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 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 Type of available relief is the same regardless of forum (15 U.S.C. 1055) 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 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 lmorris@hudco.com Erik Kosa Hudson Cook, LLP 1909 K Street, NW 4th Floor Washington, DC 20006 (202) 715-2007 ekosa@hudco.com