As the Consumer Financial Protection Bureau gets under way with its work examining different companies and individuals, and pursuing action depending on its findings, those that are subject to examination can prepare—to a degree.
In addition to staying clear of violations, the best course of action may be simply maintaining an insurance policy, and making sure that insurance is equipped to handle any fines or fees incurred as a result of violations the agency may find, write K&L Gates attorneys in an alert posted this week. Many fees can arise before an enforcement action is deemed; having to do with legal fees, appeals and process.
The CFPB has authority over companies that offer financial products and services as well as officers and directors over those companies, the attorneys write, making people and organizations subject to the agency’s enforcement.
Some companies may hold insurance policies such as Directors and Officers liability insurance or Errors and Omissions liability insurance, say the attorneys, but even with those policies, there are precautions companies can take.
First, they may review the terms their policies include and negotiate the coverage to ensure it protects in case of a CFPB enforcement action.
“When faced with a CFPB investigation, take prompt steps to provide appropriate notice to insurers in order to preserve their rights to coverage,” the alert advises. “Be prepared to contest attempts by insurers to deny or limit coverage for CFPB investigations.”
Because of the agency’s broad scope of coverage, insurance is increasingly important, the alert states.
“Given the nature of the process, companies often incur substantial costs in defending an investigation, even prior to the commencement of any enforcement proceeding or lawsuit,” the attorneys write. “Investigations can cause a significant strain on company resources, requiring staff time, assistance from outside counsel, and the use of vendors to process documents in accordance with the CFPB’s exacting document production specifications.”
Written by Elizabeth Ecker