AUG 21, 2013

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Compliance Matters

Admit You Did Wrong to Mitigate CFPB Enforcements

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Is the CFPB taking a page from the NCAA?

For years, the association governing collegiate athletics has encouraged its members to self-report violations and propose punishments. Those schools that play along typically receive leeway from the association when it comes to evaluating and sanctioning universities for both minor and major violations.

A recent example involves Mississippi State University, which was under investigation for impermissible cash paid by a supporter of the program to a player. In its own internal investigation, Mississippi State proposed a series of sanctions—limitations on recruiting visits and a couple of reduced scholarships – that amounted to a heavy slap on the hand.

But the approach paid off. The NCAA accepted Mississippi State’s self-imposed sanctions with no additional punishments and moved on to the next case.

So why discuss collegiate sports in a lending column? Because on June 25, the CFPB issued its own guidance regarding the possible benefits for financial institutions that practice self-policing, self-reporting, remediation and cooperation when it comes to potential violations.

Because on June 25, the CFPB issued their own guidance regarding the possible benefits for financial institutions that practice self-policing, self-reporting, remediation and cooperation when it comes to potential violations.

These activities are all referred to by the CFPB as “responsible conduct,” and may, when warranted, “favorably affect the ultimate resolution of a [CFPB] enforcement investigation.” In short, the CFPB asserts that it is seeking to encourage “activity that has concrete and substantial benefits for consumer and contributes significantly to the success of the [CFPB’s] mission.”

According to the guidance, the CFPB generally considers the four above-referenced types of conduct when determining whether to award “affirmative credit” in an enforcement investigation. However, the CFPB notes that in order to receive such credit, the covered entity’s conduct “must substantially exceed the standard of what is required by law in its interactions with the [CFPB].” The CFPB describes the four categories of responsible business conduct as follows:

Self-Policing: The CFPB notes that this can also be described as “self-monitoring” or “self-auditing.” This means that a covered entity demonstrates a “proactive commitment” to “use resources for the prevention and early detection of potential violations of consumer financial laws;”               

Self-Reporting: This factor involves an entity’s decision to promptly report its own violations, or potential violations, to the CFPB. When an entity engages in self-reporting, the CFPB notes that it benefits the CFPB by freeing up its resources for other investigations. In the guidance, the CFPB explains that it gives this category “special emphasis” when evaluating a party’s conduct;

Remediation: Under this factor, the CFPB encourages entities to, without CFPB involvement, implement measures to prevent identified violations from recurring – even when only a potential for violations exists; and

Cooperation: In order to receive credit for cooperation, the guidance states that a party “must take substantial and material steps above and beyond what the law requires in its interactions with the [CFPB].” Simply doing what is already required in an investigation will not, the CFPB notes, result in a reward of any special consideration.

In the guidance, which is available here, the CFPB further fleshes out each of the above-referenced activities, and provides specific questions that the CFPB will examine when determining whether an entity has engaged in “responsible business conduct.”

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