Work with Your State Attorney General to Avoid Enforcement Actions

The Dodd-Frank Act preserves and expands the law enforcement role of attorneys general by authorizing them to enforce federal consumer financial provisions and more stringent state laws. Moreover, because the Dodd-Frank Act specifically provides that its provisions serve as the "floor" for protections, as opposed to a "ceiling," states are permitted to create and enforce laws that provide more protection to consumers than federal law, so long as the state laws are not inconsistent with federal ones.

Financial institutions have expressed concern that concurrent jurisdiction has the potential to create confusion as a result of regulators exercising authority in an inconsistent manner and employing inconsistent interpretations of federal law. However, despite the expanded law enforcement role extended to attorneys general, it is unlikely state attorneys general will overshadow the Consumer Financial Protection Bureau as the lead enforcer of federal consumer protection laws. For one, attorneys general have capacity limitations that the CFPB does not. Unlike the CFPB's large budget, offices of the attorney general are confronted with limited financial and staff resources due to budget cuts, as well as myriad technological constraints.

Consequently, even though the CFPB is likely to take the forefront on instituting consumer protection enforcement actions, financial institutions should not overlook the many resources provided by state attorneys general. Most particularly, attorneys general are uniquely positioned to provide valuable information to financial institutions seeking assurances regarding compliance with federal financial and state consumer protection regulations.

Financial institutions should utilize the following practical approaches when working with their attorney general's office to gain valuable insight in the consumer protection arena: 

Communicate. Financial institutions should not be afraid to communicate with their attorney general's office to ensure that the company's practices and services are in compliance with applicable consumer protection laws and regulations. To further this mission, industry participants should stay abreast of recent developments in federal financial law and state consumer protection laws that apply to the company's services and products. A company with a current and interactive training and compliance program provides an additional layer of protection.

Implement reasonable document retention policies. As part of common law, parties have a duty to preserve evidence when it is reasonably anticipated that such evidence will be the subject of litigation. The Federal Rules of Civil Procedure allow for the imposition of severe sanctions on parties who do not preserve evidence as required. Although the Federal Rules of Civil Procedure do not apply to enforcement actions instituted by the CFPB or attorneys general, it is recommended that businesses have in place reasonable document retention policies that apply to civil litigation matters. Perhaps more importantly, don't just have a document retention policy—actually implement it as it is written.  Should one's business become a target of an investigation, adherence to a sound document retention policy will minimize inferences or concerns that a target has engaged in unlawful document destruction.

Call for an approval process. Financial institutions should urge state attorneys general to establish reasonable processes that allow them to gain approval of certain business practices. This will benefit businesses because they will have certainty that these products and services will not later be the target of enforcement actions.

Cooperate. Finally, there are several ways a financial institution can react, should its business practices become the target of an investigation by the CFPB or attorney general's office. At one end of the spectrum, the company can strenuously challenge the investigation. At the other end, the business can be proactive and work with the agency to address its requests and concerns in order to allow regulators to quickly determine if a violation has occurred. Strenuous resistance to demands will likely only raise the company's risk profile and prolong the investigation. For instance, a business in receipt of a civil investigative demand can often narrow the scope of the inquiry by immediately producing available substantive data that demonstrates areas of concern are compliant with federal and state laws.

Rarely will a single tactic prevent a financial institution from becoming the target a CFPB enforcement action.  However, utilizing these practical strategies with your state attorneys general may significantly reduce the risk of such an action, while simultaneously improving your company's standing with consumer protection regulators at both the state and federal levels.

Melinda Vervais is a senior commercial litigation associate, who specializes in providing regulatory services to financial institutions public utilities. Valecia McDowell is a litigation member with extensive experience in financial services disputes and government investigations. They are both with the law firm Moore & Van Allen PLLC, based in Charlotte, N.C.