Today's Trends in Credit Regulation

Extra Credit
By Eric L. Johnson

As a child, do you recall doing something you knew would get you in trouble with your parents? And, before they became aware of what you had done, did you act a little nicer to your brother, help more in the kitchen, or generally do a few more chores around the house, hoping to build up a little extra credit in the face of impending punishment? Or perhaps you 'fessed up even before they discovered your mischief? Those types of inverted, childlike tactics came to mind as I read the Consumer Financial Protection Bureau's new Bulletin 2013-06, titled "Responsible Business Conduct: Self-Policing, Self-Reporting, Remediation, and Cooperation."

The purpose of the bulletin sounds simple: "to encourage activity that has concrete and substantial benefits for consumers and contributes significantly to the success of the Bureau's mission." It's not quite that simple, however; I see the bulletin as outlining ways you may be able to earn a little extra credit - if you choose to do so - before or after the CFPB becomes aware of your potential violation of federal consumer financial laws.

The CFPB states that the guidance is being provided to inform those who are subject to the CFPB's enforcement authority that there are certain activities a company can engage in - both before and after the bad conduct has occurred - that the Bureau may consider favorably when exercising its enforcement discretion. In other words, the number of swats you get and how hard the sting is could depend on what you do both before and after any questionable actions.

Your choice to police yourself for potential violations, self-report to the CFPB, fix your mistakes, and actively cooperate with investigations, above and beyond what is required - what the CFPB calls "responsible conduct" - might help you avoid formal enforcement actions or lessen the resulting penalties. The CFPB offers several 'carrots' to guide your behavior towards responsible conduct, including possibly resolving an investigation with no public enforcement action, treating the conduct as a less severe type of violation, reducing the number of violations pursued, or reducing the sanctions or penalties sought in an enforcement action. However, the Bureau doesn't make any promises. There may be circumstances in which the misconduct is so egregious or the harm so great that no amount of cooperation or other mitigating conduct could justify a decision to forego bringing an enforcement action against you.

The CFPB provides that "responsible conduct," one of the factors it considers in exercising its enforcement discretion, is comprised of four factors:

1. Self-policing: self-monitoring or self-auditing to discover potential violations of laws or regulations. This activity would be evidence of your proactive commitment to use your resources for the prevention and early detection of potential violations;

2. Self-reporting: promptly reporting serious violations that are discovered. The CFPB indicated that it gives this factor special emphasis in its evaluation of a company's overall conduct;

3. Remediation: quickly and completely correcting any harm caused by a violation, plus implementing measures to prevent the violations from recurring; and

4. Cooperation: taking substantial and material steps above and beyond what is required by law in your interactions with the CFPB.

Although the purpose of the bulletin seems clear, I don't think the decision to self-report potential violations, remediate, and cooperate with the CFPB above and beyond what the law requires is that clear. These decisions should not be made without the advice of competent counsel who can help you determine if a violation of federal consumer financial laws in fact occurred or is occurring and help you weigh the pros and cons of self-reporting, remediating, and cooperating with the CFPB. That extra credit you might be able to get just may not be worth it.

Eric L. Johnson is a partner in the Oklahoma office of Hudson Cook, LLP. Eric can be reached at 405-602-3812 or by email at

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