Yesterday, the Consumer Financial Protection Bureau ("the
Bureau") issued Bulletin 2011-04, announcing that it intends
to issue Early Warning Notices to potential respondents prior to
initiating enforcement proceedings. The Bulletin and a sample
notice are available here.
Under this new process, the Bureau may (but is not required to)
send an Early Warning Notice to a person or firm prior to
initiating an enforcement action against them. The Notice will
describe the nature of the potential violations of law, and provide
the recipient with 14 days to submit a response to Bureau staff.
"The primary focus of the written statement in response should
be legal and policy matters relevant to the proposed enforcement
proceedings. Any factual assertions relied upon ... must be made
under oath." CFPB Bulletin 2011-04. Submissions are limited to
40 pages and may be discoverable by third parties.
Id.
This is an important step towards ensuring due process in the CFPB
enforcement process, and may blunt some potential criticisms of
CFPB Chief of Enforcement—and CFPB Director
nominee—Richard Cordray. Beginning in July 2011, we had
urged the Bureau to adopt such a process, citing the SEC's
"Wells process" as a model. See SEC Provides an Enforcement Roadmap for the
CFPB, by Eric J. Mogilnicki and William R. McLucas in the
American Banker; and Due Process, Transparency and the Consumer
Financial Protection Bureau, by Eric J. Mogilnicki and Timothy
J. Perla in Securities Regulation and Law Report. The
Bureau's announcement explains that the Early Warning Notice
process "is modeled on similar procedures that have been
successful at other agencies." Interim Bureau head Raj Date
adds that "the early warning notice announced today strikes a
balance between the goal of fairness to those being investigated
and our mission to protect consumers."
Important issues remain open. The Bulletin is silent on related
procedural safeguards included in the SEC's Wells process,
including the ability to review investigatory materials, and to
have an opportunity for an in-person meeting with staff following
the submission. We believe the CFPB staff will ultimately be
persuaded on the merits that such additional steps will strengthen
its decision-making process, and these enhancements may arise
within early enforcement cases rather than additional statements of
policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.