Listen up, lenders: No amount of wishing, hoping, or rubbing your lucky rabbit’s foot is going to spare you from dealing with the Consumer Financial Protection Bureau. And one of the most important parts of dealing with the bureau is knowing how to act when you get a Civil Investigative Demand.
First off, here are a few basics to know: A Civil Investigative Demand, or CID, is kind of like a paperwork subpoena–a legal maneuver that compels a company to hand over documents to a government agency; in this case the CFPB.
A company can receive a CID in two distinct circumstances: When it is the target of an investigation, or when a company it has done business with is under scrutiny and it is named as a third party.
The Center for Auto Finance Excellence recently had the chance to talk to two attorneys who specialize in auto finance—John Redding of BuckleySandler LLP and Michael Benoit of Hudson Cook LLP—and gathered a few tips for auto lenders to use to prepare for, and ultimately deal with, CIDs from the CFPB.
- Have a team ready to go. Redding and Benoit both agree that it is critical to have an action team selected before any Demand is received. This is due to the short turnaround times required by the CFPB—10 days to hold a “meet and confer” and 20 days to file any motion to set aside or amend the demand. This team should include representatives from all aspects of your business including IT, legal, operations, compliance and public/investor relations. Why include the flack squad? Because if you’re publicly traded, you may have to disclose the CID to your investors and/or the public.
- Quickly establish who your legal representation will be. Again, the quick turnaround times are the driving force here. This is something that can be done before ever receiving a CID, Redding says. “You’ve got these really short time periods, so you want to be as prepared as you can be to have council retained.”
- Interview potential e-vendors in advance. This is one that may not be practical for all lenders, especially smaller ones. But if you can do it, it helps to talk to e-vendors who will prepare the documents for the CFPB before you receive the CID. If you can’t interview in advance, it still must be done quickly because the CFPB’s document submission standards are “very precise,” according to Benoit.
- Issue a litigation hold. This puts an immediate stop on the destruction of documents. It’s important that no documents relevant to the demand are destroyed after receipt; this could make it look like you are trying to hide something.
- Identify the scope of the demand. Is the target of the investigation your company, or are you just a third party? Redding says that attorneys who specialize in the area get a feel for determining this through practice. But one way you might be able to tell is to check to see if one name is repeated in many of the requests, he says. That could be a good sign you are just a third party.
- Keep in contact with the CFPB. It’s important that your lawyers stay connected to the lawyers at the bureau. Making sure schedules work out and that the CFPB knows what is coming is always a good idea.
- Make sure you meet the deadlines. Redding say the CFPB requires “good cause” for extensions on document collection. While Benoit says he’s found the CFPB will work with lenders who need extra time to gather some documentation, it’s best to get as much turned in by the due date as possible.
Regulatory compliance isn’t going away; it seems like the CFPB is just getting started in its probe of the auto finance world. You can’t run or hide, but you can be ready. For more tips on compliance best practices, sign up for the Center for Auto Finance Excellence’s webinar on staffing a successful compliance department on March 26Like This Post