[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Rules and Regulations]
[Pages 15917-15919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05505]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Responsible Business Conduct: Self-Assessing, Self-Reporting,
Remediating, and Cooperating (CFPB BULLETIN 2020-01)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Bulletin.
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SUMMARY: In 2013, the Bureau of Consumer Financial Protection (Bureau)
issued a Bulletin that identified several activities that businesses
could engage in that could prevent and minimize harm to consumers,
referring to these activities as ``responsible conduct.'' The Bureau is
issuing this updated Bulletin to clarify its approach to responsible
conduct and to reiterate the importance of such conduct.
DATES: This Bulletin is applicable on March 20, 2020.
FOR FURTHER INFORMATION CONTACT: Colin Reardon, Division of
Supervision, Enforcement, and Fair Lending, at (202) 435-9668. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION: In executing its statutory responsibilities,
the Bureau places primary emphasis on preventing harm to consumers.
Preventing harm to consumers is among the most effective and efficient
ways of ensuring consumer access to a fair, transparent, and
competitive financial market. In 2013, the Bureau issued a Bulletin
that identified several activities that individuals or businesses,
collectively ``entities,'' could engage in that could prevent and
minimize harm to consumers, referring to these activities as
``responsible conduct.'' The Bureau is issuing this updated Bulletin to
clarify its approach to responsible conduct and to reiterate the
importance of such conduct.
In the first instance, the Bureau's focus is on building a culture
of compliance among entities, including covered persons and service
providers, in order to minimize the likelihood of a violation of
Federal consumer financial law, and thereby prevent harm to consumers.
When a violation of law does occur, swift and effective actions taken
by an entity to address the violation can minimize resulting harm to
consumers. Specifically, an entity may self-assess its compliance with
Federal consumer financial law, self-report to the Bureau when it
identifies likely violations, remediate the harm resulting from these
likely violations, and cooperate above and beyond what is required by
law with any Bureau review or investigation.
Such activities are in the public interest. Depending on its form
and substance, responsible conduct can improve the Bureau's ability to
promptly detect violations of Federal consumer financial law, increase
the effectiveness and efficiency of its supervisory and enforcement
work, enable the Bureau to focus its finite resources on their best use
for the mission, and help more consumers in more matters promptly
receive financial redress and additional meaningful remedies for any
harm they experienced.
Because responsible conduct is in the public interest, the Bureau
seeks to encourage it. Accordingly, if an entity meaningfully engages
in responsible conduct, the Bureau intends to favorably consider such
conduct, along with other relevant factors, in addressing violations of
Federal consumer financial law in supervisory and enforcement
matters.\1\ Depending on the nature and extent of an entity's actions,
the Bureau has a wide range of options available to properly account
for responsible conduct. For example, in light of an entity's
responsible conduct, the Bureau could exercise its discretion to close
an enforcement investigation with no action or decide not to include
Matters Requiring Attention in an exam report or supervisory letter.
Even if the Bureau does take action, those who engage in responsible
conduct may receive other types of credit for engaging in such
behavior. For entities within the Bureau's supervisory authority, the
Bureau's Division of Supervision, Enforcement, and Fair Lending makes
determinations of whether violations should be resolved through non-
public supervisory action or a possible public enforcement action
through its Action Review Committee (ARC) process. The ARC process
includes factors that are closely aligned with the elements of
responsible conduct. Thus, for entities under the Bureau's supervisory
authority, responsible conduct could result in resolving violations
non-publicly through the supervisory process. Responsible conduct also
could result in the Bureau's reducing the number of violations pursued
or reducing the sanctions or penalties sought by the Bureau in any
public enforcement action. The Bureau intends to consider the extent
and significance of an entity's responsible conduct, with more
extensive and important responsible conduct leading to more substantial
consideration.
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\1\ Other factors the Bureau considers in determining how to
resolve violations of Federal consumer financial law include,
without limitation, (1) the nature, extent, and severity of the
violations identified and any associated consumer harm; (2) an
entity's demonstrated effectiveness and willingness to address the
violations; and (3) the importance of deterrence, considering the
significance and pervasiveness of the potential consumer harm.
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This guidance, and its description of factors that may warrant
favorable consideration, is not adopting any rule or formula to be
applied in all matters. The importance of each factor in a given
matter, and the way in which the Bureau evaluates each factor, will
depend on the circumstances. The Bureau is not in any way limiting its
discretion and responsibility to evaluate each matter individually on
its own facts and circumstances. In short, the fact that an entity may
argue it has satisfied some or even all of the factors set forth in
this guidance will not necessarily foreclose the Bureau from bringing
any enforcement action or
[[Page 15918]]
seeking any remedy if it believes such a course is necessary and
appropriate.
Factors Used To Evaluate and Acknowledge Responsible Conduct
As noted previously, the Bureau principally considers four
categories of conduct when evaluating whether some form of credit is
warranted in an enforcement investigation or supervisory matter: Self-
assessing, self-reporting, remediating, and cooperating. However, if an
entity engages in another type of activity particular to its situation
that is both substantial and meaningful, the Bureau may take that
activity into consideration.
Listed below are some of the factors the Bureau intends to consider
in determining whether and how much to take into account responsible
conduct. This list is not exhaustive, and some of the factors
identified may relate to more than one category of responsible conduct.
Self-Assessing
This factor, which can also be described as self-monitoring or
self-auditing, reflects a proactive commitment by an entity to use
resources for the prevention and early detection of violations of
Federal consumer financial law. The Bureau recognizes that a robust
compliance management system appropriate for the size and complexity of
an entity's business will not prevent all violations, but it will
reduce the risk of violations, and it will often facilitate early
detection of likely violations, which can limit the size and scope of
consumer harm. Questions the Bureau intends to consider in determining
whether to provide favorable consideration for self-assessing activity
include:
1. What resources does the entity devote to compliance? How robust
and effective is its compliance management system? Is it appropriate
for the size and complexity of the entity's business?
2. Has the entity taken steps to improve its compliance management
system when deficiencies have been identified either by itself or
external regulators? Did the entity ignore obvious deficiencies in
compliance procedures? Does the entity have a culture of compliance?
3. Considering the nature of the violation, did the entity identify
the issue? What is the nature of the violation or likely violation and
how did it arise? Was the conduct pervasive or an isolated act? How
long did it last? Did senior personnel participate in, or turn a blind
eye toward, obvious indicia of misconduct?
4. How was the violation detected and who uncovered it? If
identified by the entity, how did the entity identify the issue (e.g.,
from customer complaints, audits or monitoring based on routine risk
assessments, or whistleblower activity)? Was the identification the
result of a robust and effective compliance management system including
adequate internal audit, monitoring, and complaint review processes?
Was identification prompted by an impending exam or an investigation by
a regulator?
5. What self-assessment mechanisms were in place to effectively
prevent, identify, or limit the conduct that occurred, elevate it
appropriately, and preserve relevant information? In what ways, if any,
were the entity's self-assessing mechanisms particularly noteworthy and
effective?
Self-Reporting
This factor substantially advances the Bureau's protection of
consumers and enhances its mission by reducing the resources it must
expend to identify violations and making those resources available for
other significant matters. Prompt self-reporting of likely violations
also represents concrete evidence of an entity's commitment to
responsibly address the conduct at issue. Conversely, efforts to
conceal a likely violation from the Bureau represent concrete evidence
of the entity's lack of commitment to responsibly address the conduct
at issue. For these reasons, the Bureau considers this factor in its
evaluation of an entity's overall conduct. Of note, however, an
entity's self-reporting of a potential issue does not require it to
concede that it has violated the law. Questions the Bureau intends to
examine in determining whether to provide favorable consideration for
self-reporting of likely violations of Federal consumer financial law
include:
1. Did the entity completely and effectively disclose the existence
of the conduct to the Bureau, to other regulators, and, if applicable,
to self-regulatory organizations? Did the entity report any additional
related misconduct likely to have occurred?
2. Did the entity report the conduct to the Bureau without
unreasonable delay? If it delayed, what justification, if any, existed
for the delay? How did the delay affect the preservation of relevant
information, the ability of the Bureau to conduct its review or
investigation, or the interests of affected consumers?
3. Did the entity proactively self-report, or wait until discovery
or disclosure was likely to happen anyway, for example due to impending
supervisory activity, public company reporting requirements, the
emergence of a whistleblower, consumer complaints or actions, or the
conduct of a Bureau investigation?
Remediating
When violations of Federal consumer financial law have occurred,
the Bureau's remedial priorities include obtaining full redress for
those injured by the violations, ensuring that the entity who violated
the law implements measures designed to prevent the violations from
recurring, and, when appropriate, effectuating changes in the entity's
future conduct for the protection and/or benefit of consumers.
Questions the Bureau intends to examine in determining whether to
provide favorable consideration for remediation activity regarding
likely violations of Federal consumer financial law include:
1. What steps did the entity take upon learning of the violation?
Did it immediately stop the violation? How long after the violation was
uncovered did it take to implement an effective response?
2. What steps did the entity take to discipline the individuals
responsible for the violation and to prevent the individuals from
repeating the same or similar conduct?
3. Did the entity conduct an analysis to determine the number of
affected consumers and the extent to which they were harmed? Were
consumers made whole through compensation and other appropriate relief,
as applicable? Did affected consumers receive appropriate information
related to the violations within a reasonable period of time?
4. What assurances are there that the violation (or a similar
violation) is unlikely to recur? Did the entity take measures, such as
a root-cause analysis, to ensure that the issues were addressed and
resolved in a manner likely to prevent and minimize future violations?
Similarly, have the entity's business practices, policies, and
procedures changed to remove harmful incentives and encourage proper
compliance?
Cooperating
Unlike self-assessing and remediating, which may occur with or
without Bureau involvement, cooperating relates to the quality of an
entity's interactions with the Bureau after the Bureau becomes aware of
a likely violation of Federal consumer financial law, either through an
entity's self-reporting or the Bureau's own efforts. Credit for
cooperating in this context depends on the extent to which an entity
takes steps above and beyond what the law requires
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in its interactions with the Bureau. Simply meeting those legal
obligations is not a factor that the Bureau intends to give any special
consideration in a supervisory review or enforcement investigation. Of
note, the Bureau does not consider an entity's good faith assertion of
privilege in an enforcement investigation to be a lack of cooperation;
an entity asserting privileges in good faith remains eligible for
potential favorable consideration for cooperating. Questions the Bureau
intends to examine in determining whether to provide favorable
consideration for cooperating in a Bureau matter include:
1. Did the entity cooperate promptly and completely with the Bureau
and other appropriate regulatory and law enforcement bodies? Was that
cooperation present throughout the course of the review and/or
investigation?
2. Did the entity take proper steps to develop the facts quickly
and completely and to fully share its findings with the Bureau? Did it
undertake a thorough review of the nature, extent, origins, and
consequences of the violation and related behavior? Who conducted the
review and did they have a vested interest or bias in the outcome? Were
scope limitations placed on the review? If so, why and what were they?
3. Did the entity promptly make available to the Bureau the results
of its review and provide sufficient documentation reflecting its
response to the situation? Did it provide evidence with sufficient
precision and completeness to facilitate, among other things,
appropriate actions against others who violated the law? Did the entity
produce a complete and thorough written report detailing the findings
of its review? Did it voluntarily disclose material information not
directly requested by the Bureau or that otherwise might not have been
uncovered? Did the entity provide all relevant, non-privileged
information and make assertions of privilege in good faith?
4. Did the entity direct its employees to cooperate with the Bureau
and make reasonable efforts to secure such cooperation? Did it make the
most appropriate person(s) available for interviews, consultation, and/
or sworn statements?
The Bureau intends for this guidance to encourage entities subject
to the Bureau's supervisory and enforcement authority to engage in more
``responsible conduct,'' as defined herein. Such an outcome, the Bureau
believes, would benefit both consumers and providers of consumer
financial products and services, is in the public interest, and
supports the Bureau's efforts to prevent consumer harm.
Regulatory Requirements
This Bulletin is a non-binding general statement of policy
articulating considerations relevant to the Bureau's exercise of its
supervisory and enforcement authority. It is therefore exempt from
notice and comment rulemaking requirements under the Administrative
Procedure Act pursuant to 5 U.S.C. 553(b). Because no notice of
proposed rulemaking is required, the Regulatory Flexibility Act does
not require an initial or final regulatory flexibility analysis. 5
U.S.C. 603(a), 604(a). The Bureau has determined that this Bulletin
does not impose any new or revise any existing recordkeeping,
reporting, or disclosure requirements on covered entities or members of
the public that would be collections of information requiring OMB
approval under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the
Bureau will submit a report containing this policy statement and other
required information to the United States Senate, the United States
House of Representatives, and the Comptroller General of the United
States prior to its applicability date. The Office of Information and
Regulatory Affairs has designated this policy statement as not a
``major rule'' as defined by 5 U.S.C. 804(2).
Dated: March 6, 2020.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2020-05505 Filed 3-19-20; 8:45 am]
BILLING CODE 4810-AM-P