On June 25, 2013, the CFPB issued Bulletin 2013-06, which discussed responsible conduct among financial services institutions. In the bulletin, the CFPB said it intends to consider a number of factors when determining whether or not to exercise its enforcement discretion, including:
-The nature, extent and severity of the identified violations
-Any actual or potential harm from the violations
-Whether there is a history of past violations on the part of the financial services company
-The financial services company’s effectiveness in addressing violations
Notwithstanding these four factors, the bulletin suggests that a financial services company that proactively self-polices for potential violations, promptly reports to the CFPB when it identifies potential violations, and affirmatively cooperates with any investigation above and beyond what is required, may receive favorable consideration in the event that the agency considers moving forward with enforcement action. Specifically, the bulletin suggests a party that “meaningfully engages in these activities… may favorably affect the ultimate resolution of a [CFPB] enforcement investigation.”
In the bulletin, the CFPB generally refers to meaningful self-reporting as “responsible conduct” on the part of a financial services company. The CFPB identifies responsible conduct as action that helps the agency to “promptly detect violations of federal consumer protection laws, increase the effectiveness and efficiency of enforcement investigations, enable the [CFPB] to pursue a larger number of worthy investigations with its finite resources, provide important evidence in enforcement investigations and cases, and help more consumers in more matters promptly received financial redress and additional meaningful remedies for any harm they experienced.” In short, the CFPB notes that self-reporting will better enable it to conduct its enforcement activities.
The CFPB takes care to note that it believes that prompt and complete self-reporting of significant violations is worth special mention and special consideration. The bulletin explains that “self-reporting substantially advances the [CFPB’s] protection of consumers and enhances its enforcement mission by reducing the resources it must expend to identify potential or actual violations that are significant enough to warrant an enforcement investigation and making those resources available for other significant matters.” Such self-reporting “also represents concrete evidence of a party’s commitment to responsibly address the conduct at issue.”
Throughout the bulletin, the CFPB emphasizes that any favorable consideration in the context of an enforcement action will only be extended if an entity goes above and beyond what would be expected under the law that governs the party’s interactions with the CFPB. In fact, the agency emphasizes that for it to forgo disciplinary action, “a party’s conduct must substantially exceed the standard of what is required by law in its interactions with the [CFPB].”
The bulletin signals a new approach to enforcement by emphasizing the fact that the agency expects entities subject to its regulation to perform their responsibilities by participating in a comprehensive self-reporting mechanism. A general fear of significant penalties brought by the CFPB forces financial services companies to make difficult choices concerning reporting compliance infractions. Notwithstanding guidance in the bulletin, the CFPB does not make any assurances that self-reporting will result in avoidance of enforcement action. In fact, the agency carefully notes that only conduct above and beyond what is required will result in favorable consideration and, moreover, such favorable consideration still may result in enforcement action.
Also, consider the fact that the CFPB has limited resources, which may mean that infractions that are not self-reported may not be subject to scrutiny by the CFPB, particularly if financial services companies self-correct the issue that resulted in the infraction and ensure that any potential harm is corrected to the benefit of the consumer. Moreover, consider that as financial services companies increase the degree to which they self-report infractions, the CFPB will be less likely to distinguish between “extraordinary” conduct deserving of its special consideration so as to avoid enforcement action. Because parties will increasingly self-report, the CFPB will be less inclined to grant financial services companies any benefit and may be more inclined to move forward with enforcement proceedings, even if a company has already taken
Whether self-reporting is appropriate requires careful evaluation of all facts and circumstances. The CFPB neither expects nor wants financial services companies to report each and every immaterial compliance infraction or violation. However, substantial and severe compliance violations, particularly those that result in consumer harm and impact multiple files, may warrant self-reporting. To some degree, the CFPB’s future actions as well as the marketplace will dictate the extent and appropriateness of self-reporting. However, it is important to be aware that self-reporting does not eliminate the potential for enforcement action by the CFPB and, in certain circumstances, potentially increases the likelihood for such action. Therefore, companies considering self-reporting should carefully weigh all of the facts relating to the incident that may warrant self-reporting and should engage internal or external counsel to be certain that any self-reporting activities place the company in the best position possible to lessen the CFPB’s desire to undertake an enforcement action.