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07/17/2013

Client Alert: The CFPB's "Responsible Conduct" Factors

Best Practices For All Banks? - Apply With Appropriate Caution

The Consumer Financial Protection Bureau ("CFPB") recently issued its Bulletin 2013-06 on “Responsible Business Conduct” that sets forth four factors, collectively described as “responsible conduct,” that could favorably affect the outcome of an enforcement investigation involving the CFPB:

Bulletin 2013-06 Factors:

  • Proactive self-policing
  • Comprehensive remediation
  • Prompt self-reporting
  • Affirmative cooperation
 Enforcement Investigations

The CFPB emphasizes that for these actions to positively impact an enforcement investigation, they must “substantially exceed” the extent of these actions otherwise required by law. We agree that these “responsible conduct” factors, particularly proactive self-policing, generally represent best practices and otherwise promote and contribute to a strong and effective compliance management system for all banks, not just those directly supervised by the CFPB.

Caution

It should be noted, however, that the CFPB considers the purpose of Bulletin 2013-06 as promoting financial institution activities that have “concrete and substantial benefits for consumers and contribute significantly to the success of the CFPB’s mission.”

The “responsible conduct” promoted by the CFPB therefore may, in certain instances, not be in a bank’s best interest because such conduct could contribute to increased financial, reputation, and litigation risk for the bank without any offsetting positive impact on the resolution of an enforcement investigation. The CFPB indirectly acknowledges this possibility by conceding that a bank’s satisfaction of the “responsible conduct” factors does not guarantee the agency will resolve an enforcement investigation in the bank’s favor, as the importance of each factor will depend on the facts and circumstances of the matter under investigation.

Accordingly, financial institutions should carefully consider in advance the risks and implications of the above-and-beyond “responsible conduct” described in Bulletin 2013-06, and consult with counsel to ensure a clear understanding of the legal and regulatory requirements and potential outcomes related to any potential regulatory investigation. 

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