1. Surviving a CFPB Examination and Investigation NCHER 2017 Knowledge Symposium November 7, Melissa Harris Robert Savoie

2. Areas of Concern for CFPB
Sources:
Consumer Complaint database
Reports of the Student Loan Ombudsman
Supervisory Highlights
Recent enforcement actions

3. Narrative Preparation
Your Compliance Management System is the story of your compliance operations
Show the CFPB that compliance is part of the day-to-day responsibilities of management and employees

4. Narrative Preparation
Bottom Line
A person reviewing your Compliance Management System should walk away confident that you have a thorough understanding of all statutes and regulations applicable to your business, that your company effectively complies with those requirements, and that you treat your customers fairly

5. Substantive Preparation
Substantive preparation is the process of ensuring compliance with the various state and federal consumer finance laws and regulations, including UDAAP requirements

6. Substantive Preparation
Advertising and lead generation
Applications and originations
Servicing and collections
Customer inquiries and complaints
Information sharing and privacy
UDAAP
General statutes (SCRA, etc…)

7. Substantive Preparation
Student loan servicing issues
Income driven repayment plans
Borrower choice for allocation of payments
Communications related to paid-ahead status
CFPB standards for servicer competency

8. Operational Preparations
Company awareness
Create Initial Response Teams

9. Operational Preparation
Operational preparation is the process of creating the mechanisms and teams necessary to effectively respond to a CFPB audit or CID

10. Initial Response Teams
One team or multiple teams
Need to include:
Senior management
Counsel (inside and outside)
Key personnel
IT department
Outside vendors (e-discovery)

11. Initial Response Team: Senior Management
Responsible for developing the overall response strategy (narrow or modify scope of CID; minimize disruptions)
Employs outside counsel
Communicates relevant information to other team members
Estimates costs of examination

12. Initial Response Team: Counsel (Inside and Outside)
Serves as the point of contact for CFPB negotiations and communications
Reviews CID to identify areas of focus (specific product or statute)
Reviews documents for responsiveness to CID requests and privilege
Assists with preparing written responses to interrogatories

13. Initial Response Team: Key Personnel
Knowledgeable about the organization and records management
Identifies or attempts to resolve early issues related to complying with the CID
Bridge between the requests in the CID and the organization
Can assist with development of search terms for s and electronic documents

14. Initial Response Team: IT
Identifies location and format of stored information, documents, and data
Provides information about data retention policies
Can assist in submitting documents to CFPB with required content and format
but outside vendor is likely preferable because of complex requirements

15. IT, Document Submission, and E-Vendors
The role of IT is extremely important in retrieving stored documents and data, compiling and/or converting the information and delivering the documents to the CFPB
CFPB has complex technological standards for document submission (DOJ)
E-discovery vendors can assist in managing, compiling, and transmitting documents to CFPB in the required format

16. IT, Document Submission and E-Vendors
E-vendors can assist in developing search terms and methodologies
E-vendors process documents for review on reviewing platforms
For large-scale document reviews, e-vendors may have resources to assist with review

17. Part II: What to Expect During an Examination
The Scope and Content of the Civil Investigative Demand
Submitting Information to CFPB
The Costs of an Examination
Time Crunch
The Follow-Up and Waiting Game
Resolution

18. Scope and Content of CID
Arrives without warning
Cover letter from the CFPB
It will identify the entity subject to the CID
Looks similar to a subpoena and litigation discovery requests

19. Scope and Content of CID
Will generally contain requests for documents and interrogatories
May also contain requests for written reports

20. Scope and Content of CID
May arise out of complaints received by CFPB
in , CFPB handled 5,500 private student loan complaints and 2,300 debt collection complaints related to private and federal student loans, and 3,900 federal student loan servicing complaints.

22. Scope and Content of CID: Initial Actions
Notify appropriate personnel
Issue Litigation Hold
Prepare for Meet and Confer
Review CID to determine types of information and documents requested
Determine how to modify/narrow scope of requested information

23. Scope and Content of CID: Broad Nature
Dodd-Frank requires that the recipient of a CID “be advised of the nature of the conduct constituting the alleged violations that are under investigation and the provisions of law applicable to such violations.”
12 C.F.R. §

24. Scope and Content of CID: Broad Nature
Example Notice of Purpose of CID:
“The purpose of this investigation is to determine whether title lending companies, auto purchase finance companies or other unnamed persons have engaged or are engaging in unlawful acts or practices related to the offering, providing, marketing, underwriting…servicing…collecting debts…and repossessing and/or selling collateral securing title or auto purchase loans in violation of the Dodd-Frank Act, Truth in Lending, Fair Credit Reporting…or any other federal consumer financial law.”

25. Scope and Content of CID: Broad Nature
Example Interrogatory: Describe each instance in which the Company has been investigated, sued, prosecuted, or had action taken against it for alleged violations of Section 8 of the Real Estate Settlement Procedures Act for allegedly unfair or deceptive act or practices or for any other alleged violation of state or federal law, the names of all parties, the jurisdiction involved, the case number, the claims asserted, and the current status and final resolution of the matter.

26. Scope and Content of CID: Broad Nature
Example Production Request: All telephone calls, s, or instant messages, relating to [Loan Product identified in CID] that were exchanged between: (a) the Company and any Partner Company and (b) those consumers who used a last name beginning with the letters A, M or S.

27. Scope and Content of CID: Broad Nature
Example Written Report: In a delimited text file compatible with Microsoft Access, provide a written report containing the following information for each payment made to the Company by a consumer during [a specified period]:
(a) the account number to which the payment relates;
(b) the mode used to transmit the payment to the Company (e.g. U.S. mail, ACH, etc.)
(c) the date the payment arrived;
(d) the date the payment was applied to the consumer’s balance; and
(e) the amount of late fees or other fees charged in relation to each payment.

28. Scope and Content of CID: Broad Nature
You may be able to negotiate scope/content of CID during meet-and-confer
Examples: definition of “Company” to exclude certain related entities; narrowing of relevant time period
Also consider filing petition to modify (although rarely granted)

29. Scope and Content of CID: Broad Nature
Will likely need to craft search terms for s and electronic documents
These will need to be defensible to CFPB if (when) they ask for them
Work with IT vendor in creating search terms

30. Submitting Information to CFPB
CID is very specific on how information and documents must be formatted
Must follow CFPB Office of Enforcement’s Discovery Requests Document Submission Standards
Document identification requirements
Privilege log requirements
Encryption requirements for material containing sensitive information
Media specifications
File and document formats

31. Submitting Information to CFPB
Encryption requirements for material containing sensitive information
Media specifications
File and document formats

33. Costs of an Examination
CFPB’s Estimate: one full-time compliance officer and one-tenth of a full-time attorney for total labor cost of $27,611
The reality is that these costs are much higher

34. Organizational Costs Time Resources
Disruption to daily activities and production
Outside counsel and e-vendors
Reputational costs if investigation becomes public (enforcement action)

35. Time Crunch: Meet and Confer
First meeting with CFPB (“Meet and Confer”) occurs within 10 calendar days of receiving CID
You are responsible for contacting the CFPB within this time period

36. Time Crunch: Meet and Confer
Be prepared to discuss:
Scope issues
Proposed limitations
Deadlines
Custodians
Issues with obtaining documents

37. Time Crunch: Meet and Confer
After Meet-and-Confer, CFPB will likely issue modification letter
This will set forth any new deadlines, changes to CID scope, or other matters discussed during the Meet-and-Confer

38. Time Crunch: Other Deadlines
A petition for an order to modify or set aside a CID must be filed within 20 days of service of a CID
Privilege claims must be made by the production return date (or as modified after Meet-and-Confer)

39. Time Crunch: Production
Timing to respond to interrogatories and produce documents and written reports provided in CID, generally days
Negotiate extended and/or rolling deadlines at Meet and Confer
CFPB may be more willing to grant extensions or rolling deadlines if you can demonstrate significant burden with complying under original deadlines

40. Time Crunch: Production
Make sure you factor in time needed by vendors to process production
If you anticipate trouble making a deadline, let CFPB know sooner rather than later!

41. The Follow-Up and Waiting Game
After documents are submitted, it is a waiting game
CFPB can request additional documents
CFPB can request investigational hearings (can be used at any time): testimony generally to seek clarification of procedures and other information from the documents
Persons providing testimony must be prepared just as a deposition witness

42. The Follow-Up and Waiting Game
CFPB will notify company of findings and actions (could be up to 1 year or more after originally receiving the CID)
Investigation remains confidential during that time (except to extent disclosure required in company’s public filings)

43. The Follow-Up and Waiting Game
Notice of Opportunity to Respond and Advise (“NORA”): company’s chance to explain why CFPB should not take enforcement action for factual, legal, or policy reasons.
May be able to convince CFPB, but most investigations that reach this stage result in enforcement action.

44. Resolution Close of investigation with no enforcement action
This is best case scenario but is extremely unlikely

45. Resolution Enforcement action
Complaint and consent judgment/settlement
Implement corrective actions
Pay required fine to CFPB, restitution to consumers
CFPB will publish final enforcement action and issue press release

46. Supervisory Examination
Similar to CID process once it is referred to enforcement
Focus is on substance initially
Narrative and operational preparation

47. Supervisory Examination
Request Letter
Onsite
Examiners / OSP
Exam Procedures / CMS / Supervisory Highlights
PARR/ARC
Exam Outcomes
Appeal Process
Confidentiality

48. Conclusions Be prepared Take it seriously
Expect demanding requests and timeframes
Structure your IT and data systems in advance to facilitate efficient disclosure of information

49. Questions? Melissa Harris Robert Savoie mharris@mcglinchey.com
(504)
Robert Savoie
(504)