Insights

On November 7, 2011, in a press release, a bulletin, and an “interested parties” telephone call, the Consumer Financial Protection Bureau announced plans to provide advance notice of potential enforcement actions to individuals and firms under investigation by the Bureau. Modeled after similar procedures at other federal agencies, the Early Warning Notice process allows the subject of an investigation to address any potential legal violations that CFPB enforcement staff believes have been committed before the Bureau ultimately decides whether to begin legal action.

The process contemplates an initial telephone call. The telephone call would notify the recipient that the CFPB’s Office of Enforcement is considering a recommendation to take legal action against a person subject to the authority of the CFPB. The caller would offer the party an opportunity to respond to alleged violations. The CFPB’s “Early Warning Notice” letter, which would immediately follow the telephone call, would explain the evidence gathered in a CFPB investigation, the alleged violations, and the potential redress to be sought by the CFPB. The Early Warning Notice would give recipients an opportunity to respond to the allegations before the CFPB initiates an enforcement proceeding.

The Notice invites businesses and individual subjects of the Notice to submit a written response to the CFPB Early Warning Notice. The response must be received by the CFPB within 14 calendar days after the Notice – although the actual sample Notice states that the response is expected within 14 days of the telephone call. Assuming that the telephone call and delivery of the letter occur on the same day, this distinction does not matter.

The CFPB indicates that the response should raise the legal and policy matters relevant to the potential enforcement proceeding. The CFPB requires that any statements of fact be made under oath by a person with personal knowledge of the factual statements.

Unless directed otherwise, a response must be written on 8.5 x 11-inch paper, double-spaced, in at least 12-point type, and may not exceed 40 pages. Respondents must send the written response to the CFPB staff conducting the investigation. The response must reference the investigation to which it relates. If, after consideration of the response, the CFPB staff recommends proceeding with enforcement, the response submitted will be included as part of the recommendation. Responses are discoverable according to applicable law.

The CFPB is not required to provide the Early Warning Notice. Given that the Early Warning Notice is entirely discretionary, the CFPB suggests that it may choose not to provide the Notice in cases of “ongoing fraud or when the Office of Enforcement needs to act quickly.”

In a press release, Raj Date, Special Advisor to the Secretary of the Treasury for the CFPB, stated, “The Early Warning Notice announced today strikes a balance between the goal of fairness to those being investigated and our mission to protect consumers. This process will help us fulfill our commitment to transparency in enforcing the law.”

On the “interested parties” phone call, Richard Cordray, the head of the CFPB’s Enforcement Division and President Obama’s nominee to be the first Director of the Bureau, reiterated a commitment to balancing fairness and consumer protection. Cordray advocated several potential benefits of the Early Warning Notice. First, it allows for due process – an opportunity for the recipients of the Notice to address allegations against them before legal action is taken by the Bureau. The process could alert the CFPB to unintended consequences of a legal action or help ensure enforcement actions are based upon sound policy. Finally, the Early Warning Notice process enhances the Office of Enforcement’s ability to more effectively carry out the goals of the CFPB.

The CFPB’s fairness efforts appear to be well received by industry. Although the CFPB did not indicate when it will begin sending the Early Warning Notices, companies subject to the CFPB’s regulation and enforcement powers will likely appreciate the opportunity to have an open dialog with the CFPB prior to potential enforcement actions when it begins the process.

Nicole F. Munro is a partner in the Maryland office of Hudson Cook, LLP. Nikki can be reached at 410-865-5430 or by email at nmunro@hudco.com.