How to Successfully Resolve a CFPB Investigation: Strategies Derived from Recent Victories March 5, 2014

Transcription

1 How to Successfully Resolve a CFPB Investigation: Strategies Derived from Recent Victories March 5, 2014 Anthony E. DiResta Partner, Washington, D.C. (202) adiresta@winston.com Brought to you by Winston & Strawn s CFPB Response Team

2 Overview Recent CFPB investigations with successful outcome (closure; no action) What was faced Almost two-year process CID and Warning Letter Review and production of hundreds of thousands of documents Complying with CFPB e-discovery production protocol Review of s from employees, including senior company officials Responding to interrogatories Creating reports containing sensitive business information Depositions or investigational hearings Submissions of legal positions and a formal white paper Meetings and negotiations with CFPB staff 2014 Winston & Strawn LLP 2

3 Overview Recent involvement in CFPB supervisory examinations (concluding in solid ratings) What was faced Information Request (comprehensive and resource intensive) Meetings with CFPB lawyers and auditors On-site visits by CFPB, including interviews with senior company officials Producing documents and information in an expedited fashion Providing legal submissions Meetings with CFPB staff concerning vulnerabilities discovered and risks presented 2014 Winston & Strawn LLP 3

4 Goals for this presentation To determine what worked to obtain these successful outcomes To discuss the lessons learned from successful CFPB investigations, examinations, and audits To outline effective strategies and best practices in dealing with CFPB inquiries 2014 Winston & Strawn LLP 4

5 Goals for this presentation This presentation is intended to be practical, in the trenches, nuts and bolts. Focus: Investigations But, consider supervisory examinations or audits by the CFPB as investigations. The game is the same Winston & Strawn LLP 5

6 AGENDA Anatomy of a CFPB investigation Anatomy of a CFPB supervisory examination Effectively negotiating with CFPB at the outset Appropriately and effectively producing documents and information to the CFPB Strategically dealing with CFPB investigational hearings Effectively communicating with CFPB staff and authoring compelling submissions after compliance with the CID or inquiry Effectively and appropriately communicating with CFPB staff during NORA process Critical Points (or key takeaways) Advocacy before the CFPB Risk management 2014 Winston & Strawn LLP 6

7 Anatomy of a CFPB investigation

8 Anatomy of a CFPB investigation CFPB has almost identical procedures to those used by FTC: CFPB drew most heavily from the FTC s nonadjudicative procedures in constructing the RULES RELATING TO INVESTIGATIONS BY THE CFPB. Note: Former FTC staff now in senior positions at CFPB, and current relationship between FTC s Division of Financial Practices and CFPB Enforcement Division. E.g., Peggy Twohig, Office of Supervision Policy, Assistant Director; Lucy Morris, Deputy Enforcement Director Winston & Strawn LLP 8

9 Anatomy of a CFPB investigation See generally 12 C.F.R. Part 1080 Receive a Civil Investigative Demand ( CID ) Notification of Purpose (identifies laws/regulations at issue) Definitions (e.g., Company; ESI) Instructions Meet and confer Applicable period for responsive materials Requests Interrogatories Documents Certificate of Compliance Document Submission Standards Petition to modify or set aside the CID 2014 Winston & Strawn LLP 9

10 Anatomy of a CFPB investigation Negotiate CID and meet with CFPB staff Produce documents and information Submit position papers or cover letters Participate in investigational hearings Be aware of: Sharing of confidential information with federal or state agencies (E.g., Memorandum of Understanding between FTC and CFPB) Interviews with former employees: Bureau investigators may disclose the existence of an investigation to potential witnesses or third parties to the extent necessary to advance the investigation Winston & Strawn LLP 10

11 Anatomy of a CFPB investigation Seek to close the investigation If staff is considering an enforcement action, CFPB may submit a Notice and Opportunity to Respond and Advise ( NORA ) Attempt to persuade and convince staff that no enforcement action is necessary 2014 Winston & Strawn LLP 11

12 Anatomy of a CFPB Supervisory Examination

13 CFPB Supervisory Examination CFPB s goal is to maximize [its] coverage of consumer risk in the market. In contrast to investigations, which focus on a particular entity or target, in an examination, the CFPB focuses on product/service lines. Exams constitute a risk base analysis. CFPB examinations focus on risks of harm to consumers, including the risk a supervised entity will not comply with Federal consumer financial law. CFPB SUPERVISION AND EXAMINATION MANUAL Winston & Strawn LLP 13

14 Anatomy of a CFPB Supervisory Examination Receive an Information Request, which may request information concerning: The company s business model The Board of Directors and senior management oversight Compliance program Policies, practices, and procedures Industry practices Training of employees Monitoring and internal evaluations Consumer complaints and responses Third-party service providers and vendor management Recordkeeping Product development and business acquisitions 2014 Winston & Strawn LLP 14

15 Anatomy of a CFPB Supervisory Examination Produce documents and information On-site visits Interviews with employees, including senior staff Preliminary conclusions are drawn Suggestions for corrective actions are made Conclusions and proposed actions are shared An examination report is drafted, finalized, and formally approved A final report is delivered, containing a confidential rating 2014 Winston & Strawn LLP 15

16 Anatomy of a CFPB Supervisory Examination Structurally and strategically, examinations are identical to investigations Winston & Strawn LLP 16

17 Critical Point No. 1 Don t approach a CFPB investigation (or examination) as a litigator. A fundamentally different form of advocacy is involved. There s a touch in dealing with the CFPB staff and management. Consider the culture, psychology, and philosophy of the CFPB, or the institutional ego: the CFPB staff see themselves as law enforcers, not as regulators Winston & Strawn LLP 17

18 Critical Point No. 1 The staff is the judge and the jury and the prosecutor Winston & Strawn LLP 18

19 Critical Point No. 1 Governmental investigations and examinations are relationship-intensive. Oral and written communications with the CFPB staff must be: effective, strategic, and respectful Winston & Strawn LLP 19

20 Effectively Negotiating with the CFPB

21 Effectively negotiating with the CFPB at the beginning of the process Negotiate terms of the CID (specifications, definitions, instructions) The meet and confer If the [CID] seeks ESI, the recipient shall ensure that a person familiar with its ESI systems and methods of retrieval participates in the meeting. (Emphasis added). Negotiate terms and production cycle (staged) Obtain extension of time 2014 Winston & Strawn LLP 21

22 Effectively negotiating with the CFPB at the beginning of the process During this initial stage, it is key to advocate. Humanize the company. Describe the company s culture of compliance and culture of commitment. AND Effectively communicate with the goal of developing a meaningful working relationship with the staff Winston & Strawn LLP 22

23 Effectively negotiating with the CFPB at the beginning of the process This requires that the company and its counsel comprehensively analyze the CID (or inquiry) for compliance obligations. Evaluate the implications of the burden, scope, and breadth of the requests for both documents and information. Scrutinize all documents relating to requests. Evaluate the time period involved. Evaluate how document is defined. Evaluate the requirements to create reports Winston & Strawn LLP 23

24 Effectively negotiating with the CFPB at the beginning of the process Evaluate the costs and timing involved for locating, reviewing, and producing hard copy and electronic documents as well as the task of responding to interrogatories and other requests for information. Determine the custodians of documents and information. Identify the team which will locate and review documents as well as who will draft responses and create reports Winston & Strawn LLP 24

25 Effectively negotiating with the CFPB at the beginning of the process During this initial phase, when communicating with the CFPB staff: Determine why the requests were sent, and where the inquiry/investigation is headed. Request assurance of confidentiality. Determine whether other federal agency (e.g., FTC) or state attorneys general may become involved Winston & Strawn LLP 25

26 Effectively negotiating with the CFPB at the beginning of the process During this initial phase, determine your story (i.e., the company s closing argument at the outset.) 2014 Winston & Strawn LLP 26

27 Critical Point No. 2 There s much more to a CFPB investigation or inquiry than just complying with its requests for information and documents. Be a strategic and effective advocate in responding to the documents and information requested, while using the appropriate communications touch with the staff Winston & Strawn LLP 27

28 Successfully and Effectively Producing Documents and Information

29 Successfully and Effectively Producing Documents and Information Initial Observations The CFPB wants full, complete, and comprehensive compliance with the CID or inquiry. It must feel that the company is being totally transparent and responsive. The CFPB wants full cooperation and compliance with the DOCUMENT SUBMISSION STANDARDS, or the ESI protocol. Be strategic: On the offense, not defense. Don t engage in a document dump Winston & Strawn LLP 29

30 Successfully and Effectively Producing Documents and Information For documents: Adopt procedures for evaluating what is responsive, privileged, and highly sensitive. For electronic documents, develop a strategy for the collection and review of ESI. Determine beneficial and useful documents for use in cover letters Winston & Strawn LLP 30

31 Successfully and Effectively Producing Documents and Information For information: Draft interrogatory responses and create reports accurately and fully but strategically. Be sure the responses are consistent with: the documents being produced, the legal theories and themes, and the risk management strategy Winston & Strawn LLP 31

32 Successfully and Effectively Producing Documents and Information For production and submission: Draft persuasive cover letters or memoranda for each stage of production that include an appropriate narrative spin on the contents being produced. Again, no document or information dump. Again, consider the ESI production requirements. DOCUMENT SUBMISSION STANDARDS are integral to compliance Winston & Strawn LLP 32

33 Strategically Dealing with CFPB Investigational Hearings

34 Successfully dealing with depositions or investigational hearings Process is very different from a deposition in litigation: Objections are limited. Must be grounded in a witness s constitutional or other legal right Neither the witness nor counsel shall otherwise object or refuse to answer any question Hearing attendance is limited to witness and counsel 2014 Winston & Strawn LLP 34

35 Successfully dealing with depositions or investigational hearings Effective preparation Review sensitive documents, especially those showing compliance vulnerabilities. Review submissions (cover letters during production and memoranda) Focus on compliance policies, practices, and procedures: Three key issues: Whether a policy exists. Whether the policy was implemented. Whether the policy is effective. If the government believes that any one of these components are lacking, it will conclude that the policy/practice is not reasonable Winston & Strawn LLP 35

36 Successfully dealing with depositions or investigational hearings Process considerations Contrary to what is taught about depositions in litigation, be on the offense, and not defense. If a question is asked where a witness can volunteer positive or favorable information, go for it. Although the role of counsel is substantially limited and different from traditional depositions in litigation, the witness can still be proactive, and have the opportunity to say to the questioner, for example, I don t understand the question, or You mischaracterized what I said previously. Don t guess about the contents of a document. If a question is asked that refers to a document, have the witness ask to see the document first. This is particularly important in government investigations Winston & Strawn LLP 36

37 Critical Point No. 3 Effective advocacy before the CFPB requires knowledge of the culture, psychology, and philosophy of the Bureau. The goal is to persuade and convince the staff. Consider what will and will not resonate. The staff must believe and feel that the company is credible and is committed to a culture of compliance Winston & Strawn LLP 37

38 Effective Communications and Submissions after Compliance with CID

39 Effective communications and submissions after compliance with CID Submit a White Paper containing: 1. Legal arguments showing that (a) the company has complied with the laws and regulations at issue; and (b) the policies, practices, and procedures of the company (i) exist, (ii) have been implemented, and (iii) are effective; and 2. Mitigating circumstances showing that the facts and equities should prevent the CFPB from exercising its prosecutorial discretion to present an enforcement action against the company Winston & Strawn LLP 39

40 Effective communications and submissions after compliance with CID Seek a meeting with the staff to discuss the contents of the White Paper. Have company executives at the meeting and have nonlawyers attend. Consider having the Director of Compliance attend the meeting. Be prepared to discuss options other than closing of the investigation, if the staff appears reluctant to recommend closing. Consider narrowing of allegations, limiting of potential injunctive relief, and limitations to monetary remedies Winston & Strawn LLP 40

41 Effective communications and submissions after compliance with CID Key considerations The messages and themes in the White Paper and meeting with the staff must be consistent with previous submissions. Remember that you should have outlined the closing argument before submitting a single document to the CFPB. Dispositive argument: The company has, and is committed to having, a culture of compliance Winston & Strawn LLP 41

42 NORA Process and Effective Advocacy Strategy

43 Notice and Opportunity to Respond and Advise (NORA Letter) See generally CFPB Bulletin (Enforcement) Before the Office of Enforcement recommends that the Bureau commence enforcement proceedings, the Office of Enforcement may give the subject of such recommendation notice of the nature of the subject s potential violations and may offer the subject the opportunity to submit a written statement in response. The decision whether to give such notice is discretionary.... The objective of the notice is to ensure that potential subjects of enforcement actions have the opportunity to present their positions to the Bureau before an enforcement action is recommended or commenced Winston & Strawn LLP 43

44 Process involved if NORA letter is submitted to company NORA letter sent to company. Company responds to NORA letter. Meeting can take place between company and staff concerning allegations presented in NORA letter or verbally by staff. Staff makes determination whether to move forward with enforcement action, and sends memo to managers with their recommendation. If investigation is not closed, staff sends counsel proposed complaint and consent decree for negotiation. During negotiations, an appellate process occurs. If impasse results in negotiating with staff, Enforcement Director may be brought in. If matter is not settled, staff will recommend litigation administratively or in federal district court Winston & Strawn LLP 44

45 Effectively communicating with CFPB staff during the NORA process The tone and style ( touch ) is critical. The staff is attempting to determine whether to recommend an enforcement action. Don t tell the staff what the CFPB can t do or how the Bureau is limited. Avoid legal arguments. Rather, stress facts and equities. Articulate reasons why the CFPB shouldn t exercise its prosecutorial discretion. See CFPB Bulletin , dated June 25, 2013: Responsible Business Conduct 2014 Winston & Strawn LLP 45

46 Effectively communicating with CFPB staff during the NORA process Focus on the following arguments: 1. The company has policies, practices, and procedures that have been implemented and that are effective. Training Disciplining Monitoring 2. The company engages in effective compliance self-policing, and therefore does not need to be under the governmental microscope. 3. The company is pro-consumer, and committed to appropriate remediation when problems occur Winston & Strawn LLP 46

47 Effectively communicating with CFPB staff during the NORA process 4. The company has heard the concerns expressed by the staff during the investigation, and is responsive to what the CFPB has said. 5. The company does not deserve to be punished. It is not an appropriate poster child. 6. The company has been cooperative during the entire investigation Winston & Strawn LLP 47

48 Critical Point No. 4 Create effective risk management strategies which you can commence immediately to provide the most compelling story to the CFPB during an investigation or examination. Establish policies, practices, and procedures to demonstrate a committed culture of compliance. Have a Compliance Management System in writing with key personnel responsible for reviewing, implementing, and monitoring the infrastructure. Create a compliance team that includes members from different departments Winston & Strawn LLP 48

49 Critical Point No. 4 Have the C-suite executives involved in the compliance aspects. The tone of the company needs to be set from the top. Document the compliance activities create a paper trail Winston & Strawn LLP 49

50 Anthony E. DiResta Partner, Washington, D.C. (202) Questions?

51 Thank You.