Will the CFPB Give Credit Where Credit Is Due? It Depends on the Circumstances

By: Melanie Brody, Stephanie C. Robinson, Amanda D. Gossai

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.”