Navigating Compliance Audit Pitfalls:

Transcription

1 Navigating Compliance Audit Pitfalls: How To Prepare Compliance and Audit Reports Without Providing a Road Map to Adversaries June 4, 2015 Moderator Alan S. Kaplinsky Practice Leader Consumer Financial Services kaplinsky@ballardspahr.com Panelists Mark J. Furletti Partner Consumer Financial Services furlettim@ballardspahr.com Sarah T. Reise Associate Consumer Financial Services reises@ballardspahr.com Christopher J. Willis Partner Consumer Financial Services willisc@ballardspahr.com Copyright 2015 Ballard Spahr LLP. All rights reserved.

2 Resources CFPB Monitor Subscribe to our ABA award-winning blog at E-Alerts Subscribe at (click subscribe and indicate your areas of interest) Mortgage Banking Update Subscribe at (click subscribe and choose Mortgage Banking as your area of interest) Questions? 2

3 Upcoming Webinars The CFPB Attack on Payday, Title and Other High-Cost Loans June 10 The Increasing Risks to the Financial Services Industry Posed by Whistle Blowers June 11 Federal Usury Preemption Jeopardized by Second Circuit Ruling July 14 The Impact of Gomez on Class Actions Will Rule 68 Moot Rule 23? July 15 West Coast Mortgage Litigation July 16 Register for upcoming webinars at or by ing Request materials from past webinars by ing 3

4 Your Presenters Alan S. Kaplinsky Mark J. Furletti Christopher J. Willis Sarah T. Reise 4

5 Overview Outline the competing considerations surrounding compliance reviews. Answer your questions regarding: - How to effectively set up and structure a compliance program to minimize risks; - General guidelines for writing compliance reviews; - Suggestions for how to handle and write about sensitive issues and potential violations; and - When, if ever, compliance reviews will be protected by the attorney-client, attorney work product, or self-testing privileges. 5

6 The Problem: Compliance Reviews: Between a Rock and a Hard Place Financial institutions and supervised entities are expected to proactively conduct compliance reviews and audits. Written audit reports are prepared to document potential or confirmed violations of consumer protection and other laws. These compliance reports may not be protected from disclosure by the attorney-client or other privilege. As a result, compliance reviews become a road map for adversaries, including government regulators and class action plaintiffs to use against the company. 6

7 The Problem: When Inaction Leads to Louder Words The potential risks created by written compliance reports are aggravated when Compliance perceives that Management is not responsive to issues. If Management is not sufficiently responsive (or is perceived to not be so), it creates a situation where the language used to describe potential issues escalates, with more colorful descriptions and legal conclusions. 7

8 Q: When Would Compliance Reviews Be Subject to Disclosure? Regulatory Examinations - OCC, CFPB, state regulators Government Investigations and Private Litigation 8

9 Q: How do I Prepare a Written Compliance Report to Minimize the Risk? Before putting pen to paper regarding a significant risk or issue: Pick up the phone instead of ing or starting a draft report. Approach the business and legal department together to discuss the issue and develop a solution. - Stronger likelihood that discussions regarding the issue will remain privileged from discovery if legal is included. 9

10 Q: How do I Prepare a Written Compliance Report to Minimize the Risk?, cont. Once the issue has been discussed and solution identified, you are ready to prepare a written report. Limit each compliance report to one issue or aspect of the business. - In the event a compliance report is produced to a regulator or litigant, you may not be able to redact nonresponsive material. 10

11 Q: How do I Prepare a Written Compliance Report to Minimize the Risk?, cont. Limit the discussion to factual descriptions. - Describe the issue in factual terms - Do not offer legal conclusions or opinion - Do not use charged or colorful words - Examples 11

12 Q: How do I Prepare a Written Compliance Report to Minimize the Risk?, cont. Include a description of the solution that was developed - Better to delay written report a short time while solution is developed - Include discussion of the solution even if the solution is incomplete, e.g. the company decides not to offer remediation because of expense. 12

13 If the Compliance Function Is Part of Legal Department, Will Audit Reports Be Privileged?? If compliance is not under the legal department s umbrella, it is more likely that written reports and communications will not be privileged because day-today will not involve attorneys. However, it is not crucial for legal and compliance functions to be joined. - Even if part of legal, privilege is certainly not assured - Documents and communications can still stand a chance of being privileged, with conscientious effort. 13

14 When Is a Compliance Review Privileged? Compliance Reviews May Be Privileged If They Are Done By or At the Direction of Legal. Attorney Client and Work Product Privileges Legal must be actively involved - Merely copying attorneys is likely to be insufficient - Overuse of Attorney-Client and Work Product labels Be selective regarding the issues escalated to legal - Routine audits, such as annual reviews, may be considered to be a business, rather than legal, function Selective distribution list 14

15 Will Attorney Involvement Guarantee That Compliance Reviews Will Be Privileged? Self-Testing Privilege (Reg. B) - Applies not only to adversarial proceedings but also to exams - Must create data apart from loan files or credit transaction files for purpose of determining Reg. B compliance - Privilege only applies if appropriate corrective action is taken - Privilege lost if creditor voluntarily discloses data to regulator 15

16 Thank you for joining us! Moderator Alan S. Kaplinsky Practice Leader Consumer Financial Services Panelists Mark J. Furletti Partner Consumer Financial Services Sarah T. Reise Associate Consumer Financial Services Christopher J. Willis Partner Consumer Financial Services

17 Moderator Alan S. Kaplinsky Practice Leader of the Consumer Financial Services Group at Ballard Spahr Devotes his practice to counseling financial institutions with respect to bank regulatory and transactional matters and defending them in individual and class action lawsuits (including CFPB investigations and government enforcement matters) First President of the American College of Consumer Financial Services Lawyers Former Chair of the American Bar Association Committee on Consumer Financial Services of the Business Law Section Co-Chair of the Practising Law Institute's Annual Consumer Financial Services Institute, now on its 20th year Has been named as a tier one banking and consumer financial services lawyer in the 2006 through 2015 editions of Chambers USA Has been named in The Best Lawyers in America under financial services regulation law and banking and finance litigation from 2007 to 2014 Member of the Bloomberg BNA Banking Report Advisory Board 17

18 Panelist Mark J. Furletti Partner at Ballard Spahr and a member of the firm s Consumer Financial Services Group Focuses on federal and state consumer lending and payments laws, including those that apply to payment cards, vehicle-secured loans, unsecured loans, and deposit products Counsels providers of consumer financial services, including banks, on regulatory compliance matters and has successfully represented such providers in class action litigation Recognized as a banking and finance Up and Coming lawyer by Chambers USA, 2015 Vice Chair of the American Bar Association's Electronic Financial Services Subcommittee,

19 Panelist Christopher J. Willis Partner at Ballard Spahr and a member of the firm s Consumer Financial Services and Mortgage Banking Groups Counsels financial institutions on regulatory matters, advises them on compliance with consumer financial services laws, and defends them in both individual and class action lawsuits, as well as governmental enforcement actions (including CFPB investigations) Chairs the firm s Fair Lending Task Force and Collection Documentation Task Force Fellow of the American College of Consumer Financial Services Lawyers Recognized by Chambers USA for financial services regulation: consumer finance (litigation) nationwide for 2014 & 2015 Named in The Best Lawyers in America for banking and finance litigation and commercial litigation for Frequent author and speaker on issues relating to consumer financial services regulation and litigation 19

20 Panelist Sarah T. Reise Associate at Ballard Spahr and a member of the firm s Consumer Financial Services and Mortgage Banking Groups Practice focuses on complex civil litigation in the area of consumer financial services, including representing clients in the financial services and mortgage banking industries Experience includes representing financial institutions in class actions involving claims arising under state and federal lending statutes and consumer protection laws Experience advising clients in connection with government enforcement actions, including CFPB and other governmental investigations 20