Navigating the CFPB's Exam and
Enforcement Process
October 22, 2016
Presented by
Lucy Morris
Partner
Erik Kosa
Associate
Hudson Cook, LLP
Agenda
• CFPB Examination-Enforcement Life Cycle
• CFPB Exams – What’s Happening on the Ground
• Tips for Preparing for and Responding to Exams
• Tips for Preparing for and Handling Enforcement Actions
CFPB Exam-Enforcement Life Cycle
CFPB’s law enforcement approach to exams
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Dodd-Frank Act and CFPB mandate
CFPB structure and leadership
Supervision risk prioritization process
Investigative approach to exams
PARR and ARC processes
Follow-on enforcement investigations and actions
Rinse and repeat
CFPB Law Enforcement Exams
Issues on the Ground
• Examiner reliance on unverified consumer complaints and isolated
information to find and refer law violations
• The perils of self-reporting to examiners
• MRA (Matters Requiring Attention) follow-up reviews
• CFPB priority to enforce its orders and requirements
• Navigating parallel supervisory and enforcement actions
Different perspectives - examiners vs.
enforcement staff:
• Exams look forward (How should you fix any
problems identified during exam?)
• Enforcement looks backward (What did you
do and how should you be punished for it?)
• You need to juggle the demands of both.
CFPB Exams Often Give Rise to
Enforcement Actions
Common Issues for Small-Dollar Lenders:
– Advertising UDAAP
– Collections practices
• Ex: (Recent case with $7.5 million in restitution + $3 million in
penalties for lender’s debt collection practices)
– TILA disclosures
– EFTA authorizations
– ECOA Adverse Action Notices
CFPB Law Enforcement Exams
Prepare for Exams with Enforcement Lens
• Conduct mock exam/readiness reviews and take corrective actions
before exam
• Manage examiners’ requests, questions, and preliminary findings
during exam
• Pay heightened attention to PARR letters after on-site review
• Follow-up and correct exam issues promptly and in advance of next
exam
CFPB Law Enforcement Exams
In addition,
• Be ready to handle the exam itself by staffing appropriately
• There is no attorney-client privilege in exams
• You cannot start thinking about compliance only after
you’ve received an exam notice or a CID
Expect the Unexpected
• The CFPB is always trying new tactics
• It is possible to be sued without any
exam or investigation.
– Ex: CFPB recently sued 5 Arizona title lenders with
no prior notice.
So You’ve Been Sued . . .
Administrative Proceeding or Court Action
o Type of available relief is the same regardless of forum (15 U.S.C. 1055)
o Bureau Considerations
 Speed and Discovery?
 Fraud?
 TRO, asset freeze, or other extraordinary relief?
 Civil and criminal contempt options
 Coordination with other government or private actions?
 Settlement?
Special Problem: Litigating in the
CFPB’s Administrative Tribunal
• Timing – The pace is fast
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14 days after service – You must respond to the Notice of Charges
20 days after service – Scheduling Conference
Streamlined Discovery
300 Days from Notice of Charges to Recommended Decision
• Federal Rules of Evidence do not apply
• No statute of limitations for UDAAP?
Individual Liability: Small Dollar
Lenders Need to Think About It
This issue surprises people who think the corporate form will always protect
them (it won’t)
• In the recent Integrity Advance case, the CFPB sought to hold the CEO
liable along with the company for allegedly misrepresenting cost of loans,
and the ALJ agreed.
• ALJ held that individuals can be liable without intent to deceive, and
evidence of knowledge of and involvement in company’s practices is
enough.
• ALJ Recommendation: Integrity Advance CEO jointly and severally liable
for $38,164,153.31 in restitution for deception claim, an additional
$115,024.50 for unfairness claim, and a $5,437,000 civil penalty
Lucy Morris
Hudson Cook, LLP
1909 K Street, NW
4th Floor
Washington, DC
20006
(202) 327-9710
[email protected]
Erik Kosa
Hudson Cook, LLP
1909 K Street, NW
4th Floor
Washington, DC
20006
(202) 715-2007
[email protected]