By Peter Schroeder - 11/07/11 06:11 PM EST
The Consumer Financial Protection Bureau (CFPB) announced Monday it will be giving financial institutions a heads-up before pursuing legal action against them.
The Dodd-Frank financial reform law that created the agency also gave it broad powers to clamp down on unfair or abusive financial products. But before using those powers, the CFPB will be giving financial institutions a chance to tell their side of the story.
The agency will be sending out Early Warning Notices to individuals or firms that are being targeted for enforcement action, informing them that they have violated consumer financial protection laws. Recipients of the notice will then have two weeks to make a counter-argument to that claim.
“The Early Warning Notice announced today strikes a balance between the goal of fairness to those being investigated and our mission to protect consumers,” said Raj Date, the Treasury Secretary's special adviser for the CFPB. “This process will help us fulfill our commitment to transparency in enforcing the law.”
While the advance notice is not required by law, the CFPB said it will promote "even-handed enforcement" of consumer protection laws. However, providing advance notice will be discretionary, and might not be forthcoming if "prompt action" is required.
The process will be similar to so-called Wells Notices, which are letters filed by the Securities and Exchange Commission in advance of enforcement action. The Commodity Futures Trading Commission, another Wall Street regulator, follows a similar protocol.