1. Navigating the CFPB's Exam and Enforcement Process October 22, 2016
Presented by
Lucy Morris
Partner
Erik Kosa
Associate
Hudson Cook, LLP

2. 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

3. 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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. 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.

10. 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?

11. 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?

12. 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, in restitution for deception claim, an additional $115, for unfairness claim, and a $5,437,000 civil penalty

13. Lucy Morris Hudson Cook, LLP 1909 K Street, NW 4th Floor Washington, DC (202)
Erik Kosa Hudson Cook, LLP 1909 K Street, NW 4th Floor Washington, DC (202)