“A Bridge Too Far:” CFPB’s Authority Grab Rejected by Federal Judge

By Soyong Cho and Ted Kornobis

Judge cautions new agency against “plow[ing] head long” beyond its jurisdiction

On April 21, 2016, the Consumer Financial Protection Bureau’s investigatory powers and civil investigative demand (“CID”) authority were soundly checked by federal district court judge Richard J. Leon. The Court denied the CFPB’s petition to enforce a CID issued to the Accrediting Council for Independent Colleges and Schools (“ACICS”) seeking information regarding accreditation of for-profit colleges, because the subject of the CID fell squarely outside of the CFPB’s enforcement authority. [1] Judge Leon’s ruling demonstrates that the right to judicial review can provide a backstop to an overly-aggressive and broad investigation.

ACICS was served with the CID in August 2015 and challenged the CID through the CFPB’s administrative process by filing a petition to set aside or modify the CID in September. [2] In a decision published on its website, the CFPB denied ACICS’s petition on October 8, 2015. [3] However, ACICS declined to comply with the CID, and the CFPB ultimately filed its petition in the U.S. District Court for the District of Columbia to enforce the CID a few weeks later.

In denying the CFPB’s petition, the Court noted that judicial review of a CID is “strictly limited” and that a court will enforce a CID unless the agency does not have the authority to make the inquiry, the information sought is not reasonably relevant, the demand is too indefinite, or the demand is unduly burdensome. Nevertheless, the Court denied the CFPB’s petition on the grounds that the CFPB does not have statutory authority to investigate the matters at issue. Specifically, the CID’s stated purpose was “to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges.” Op. at 5 (emphasis in opinion). However, it was undisputed that none of the consumer financial laws under the CFPB’s jurisdiction “address, regulate, or even tangentially implicate the accrediting process of for-profit colleges.” Op. at 6. This “absence of a clear nexus between the consumer financial laws [the CFPB] is tasked with enforcing and its purported investigation into accreditation of for-profit schools” was thus fatal to the CFPB’s petition.

The CFPB attempted to recast its investigatory purpose to be more in line with its authority, i.e. as investigating for-profit schools’ lending and financial-advisory services. However, the Court roundly (and colorfully) rejected those forays. First, the Court denied “this post-hoc justification” as “a bridge too far!” Op. at 6. Second, the Court noted that ACICS does not play a role in student loan decisions of the for-profit schools, and rejected the CFPB’s argument that it should be permitted to investigate for itself whether ACICS has a role in loan decisions rather than having to accept that statement at face value. The Court responded to the CFPB’s argument with a single-word sentence: “Please.” Op. at 7. Third, the Court noted that the CID’s requests themselves “belie any notion that [the CFPB’s] inquiry is limited in this way,” noting that the CID asks for information as to “all schools,” “all individuals involved in the accreditation,” and the “overall approach to accrediting seven enumerated schools.” Op. at 7.

In concluding the opinion, Judge Leon noted that “it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority,” but cautioned that “they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.” Op. at 8.

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Judge Leon’s opinion should give recipients of CIDs some comfort that a check against agency power exists. The CFPB has been granted extraordinary and broad investigatory and enforcement authority, and yet, the CFPB has demonstrated a willingness to push even those wide boundaries. The ACICS opinion is a compelling reminder to the CFPB and CID recipients that there are limits that can be enforced.

[1] Memorandum Opinion, CFPB v. Accrediting Council for Indep. Colls. & Schs., No. 15-1838 (Apr. 21, 2016).

[2] The recipient of a CID must engage in a “meet and confer” with CFPB staff regarding the scope and manner of responding to the CID within a very short period of time—the earlier of 10 calendar days after receipt of the CID or prior to the deadline for filing a petition with the CFPB to challenge the CID. 12 C.F.R. § 1080.6(c). The petition to challenge the CID is due the sooner of 20 calendar days after service of the CID or prior to the return date for complying with the CID. 12 C.F.R. § 1080.6(e). A meet and confer is required for a petition to the challenge the CID to be considered. 12 C.F.R. § 1080.6(c)(3).

[3] In a separate case, a D.C. District Court judge issued an opinion late last year regarding a CID recipient’s potential ability to challenge a CID without being “outed” as under investigation. See D.C. District Court Decision Supports Principle of Allowing Companies to Challenge CFPB Information Requests without Fear of Public Disclosure of Investigation (Nov. 5, 2016). The CFPB has since sought reconsideration of that decision.

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