What to Do If You Get ‘Served’ by a Regulator

© Can Stock Photo Inc. / fotodesign_jeggOne of the most important steps a company can take if it gets served a civil investigative demand from the FTC or any regulator is to be proactive, not reactive. That’s the advice from a chief legal officer for a major subprime auto finance company speaking about how to survive the early stages of a federal regulatory inquiry at the Auto Finance Summit in Las Vegas this month.

First and foremost, breathe, live life and start the process with confidence, was the advice. Go to your legal team, then get on a plane to meet and confer with the regulator within ten days.  At that meeting, ask the obvious questions, such as ‘Why us?’ Make sure you understand what the focus of the investigation is by the time you leave that meeting.

Set a tone of “education, collaboration and resolution.” Instruct the legal team to stick out its neck and offer up suggestions for what regulators may need or want to know.

Strongly request a “rolling production” when producing requested material, as opposed to delivering a “data dump.”

With that, it’s time to get the company’s house in order.

Stop any corporate shredding of documents. Stop the deletion of corporate emails. Formulate the discovery plan for electronic documents. Interview outside firms; determine if your company has the in-house capability to work with the regulators.

Then, get the company organized. This can mean creating a protected server, and using spreadsheets and databases to build tables and matrices for regulator deliverables, areas of concern, execute involvement, timelines and deadlines.

It is also important to build trust and credibility with the regulators. An adversarial or confrontational attitude will serve you poorly in the long run.

After all, the regulator may be starting with a presumption of wrongdoing. It is imperative, therefore, for those being regulated to put egos aside, step away from the competitive nature of the business, and suppress any political feelings or opinions.

It should also be remembered that during an investigation, you are the face of your company, not outside counsel.

Make it a point to deploy any additional time and expense needed to provide the interrogatory responses in perfect narrative form, in plain English, and produce those documents in whatever technical format requested.

Follow up on any discovery requests — in other words, the legal officer suggested, when the regulator says jump, you say how high.

Educate the regulator on “at issue” legal issues by offering to prepare memoranda of law at your expense, versus arguing. Consistently use narratives when producing additional information instead of a simple “see attached.” After all, every communication is another chance to tell your side of the story.

The company should collaborate with the regulator to bring consumer relief during the examination, he said. It’s important to engage the regulator along the way for ideas or “musings’ on how the company can do better. Make the remedial measures now. Write the regulator and let them know how consumers will benefit, and the expense required.

Engage the regulator along the way for ideas on how your company can do better and make sure to take any remedial measures right away.

Finally, at the conclusion of the initial exam, manage internal expectations long before resolution discussions occur. Boards of directors and the C-Suite must understand the leverage dynamic with a regulator. Keep those updates among a small group of insiders, and stay positive, yet realistic.

The regulator will communicate findings and/or corrective action to the company, and/or a fine.

He also noted that companies under examination should not fail to see when the FTC or CFPB is attempting to go beyond the law to set industry standards, versus when there is a “fenced in” provision that applies only to your company.

Ultimately, it’s important to pick all battles wisely.

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