At the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo last week, CFPB Deputy Director Steven Antonakes issued a strongly-worded warning that the CFPB will continue to vigorously monitor and investigate the mortgage servicing industry. Deputy Director Antonakes stated that the CFPB will rely on its newly adopted Mortgage Servicing Rules (the “Rules”) and Sections 1031 and 1036(a) of the Consumer Financial Protection Act (“CFPA”), which prohibit unfair, deceptive or abusive acts or practices (“UDAAP”). In his speech, Deputy Director Antonakes recounted problems that had been observed in mortgage servicing and admonished that “the fundamental rules have changed forever” and that “business as usual has changed in mortgage servicing.” Specifically, the Deputy Director explained the CFPB’s expectations of servicers: Read More
The Consumer Financial Protection Bureau (CFPB or Bureau) recently elaborated on some of the factors it will consider in determining what actions to bring, if any, against those subject to its enforcement authority. In a bulletin very reminiscent of the Securities and Exchange Commission’s so-called Seaboard Report, the CFPB announced that it may consider a party’s conduct favorably if the conduct “substantially exceeds” what is required by law in its interactions with the Bureau. Specifically, the CFPB “may” in its discretion award some form of affirmative credit in an enforcement action, such as potentially reducing the sanctions or penalties it seeks, if a party meaningfully engages in responsible business conduct.
Like the SEC’s Seaboard Report, CFPB Bulletin 2013-06 – while encouraging responsible business conduct – is full of caveats. The CFPB makes no promises in the bulletin. No matter how “substantial” or “meaningful” a party’s responsible business conduct in the course of an investigation, the Bureau’s evaluation will depend on the circumstances. Whatever “best protects consumers” is ultimately the Bureau’s main priority, because consumer protection is its singular purpose.
The bulletin lays out four broad categories of responsible business conduct: self-policing for potential violations, self-reporting to the CFPB, remediating any harm resulting from violations, and cooperating in investigations beyond what the law requires. In many cases mirroring the language of the Seaboard Report, the CFPB lists some of the factors it will consider in determining whether and how much to take into account those four categories of conduct.
- Self-policing: Some of the factors the CFPB will consider are the nature of the violation, whether senior management turned a blind eye toward obvious indicia of misconduct, and whether the conduct was pervasive or an isolated act. Unlike the Seaboard Report, the bulletin also poses the question, “Was the conduct significant to the party’s profitability or business model?”
- Self-reporting: The CFPB particularly emphasizes this category because self-reporting reduces the need for the CFPB to expend its own resources. In deciding whether to favorably consider self-reporting of violations or potential violations of federal consumer financial laws, the CFPB will consider, among other things, whether affected consumers received appropriate information related to the violations or potential violations within a reasonable period. The CFPB may be less inclined to consider self-reporting favorably if the party waited to report the violation until the disclosure was likely to happen anyway through, for example, impending supervisory activity.
- Remediation: Remediation involves stopping the misconduct immediately, implementing an effective response that includes disciplining individuals responsible for the misconduct, preserving information, and redressing the harm. The CFPB will consider whether the party improved its internal controls and procedures to “remove harmful incentives” and “encourage proper compliance.”
- Cooperation: It appears that a party will have to really, really cooperate for the Bureau to reward it with affirmative credit. To receive credit for cooperation, a party cannot just meet its obligations under the law. Rather, it must take “substantial and material steps above and beyond what the law requires” in interacting with the CFPB. The CFPB will ask whether the party cooperated promptly and completely throughout the course of the investigation, and whether it conducted (or hired an unbiased third party to conduct) a full and impartial internal investigation and promptly provided the CFPB with a thorough written report of its findings.
How the CFPB will in practice choose to apply the principles outlined in the bulletin remains to be seen. At the end of the day, there is no magic formula, no rule, and no promise. To quote the SEC in its Seaboard Report, “[b]y definition, enforcement judgments are just that – judgments.”
On Thursday, May 9, K&L Gates and Ernst & Young co-sponsored a Fair and Responsible Banking symposium in New York City. The symposium gave our fair lending and UDAAP team a chance to discuss compliance and enforcement issues with over 70 in-house lawyers, fair lending officers and compliance officers from a wide array of institutions. K&L Gates and Ernst & Young strategized with capital markets investors, banks, mortgage lenders, auto lenders, credit card issuers and other unsecured lenders about how to tackle the challenges they face from today’s heightened regulatory scrutiny. The hot topics that were on everyone’s mind included, among other things:
- developing and implementing effective compliance management systems
- avoiding and defending disparate impact claims
- identifying and curtailing unfair, deceptive, and abusive acts and practices
- understanding and preparing for examinations or investigations
- managing vendors appropriately
On Tuesday, March 5, senior staff with the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of San Francisco presented a webinar on the prohibitions on unfair and deceptive practices under the Dodd-Frank Act and the Federal Trade Commission Act, and presented a number of case studies and compliance pointers, based on the Federal Reserve’s own enforcement and investigatory matters. Read More
On January 24, 2013, the Massachusetts Office of the Attorney General (“AG”) issued guidance to the industry interpreting its debt collection regulations (“Regulations”) that became effective March 2, 2012. The AG took this unusual step as it recognized that the Regulations raise unique compliance issues for servicers of consumer debt. The AG promulgated the Regulations pursuant to the rulemaking authority conferred by the Massachusetts Consumer Protection Act (“Chapter 93A”), “to establish standards, by defining unfair or deceptive acts or practices, for the collection of debts from persons within the Commonwealth of Massachusetts.” 940 C.M.R. 7.01. Although there is no private right of action, a violation may, nevertheless, constitute “an unfair or deceptive act or practice under Chapter 93A.”
Payday lenders recently received their first peek at what life will be like under the CFPB’s watch, and it’s not a pretty picture. In the Bureau’s recently released examination procedures for payday lenders, the CFPB makes clear that it will examine every aspect of a payday lender’s operation, likely well beyond what most payday lenders have experienced to date with the patchwork of state regulation. Read More
The CFPB wants to get to know you – well. But it’s not a prelude to a kiss.
On January 12, 2012, the CFPB released its new Mortgage Origination Examination Procedures Governing Banks and Nonbanks (the “Procedures”). The release of the Procedures follows close on the heels of the CFPB’s October 13, 2011 release of its mortgage servicing examination procedures (see The CFPB Mortgage Servicing Examination Procedures Fail to Harmonize – Isn’t It Ironic? ), and its January 5, 2012 announcement of its nonbank supervision program (see CFPB Officially Launches Nonbank Supervision Program). Read More