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Civil Investigative Demands: CFPB

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CFPB Inquiries Defense Attorney

Many health care providers and other companies are surprised to learn that they may be subject to inquiry from the Consumer Financial Protection Board (CFPB). Established by Congress in 2010 to oversee the financial services industry in the wake of the 2008 credit crisis, the CFPB has since expanded its reach significantly. Having initiated dozens of enforcement actions and joined countless more initiated by other federal agencies, the CFPB has recovered billions of dollars for violations of the Dodd-Frank Act and other federal laws, and it is showing no signs of slowing down.

What is the Scope of the CFPB’s Authority?

Under 12 U.S.C. Section 5531(a), the CFPB has broad jurisdiction to investigate any matter involving “an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” A practice is considered “unfair” if:

  • “the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers, and
  • “such substantial injury is not outweighed by countervailing benefits to consumers or to competition.”

A practice is considered “abusive” if it:

  • “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or
  • “takes unreasonable advantage of—(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service, or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”

While this statutory language is far from clear, what is clear is that it gives the CFPB substantial authority over not just financial institutions, but over all businesses that engage in financial transactions with consumers—including extending credit for health care-related products and services.

What is a Civil Investigative Demand?

When the CFPB needs to obtain information in connection with an enforcement action, it can do so through the issuance of a civil investigative demand. A civil investigative demand is a form of administrative subpoena that can be far broader than a request for information or records issued through other means. For example, in a case decided earlier this year, a federal court in Michigan ruled that the CFPB could issue a civil investigation for records that were up to seven years old, even though the alleged illegal activity implicated a federal law with a three-year statute of limitations. There are limits – for example, the judge presiding over the Michigan case noted that the entities seeking to challenge the CFPB’s civil investigative demand failed to allege that the demand:

  • sought irrelevant information,
  • sought information already in the CFPB’s possession, or
  • abused the judicial process.

However, broadly speaking, the CFPB’s administrative subpoena power is substantial, and entities that receive civil investigative demands must often (though not always) focus their responses on compliance rather than litigation.

What to Do After You Receive a Civil Investigative Demand from the CFPB

Companies that receive civil investigative demands need to take action immediately. There are short deadlines that apply, and there are steps that need to be taken quickly in order to preserve information and avoid potential liability for noncompliance. After receiving a civil investigative demand, a company’s initial response should include the following.

1. Know the Deadlines that Apply

Once an entity receives a civil investigative demand from the CFPB, it only has 20 days to file a petition to modify or set aside the demand. While this may sound like plenty of time, 20 days goes by very quickly when you are assembling a full-scale response effort in the face of potential civil or criminal liability under federal law. While it may be possible to negotiate an extension under certain circumstances, CFPB regulations state that extensions are “disfavored,” and as a result companies need to work diligently to assess any grounds to challenge their demands in advance of the 20-day deadline.

Prior to this 20-day deadline, there is a 10-day deadline to “meet and confer” with CFPB personnel. The purpose of this meeting is “to discuss and attempt to resolve all issues regarding compliance with the civil investigative demand,” and “personnel with the knowledge necessary to resolve any issues relevant to compliance with the demand,” are required to attend.

2. Prepare for the Initial Meeting with CFPB Staff

Preparations for the initial meeting with CFPB staff should be thorough, and should generally start with identifying the individual (or individuals) who possess the information the company is required to disclose. These individuals should be instructed on their role during the meeting, and they should be provided with clear guidance on the steps they need to take (and mistakes they need to avoid) both prior to and during the meeting.

3. Institute a “Legal Hold”

Upon receiving a civil investigative demand, a company has a legal obligation to preserve any records that are “potentially relevant” to the CFPB’s inquiry. While this clearly includes all records (both hardcopy and electronic) that are directly responsive to the specifics of the demand, it will frequently include other related documents as well.

In order to properly preserve records in response to a civil investigative demand, companies must institute what is known as a “legal hold.” This involves a structured and comprehensive approach to preventing the deletion and destruction of records, including deletions that may otherwise occur in the ordinary course of business.

4. Determine What Responsive Information You Have

After determining that an adequate legal hold has been implemented and effectively communicated throughout the business, one of the next critical steps is to begin to determine what responsive records your company must disclose. This requires a clear understanding of the language of the civil investigative demand as well as thorough familiarity with the laws, rules, and regulations governing CFPB enforcement actions.

5. Know How to Communicate Effectively with the CFPB

When dealing with the CFPB in response to a civil investigative demand, companies must understand that there are limits on the authority of certain personnel, and that certain communication channels (and methods) are more effective than others. For example, while CFPB enforcement attorneys will attend the “meet and confer,” these authorities do not have the authority to grant modifications to civil investigative demands. As a result, formal requests for modification must be pursued through other channels. Additionally, due to the nature of the administrative subpoena process, cooperation tends to be a more-favorable approach than confrontation; though, once again, the individual factors involved in each individual investigation must be carefully considered.

Reasons to Consider Challenging a Civil Investigative Demand

While the grounds to challenge a civil investigative demand (via a petition to modify or set aside) are limited, there are still circumstances in which it may be in a company’s best interest to challenge a demand, or at least preserve its rights. For example:

  • Subpoena Request is Overly Burdensome – With civil investigative demands often requesting several years’ worth of consumer records, fully complying with a CFPB investigation can be an extremely burdensome process. While companies generally need to be prepared to go to great lengths in order to comply, if compliance truly represents an overly-burdensome obligation, it may be worth filing a petition. Challenges to the breadth of civil investigative demands have been successful in some cases, including one recent case decided in Washington D.C.
  • Avoid Waiver of Rights – If a company fails to challenge an objectionable civil investigative demand during the meet and confer process, it can lose (or “waive”) its right to challenge the demand in later proceedings. As a result, even when a company is initially prepared to comply with a civil investigative demand, it must still consider whether it is worthwhile to file a petition in order to preserve its rights for future consideration.
  • Preserving the Ability to Negotiate Modifications – While it is often possible to negotiate modifications to broad civil investigative demands, these negotiations will generally take longer than the 20-day period for filing a petition to challenge a demand. As a result, even when a negotiated modification appears likely, companies may still need to consider filing in order to maintain leverage and avoid being deemed in violation of their duties while negotiations remain pending.

It typically takes several months to receive a decision on a petition to modify or set aside a civil investigative demand from the CFPB. While a company’s petition is pending, it must maintain an appropriate course of action that preserves its rights without jeopardizing relations with the CFPB. For example, it may (or may not) be in a company’s best interest to voluntarily disclose certain information to the CFPB – even though the obligation to disclose is stayed by the filing of a petition. This, like all other matters involving civil investigative demands, is an issue that needs to be carefully considered with the help of experienced legal representation.

Speak with a Federal Lawyer at Oberheiden, P.C.

If your business or practice has received a civil investigative demand from the CFPB, we encourage you to contact us immediately to discuss your situation. For a free and confidential consultation, call (214) 469-9009 or inquire online now.

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