COOPERATE: Richard Cordray, director of the Consumer Financial Protection Bureau, in July publicly credited GE Capital Retail Bank, now known as Synchrony Bank, for self-reporting violations.
COOPERATE: Richard Cordray, director of the Consumer Financial Protection Bureau, in July publicly credited GE Capital Retail Bank, now known as Synchrony Bank, for self-reporting violations. (Diego M. Radzinschi)

Forget to be or not to be. For lawyers defending companies under scrutiny by federal agencies, the real question is whether to self-report wrongdoing.

It’s always a tricky decision, but the calculation is particularly difficult for businesses that fall under the umbrella of the new Consumer Financial Protection Bureau.

In the 15 months since the agency unveiled its program for rewarding cooperation and self-reporting, the CFPB has publicly credited four companies for offering assistance, plus a fifth that got a nod before the bulletin was issued. However, lawyers say considerable uncertainty about the program remains.

“There’s still not a lot of consistency in how the bureau deals with companies coming forward and providing information, and whether it really achieves benefits or not in terms of the ultimate result,” said Buckley­Sandler name partner Andrew Sandler, whose firm has advised dozens of companies facing CFPB investigations. “They need to establish a track record.”

Hunter Wiggins, acting principal deputy enforcement director at the CFPB, said the agency has high expectations in order for a company to receive “meaningful benefits” from cooperation. “We are looking for visible and tangible actions that go ‘above and beyond.’ Pointing to a corporate compliance or ethics program that sits on a shelf, no matter how well-written, is not going to warrant favorable consideration,” Wiggins said in response to questions from The National Law Journal.

In July 2013, the CFPB issued a five-page bulletin on “responsible business conduct,” outlining how self-policing, self-reporting, remediation and cooperation could result in lighter penalties or even no enforcement action. But the agency made no promises it would go easy on anyone, especially if the conduct was egregious.

“The 2013 bulletin was new for the bureau, but other law enforcement agencies have had similar policies for a long time,” Wiggins said. “We issued the bulletin to give companies visibility into the CFPB’s enforcement priorities and philosophy. … However, our primary consideration in resolving any problem is what is in the best interests of consumers, and we are committed to vigorous and consistent enforcement of the law.”

For lawyers, the threshold question is “whether to let sleeping dogs lie,” said Ballard Spahr partner Alan Kaplinsky, who heads the firm’s consumer financial services group. “What’s the likelihood of the CFPB identifying this problem and making a big deal out of it?”

If the answer is “not likely,” or the ­conduct, while questionable, might not necessarily be illegal, Kaplinsky said, “Very often, sleeping dogs remain asleep.”

One company that took the plunge and self-reported was East Hartford, Conn.-based 1st Alliance Lending LLC. The mortgage lender discovered it likely violated the Real Estate Settlement Procedures Act, or RESPA, by wrongly splitting fees with a hedge fund that previously financed its loans.

General counsel David Ward said in an email that 1st Alliance “views our decision to self-report as sound, from a business perspective and as an ethical matter. We have no regrets, and feel that self-reporting was the right thing to do.”

The CFPB in February ordered 1st Alliance to pay an $83,000 civil penalty, stating in the second sentence of a news release that the company self-reported, fully cooperated and “provided information related to the conduct of other actors that has facilitated other enforcement investigations.”

But did 1st Alliance get a break on the fine? Based on CFPB settlements for other RESPA violations, it’s hard to tell. In January, Fidelity Mortgage Corp. and its former owner were ordered to pay $27,000 in disgorgement and a $54,000 penalty for funneling illegal kickbacks to a bank in exchange for real estate referrals. In June, a New Jersey company, Stonebridge Title Services Inc., paid just $30,000 to settle charges of paying ­kickbacks.

On the other hand, RealtySouth in May was ordered to pay $500,000 for mortgage disclosure violations, and in September, Lighthouse Title was hit with a $200,000 penalty for illegal referral agreements.

“The CFPB can always say that it offered a better deal based on responsible conduct, but I can’t point to a settlement that was clearly the result of anything more than simple negotiation,” said Hunton & Williams partner Ronald Rubin, a former CFPB lawyer.

“The [U.S. Securities and Exchange Commission] has a long history of ­settlements, so everyone knows the standard penalty for things like insider trading,” Rubin said. “The CFPB hasn’t been around long enough to establish the ‘retail price’ for most violations, so it’s hard to tell if they’re really offering a discount.”


To date, the biggest payout where the CFPB publicly credited a company for assistance came in July 2014, when GE Capital Retail Bank, now known as Synchrony Bank, paid $225 million to credit card customers harmed by allegedly deceptive marketing or discrimination.

Based on dollar amount, the payment ranks as one of the CFPB’s biggest, but virtually all of it was consumer redress, not civil penalties. Notably, the agency and the U.S. Department of Justice went after the company for violating fair lending laws by failing to offer debt relief offers to qualified Hispanic customers. The customers got $169 million in remediation, but the company was spared further fines for the conduct.

“No penalties were imposed for this violation based on the fact that GE Capital self-reported the violation and initiated remediation for the harm done to affected consumers,” CFPB Director Richard Cordray said at the time.

Covington & Burling partner D. Jean Veta represented GE Capital. She declined to comment on the case, but said that, based on her experience representing clients in a wide range of government investigations, some key questions for counsel tend to reoccur: “How clear was the violation, how many consumers were affected by it, what was the dollar amount involved and what were others in the industry doing?” Veta said. “If you self-disclose, you need to be prepared to lay everything on the table.”