restitution and penalties 2 million customers July 17, 2012) Discover Financial Services ($200 million restitution to 3.5 million customers plus a $14 million fine September 24, 2012) One CFPB assertion was that telemarketers downplayed mandatory disclosures by speaking more rapidly when reading them. American Express Bank ($85 million to 250,000 customers plus a $27.5 million fine October 1, 2012) Each of these firms operated with large compliance staffs and expert in-house counsel, including some of the leading practitioners Winston & Strawn LLP 12

13 Enforcement Actions, continued In the American Express case, the CFPB press release suggested that AmEx had violated the law at every stage of the consumer experience. Aggregate restitution and refunds of $425 million Civil penalties of more than $100 million CFPB Director Cordray: no intention to ding institutions on things in gray areas Winston & Strawn LLP 13

14 Joint Enforcement Actions In these enforcement actions, the CFPB worked, and shared fine proceeds, with appropriate bank regulatory agencies. Investigations leading to these enforcement actions began at the bank agencies before transfer of functions to the CFPB on July 21, Capital One OCC Discover FDIC American Express FDIC and Utah Department of Financial Institutions Q: Will CFPB banking agency collaboration be ongoing? Q: Consumer finance law violations as unsafe and unsound banking practices? That was a determination by the FDIC in both the Discover and American Express actions Winston & Strawn LLP 14

15 Joint Enforcement Actions, continued The CFPB also has close working relationships with State Attorneys General. A joint information-sharing agreement is in place between the CFPB and State Attorneys General. Director Cordray is a former Ohio Attorney General Winston & Strawn LLP 15

16 Effect of the Election The Director of the CFPB, had the election gone the other way, would likely have been replaced at the end of Unless a court decision on the propriety of his recess appointment intervened earlier. The Director may still leave at the end of the year to pursue elected office. He had previously indicated he would run for Governor of Ohio in Election of CFPB inventor Elizabeth Warren as U. S. Senator and her appointment to the Senate Banking Committee announced December Winston & Strawn LLP 16

17 Making Policy by Enforcement Policy is normally made at an agency by rulemaking. However, rulemaking requires notice and opportunity for public comment and is subject to appeal. A balancing of cost versus benefit is required to adopt a rule. CFPB rules are subject to review and objection by other agencies and, of course, courts. Making policy by enforcement is much simpler and easier. CFPB Director Cordray: How the law applies in particular situations is something that we re going to measure on a facts and circumstances basis as we go Winston & Strawn LLP 17

18 Enforcement Activity Reportedly, the CFPB, in the last 14 months, has issued more than 100 subpoenas seeking millions of pages. The CFPB s Financial Report for 2012 indicates that 46.9% of its 970 employees work in its Division of Supervision, Enforcement, and Fair Lending Winston & Strawn LLP 18

19 Q: Impending Issue: Information Inaccuracy? Affects servicing and collection Long the focus of the Fair Credit Reporting Act Q: The basis of mortgage servicing settlement concerns? CFPB: Student loan servicing concerns CFPB Director Cordray: Creditors have responsibility for inaccurate information in debt collection. Q: The basis of new CFPB enforcement activity? 2012 Winston & Strawn LLP 19

20 Scope of CFPB Supervision The CFPB has authority to supervise: Banks Savings associations Credit unions Residential mortgage loan originators, brokers, and servicers, and residential mortgage loan modification/foreclosure relief services Large consumer installment lenders, large money transmitters, and large debt collectors Private student lenders Payday lenders 2012 Winston & Strawn LLP 20

21 What is Supervision Require reports Conduct periodic examinations Essentially to assess compliance with law CFPB Examination Manual suggests that CFPB examinations will be similar to bank examinations Winston & Strawn LLP 21

22 Bank Examinations No longer surprises. Usually preceded by receipt of 30-day letter. Notifying of examination start date Asking that certain documents be made available Be prepared. Some beforehand Some at start of examination Documentation is key. Organization of materials is important Winston & Strawn LLP 22

23 Bank Examinations, continued Establish a central point of contact So that someone knows the scope of what is being asked by examiners and what is being said to examiners Cooperate with and respect examiners Never be rude or argumentative or disrespectful Show everything Examiners have legal right to everything Withholding arouses suspicion and distrust 2012 Winston & Strawn LLP 23

24 Bank Examinations, continued What happens during an examination? On-premises visit. Interviews and reviews of documents. Preliminary conclusions are drawn. Suggestions for corrective actions are drawn. These conclusions and proposed actions are shared with the bank in an exit interview. An examination report is then drafted, finalized, and approved back at the regulator s offices. That final report is delivered to the bank s directors. That report is confidential. It will contain a confidential rating of the bank Winston & Strawn LLP 24

25 Bank Examinations, continued Privilege Issue Consumer finance compliance often involves attorney input. Some feel that providing examiners privileged information may constitute waiver of attorney-client privilege. However, sharing information under compulsion of law normally does not constitute a waiver. Nonetheless, in the banking area, the banks persuaded Congress to enact a statute that provides that disclosing privileged information to bank examiners does not waive any privilege. Similar bill as to CFPB is stalled in Senate but may move in the lame duck session. CFPB has adopted a regulation to that effect. Q: Its efficacy? CFPB General Counsel Meredith Fuchs: We will work with you Winston & Strawn LLP 25

26 CFPB Examinations Privilege Practices Anecdotal evidence is to the effect that some large banks are declining to provide CFPB examiners privileged material. In one such actual case, the CFPB subsequently demanded a privilege log listing Description of each document withheld The basis for the privilege claim, and The identities of those who have had access to the document. Some believe that most firms provide the CFPB access to privileged information. The CFPB appears to have a legal right to such information Winston & Strawn LLP 26

27 CFPB Examinations, continued CFPB Examinations Manual: UDAAP exam objectives for financial institutions Assess the quality of compliance risk management systems for avoiding UDAAP Identify practices that materially increase the risk of consumers being treated in an unfair, deceptive, or abusive manner 2012 Winston & Strawn LLP 27

28 CFPB Examinations, continued CFPB examiners often are accompanied by enforcement attorneys. Ostensibly to educate them. Cynics: the CFPB is using the examination process as a discovery mechanism. Exam Manual: Whether informal supervisory measures or formal enforcement action is necessary will depend on the type of problem(s) found and the severity of harm to consumers. Self-correction will be encouraged, but some circumstances may nevertheless be sufficiently serious to warrant a public enforcement action. On December 3, the CFPB Ombudsman reported that it had recently recommended review of implementation of [this] policy and, until that review is complete, establishment of ways to clarify the role of the enforcement attorney in practice at the supervisory examination. It also reported that the CFPB is considering those recent recommendations Winston & Strawn LLP 28

29 CFPB Examinations, continued Q: Coordination with bank regulators? A routine bank examination by the FDIC and Utah Department of Financial Services reportedly led to the American Express enforcement actions. Consumer Bankers Association General Counsel: a serious coordination issue; the regulatory Olympics Winston & Strawn LLP 29

30 CFPB Examinations, continued The CFPB uses the examination process to initiate restitution to wronged consumers. If a CFPB examiner obtains evidence that a firm or a customer has violated Federal criminal law, it is required to refer the finding to the Department of Justice (the DoJ ). The CFPB is also required to refer information identifying tax law non-compliance to the Internal Revenue Service. The CFPB is also required to refer to the DoJ evidence of unlawful discrimination in granting credit Winston & Strawn LLP 30

31 CFPB Examinations, continued October 31, 2012 Supervisory Highlights: Fall million consumers have experienced remedial relief from CFPB examinations. Most frequent violations: CARD Act Credit reporting RESPA Truth in Lending 2012 Winston & Strawn LLP 31

32 CFPB Supervision Distinguish bank supervision Led by former Massachusetts Bank Commissioner Using long-established banking agency templates Regularly scheduled examinations From non-bank supervision Led by former senior Federal Trade Commission official No established template Examinations scheduled based on a Risk Analytics and Monitoring Team s determination as to which industries and firms pose the greatest risk to consumers. Q: Role of the CFPB consumer complaint database? 2012 Winston & Strawn LLP 32

33 CFPB Supervisory Highlights The CFPB has commenced publication of issues it has discovered in its examinations. The first issue cites: Comprehensive deficiencies in compliance management systems Q: Great policies, but not followed? Compliance deficiencies at service providers Q: Vicarious liability? Fair lending Q: Perform internal regression analyses? 2012 Winston & Strawn LLP 33

34 CFPB Supervisory Highlights, continued Issues cited, continued Fair Credit Reporting Act Failure to communicate accurate information to credit reporting agencies Failure to indicate that consumer disputes the information Failure to retain information on resolution of the dispute Mortgage Lending Inaccurate disclosures Significant error rates in Home Mortgage Disclosure Act data 2012 Winston & Strawn LLP 34

35 Investigations by the CFPB Enforcement vs. examination Governmental partners of the CFPB and joint activity CFPB procedures Civil investigative demands Strategies involved in navigating through a CFPB investigation Preparation 2012 Winston & Strawn LLP 35

36 A Perspective on the CFPB Framework: Enforcement vs. Examination It s not comparing apples with oranges, It s comparing apples with broccoli! Fear and Trembling: The unknown Enforcement Division (fundamentally different from supervision/examination; regulation vs. enforcement) Personnel: Organizational chart Kent Marcus, head of Enforcement Division Personality of CFPB Enforcement Division: FTC on steroids, but staff is young 2012 Winston & Strawn LLP 36

37 Partners of the CFPB Sharing of information between law enforcement officials Relationship between CFPB and the states (attorneys general) Relationship between CFPB and FTC Complaints to the CFPB 2012 Winston & Strawn LLP 37

38 Investigatory Procedures (Final Rule issued on June 29, 2012) Background Initiating and conducting investigations Notification of purpose Civil investigative demands Investigational hearings Rights of witnesses in investigations Noncompliance Confidential treatment of materials and non-public nature of investigations 2012 Winston & Strawn LLP 38

39 Civil Investigative Demands Contents Similarities with and differences from an FTC CID CFPB and Waiver of Protected Communications 2012 Winston & Strawn LLP 39

40 Navigating an Investigation and Strategies: Five Key Considerations Analyze CID (or inquiry) for compliance obligations Create document hold immediately Communicate with CFPB staff to obtain background information and negotiate terms of production process with an eye toward developing a meaningful working relationship The right touch is critical. Create a comprehensive legal strategy Create a comprehensive strategic plan of analyzing documents and information CFPB Submission Standards and electronically stored information (ediscovery implications) Use of memoranda to put appropriate spin on contents being produced Advocacy and use of position papers 2012 Winston & Strawn LLP 40

41 Investigation Preparation What can you be doing now to be prepared for any investigation? 2012 Winston & Strawn LLP 41

42 CFPB Discovery & Document Submission CFPB has detailed Discovery & Document Submission Standards. CFPB designed its Submission Standards based on rules from other government agencies (FTC and SEC specifically mentioned). While based on other agencies, they are more complex and have combined them in a unique way. Example: Multiple production formats required (image and native) Winston & Strawn LLP 42

43 Meet and Confer Though the Discovery & Documents Submission Standards are specific, the CFPB is open to Meet and Confer. Be prepared with specifics on Discovery collection and processing details for agreement. Example: Global duplicate removal protocol Be prepared with specific reasons for Documents Submission changes. Burden reasons. Example: Excel produced in Native only Winston & Strawn LLP 43

44 2012 Winston & Strawn LLP Questions?

45 2012 Winston & Strawn LLP Thank You.