After a CFPB Exam: Act and Act Fast

Run TrackLet’s say your company just finished an examination by the Consumer Financial Protection Bureau and has emerged without any legal violations or public consent enforcement orders. Congratulations!

But don’t start celebrating just yet — the CFPB did find that some of your company’s internal operations were a little bit lax and need some fixing. The consequences of not doing so — and promptly — can be devastating, according to Braden Perry, an attorney at Kennyhertz Perry LLC, in Kansas City.

“It’s important to correct any deficiencies and properly address the issues raised or else you may be subject to an enforcement action,” said Perry, who also served as a former senior enforcement attorney at a federal regulatory agency and chief compliance officer of a global financial institution. “Enforcement actions can destroy a company.”

So what are the best practices for taking corrective actions?

“If the CFPB says, ‘Clean it up,’ I absolutely say, clean it up,” advised Leonard N. Chanin, a partner of counsel at Morrison & Foerster in Washington, D.C., who represents and advises lenders in CFPB exams. “They want to ensure you have a compliance management system that is robust.”

The bureau is often “pretty specific” on what they’re looking for, he added. For example, “if you need to monitor pricing on a quarterly basis, then absolutely do it,” Chanin said. “Because they will come back. And if they see you haven’t fixed things, then you’re asking for trouble.”

How soon will they come back?

“It’s a great unknown,” said James M. Golden, an attorney at Santa Ana, Calif.-based Callahan & Blaine. “There’s no way to know what they’re going to do, so my advice is to start implementing remedial measures immediately. It’s not necessarily true that this has to be done in a day or two, but I would start the process right away, so if the CFPB comes back quickly you can demonstrate that you’re working on the issues.”

That’s why it’s imperative that lenders take CFPB exams “very seriously” and try to correct any perceived problems as soon as possible, he added.

“If the CFPB came in and even hinted that there was something lackadaisical about my client’s practices, I would advise them to do everything they can to correct the practices,” Golden said. “Get out in front and try to correct the problems, because the CFPB will almost certainly come back and look to see if anything has changed and if not, they are likely to pursue an action.”

To make sure you don’t have trouble the next go-round, lenders not only need to address the specific issues raised by the CFPB in the exam, but go above and beyond that, according to Morrison & Foerster’s Chanin.

“What I would advise is to do what the CFPB suggested, but also see if there are other areas where you should improve your controls, your monitoring, or your policies,” he said. “You want to be able to say, ‘We not only did what you said, but we’ve gone beyond that to try to ensure that we don’t have any violations of law.’

“It takes time, and money, and resources,” Chanin said, “but only good can come of it.”

Indeed, attorneys who have dealt with the CFPB say lenders need to be fully prepared long before the exam even starts and try to anticipate what the agency’s examiners are looking for.

“The CFPB is always looking to find something. They usually pick you out for a reason,” Callahan & Blaine’s Golden said. “It’s unlikely the CFPB is going to conduct an examination and not find anything that was wrong.”

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