Supervision and Enforcement Considerations Under the New CFPB Initiatives
On March 6, 2020, the Consumer Financial Protection Bureau (CFPB) announced three new initiatives that it intends to pursue to better protect consumers, including (1) an amended Responsible Business Conduct Bulletin, (2) a new whistleblower reward program, and (3) a new advisory opinion program. These initiatives provide industry participants with insight into the current CFPB leadership's vision for the future of the agency and are especially important for institutions that discover potential areas of noncompliance with consumer financial law or regulations or that find themselves in front of the CFPB's Supervision, Enforcement & Fair Lending Division.
Updated Responsible Business Conduct Bulletin. Perhaps most significant among the initiatives is that the CFPB amended and reissued its Responsible Business Conduct Bulletin, which was originally issued in 2013. The revised bulletin clarifies the CFPB's approach to responsible business conduct and details how certain aspects of such conduct will be considered in addressing violations of federal consumer financial law in supervisory and enforcement contexts. To that end, the new bulletin clarifies that in enforcement and supervisory matters, the CFPB will take into consideration if a troubled entity meaningfully engaged in four categories of responsible conduct: self-assessing, self-reporting, remediation, and cooperation. A blackline comparison reflecting the cumulative changes is available here.
- Culture of Compliance. The revised bulletin states that, in the first instance, the CFPB is focused on "building a culture of compliance among entities" and that "[w]hen a violation of law does occur, swift and effective actions taken by an entity to address the violation can minimize resulting harm to consumers."1
- New Resolution Factors. The 2013 version of the bulletin listed four factors that the CFPB would consider, among others, when deciding whether and to what extent to punish an entity for misconduct: (1) the nature, extent, and severity of the violations identified; (2) the actual or potential harm from those violations; (3) whether there is a history of past violations; and (4) a party's effectiveness in addressing violations. In the new bulletin, the CFPB says that when deciding whether to exercise its enforcement authority, the agency will consider an entity's responsible conduct "along with other relevant factors."2 A footnote clarifies that these factors may include (1) the nature, extent, and severity of the violations identified and any associated consumer harm; (2) an entity's demonstrated effectiveness and willingness to address the violations; and (3) the importance of deterrence, considering the significance and pervasiveness of the potential consumer harm. In other words, the new bulletin places more weight on the steps an entity takes to prevent and address any potential violations of federal consumer financial laws and regulations.
- New Incentives. The 2013 version of the bulletin stated that the CFPB would acknowledge responsible conduct by potentially "resolv[ing] an investigation with no public enforcement action, treat[ing] the conduct as a less severe type of violation, reduc[ing] the number of violations pursued, or reduc[ing] the sanctions or penalties sought by the Bureau in an enforcement action."3 The new bulletin says that the CFPB might account for responsible conduct by not taking any action at all. Even when it does decide to move forward with an enforcement action, the CFPB may reward responsible conduct by pursuing non-public supervisory actions, reducing the number of violations pursued, or reducing the severity of the sanctions pursued.4
- Clarification on the Meaning of Cooperation. In the 2013 bulletin, the CFPB's description of cooperation by a troubled entity did not carve out an exception for privileged material. The old bulletin could, therefore, be read as implying that a troubled entity that invoked a privilege was not fully cooperating with the CFPB. The amended and reissued bulletin specifically notes that "an entity asserting privileges in good faith remains eligible for potential favorable consideration for cooperating." This amendment formalizes a concept common to other agency enforcement regimes, such as that of the Department of Justice, which do not make cooperation credit contingent on a waiver of either the attorney-client privilege or the work product doctrine.
Whistleblower Reward Program. Although the CFPB has invited whistleblowers to submit tips since 2011, the CFPB has now submitted to Congress proposed language that would amend Title X of the Dodd-Frank Act to establish authority for a whistleblower program that would actually reward whistleblowers for coming forward. Under the proposed language, the CFPB's program would apply to an individual or individuals who, with some limitations, provide original information to the CFPB leading to a successful enforcement action that results in monetary sanctions of over $1 million. These whistleblowers would be eligible for 10–30% of the total amount of monetary sanctions that are collected with a maximum award of $10 million. The amount awarded would be based on (1) the significance of the information, (2) the degree of assistance provided by the whistleblower, (3) the interests of the CFPB in deterring violations of the applicable regulations, and (4) any additional factors the CFPB later establishes by rule or regulation. The program, if enacted, would bring the CFPB in line with other financial regulatory agencies such as the Securities and Exchange Commission. In its release, the CFPB stated that "[t]he incentive created for employees to report wrongdoing to the Bureau will assist in advancing enforcement cases, especially as it relates to fair lending violations."5 Although the likelihood of enactment in the current political climate is low, the concept of the legislation is one that could receive bipartisan support. If and when it does become enacted, there could be a significant uptick in the number of investigations opened by the Supervision, Enforcement & Fair Lending Division. The full text of the proposed legislation is available here.
Public Advisory Opinion Program. Finally, the CFPB announced that it will implement a new advisory opinion program, which would bring it closer in line with the advisory opinion process operated by the federal prudential banking agencies. Although procedures on how exactly the process will work are still forthcoming, the CFPB indicated that the new program will allow parties to submit requests for an advisory opinion to the CFPB via its website to better understand their legal and regulatory obligations. However, unlike the CFPB's current inquiry system in which the CFPB generally only responds directly to the inquirer, under the new program, "[t]o increase transparency and to provide regulatory certainty to all regulated entities and other stakeholders," all of the CFPB's advisory opinions will be made public in the Federal Register and on the CFPB's website.
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Industry participants that have questions about these initiatives or about CFPB supervision generally are encouraged to contact any of the authors or your Arnold & Porter contact. The firm's financial services group would be pleased to assist with any questions you may have.
CFPB, Bulletin 2020-01, Responsible Business Conduct 1 (Mar. 6, 2020).
CFPB, Bulletin 2013-06, Responsible Business Conduct 1 (Jun. 25, 2013).
CFPB, Bulletin 2020-01, Responsible Business Conduct 2 (Mar. 6, 2020).