InfoBytes Blog

OCC and DOJ Announce SCRA Enforcement Action Against a National Bank

On July 26, the OCC and the DOJ announced resolution of actions brought against a national bank for alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ filed a complaint and consent order in the U.S. District Court for the Eastern District of Virginia, simultaneously bringing and resolving allegations that over a roughly five year period the bank failed to provide sufficient protections to servicemembers (i) denying valid requests for interest rate reductions because the servicemembers’ military orders did not include specific end dates for the period of military service, (ii) foreclosing without a court order, (iii) repossessing motor vehicles without a court order, and (iv) obtaining default judgments without first filing accurate affidavits. Under the DOJ settlement, the bank must pay $12 million in damages to servicemembers. Concurrently, the OCC released consent orders resolving similar allegations. Under both the DOJ and OCC orders, the bank must take specific actions to enhance compliance with SCRA, including with regard to vendor management, training, and internal reporting. The OCC also is requiring that the bank report periodically to the OCC, and conduct a look-back review of its servicemember accounts. The DOJ notes that the bank already has adopted enhanced SCRA policies on its own initiative, including extending a four percent interest rate to qualifying servicemembers and giving an additional one-year grace period before de-enrolling servicemembers from the reduced interest rate program.

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CFPB Announces First Public Enforcement Action; Issues Related Compliance Bulletin

On July 18, the CFPB announced its first public enforcement action - a Consent Order entered into by a major credit card issuer to resolve allegations that the issuer’s vendors deceptively marketed ancillary products such as payment protection and credit monitoring. The OCC made a corresponding enforcement announcement and released a Cease and Desist Order and Civil Money Penalty to resolve related charges. Under the CFPB order, the issuer will refund approximately $140 million to roughly two million customers, and will pay a $25 million penalty. The OCC order requires restitution of approximately $150 million (of which $140 million overlaps with the CFPB order) and an additional $35 million civil money penalty. Under both agencies’ actions, the issuer is prohibited from selling and marketing certain ancillary products until it obtains approval to do so from the regulators, and the issuer must take specific actions to enhance compliance with consumer financial laws.

Concurrently, the CFPB issued Bulletin 2012-06, which states that the CFPB expects supervised institutions and their vendors to offer ancillary products in compliance with federal consumer financial laws. The guidance cites “CFPB supervisory experience [that] indicates that some credit card issuers have employed deceptive promotional practices when marketing” such products, including (i) failing to adequately disclose terms and conditions, (ii) enrolling customers without their consent, and (iii) billing for services not performed. The Bulletin reviews applicable federal law and outlines the compliance program components that the CFPB expects supervised institutions to maintain.

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How to Respond to a Subpoena: 10 Things You Should Do Immediately

Responding to a subpoena can be a daunting task and early missteps can have severe repercussions. Here is a short list of critical steps you can take in the early stages of the subpoena response to protect your company.

1. Preserve. Preserve. Preserve. Immediately upon receipt of a subpoena, you should inform all necessary employees of the need to retain documents, including electronic documents, with a document hold memo that replaces standard document retention policies for potentially responsive materials. Destroying or removing documents in the context of a government investigation—whether done affirmatively or by failing to suspend automated document retention protocols—may be viewed as obstruction of justice. At the very least, it will create the appearance of an unwillingness to cooperate with the investigation.
2. Establish a dialogue with the appropriate enforcement authorities. Communication is critical to understanding the scope of the investigation and establishing a working relationship with the government. You should initiate contact quickly to discuss the scope of the subpoena and develop a feasible production schedule.
3. Inform the company’s key executives. Receiving a subpoena is no small matter and, depending on the nature of the subpoena and potential enforcement action, the key executives and even the board of directors need to be made aware immediately. This is especially important if your company is publicly traded as there may be disclosure obligations.
4. Determine whether the subpoena was properly served. Not all subpoenas are properly served and improper service may provide valid grounds to get the subpoena quashed. You should quickly evaluate the basis upon which the subpoena was issued and served to determine whether to object or take other action.
5. Advise employees of their rights and responsibilities, including access to counsel. Either at the time the subpoena is initially served or in follow up activities, agents may attempt to interview employees. It is important to remind employees immediately of their responsibility to be truthful when speaking with agents of the government, but that they may choose to have an attorney present if they do decide to be interviewed. You should also reiterate your company’s policy on cooperating with investigations and request that employees inform the legal department of any discussions or contacts with the government.
6. Evaluate your insurance policy’s notice requirements. Under many insurance policies, a subpoena is a triggering event. Putting your policy holder on notice early on increases your chances of having insurance pay for some or all of the investigation and/or litigation costs.
7. Identify key company individuals. Identifying which individuals within the company are key to the subpoena response will help determine and potentially limit the overall scope of documents you are required to produce. Seeking to narrow or tailor the scope of a subpoena is an important early step in the response process.
8. Narrow file search parameters. Once the key individuals are identified, you can then identify electronic and paper files that must be collected and searched. Fulfilling the government’s request but not producing irrelevant or privileged documents requires a precisely-tailored search protocol.
9. Protect and defend privileged materials. Protecting and defending privileged materials is a cornerstone responsibility of corporate counsel. Documents subject to privileges or protections should be isolated, logged, and preserved. While there are remedies available for inadvertently-produced privileged materials, no one wants to be in the position of having to seek return of a privileged document.
10. Construct a formal, defensible review process. You should construct a formal review process that can be defended in court, with a focus on e-discovery issues. It is advisable to have your response protocol evaluated by outside legal counsel early in the process to ensure that all potential sources of electronic data have been identified and searched.

This post adapted from the article, “10 Steps Your Company Should Take When Responding to a Subpoena” by Ben Klubes, James Parkinson, and John Kromer, originally published in Bloomberg Law Reports: Banking & Finance, Vol. 4, No. 8, August 1, 2011.

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