Despite the pendency in the Tenth Circuit of a constitutional challenge to a CFPB administrative order that requires a lender and its CEO to pay restitution and civil money penalties, a Kansas federal district court recently refused to stay enforcement of the order.
In CFPB v. Integrity Advance, LLC and James R. Carnes, the CFPB had initiated an administrative enforcement proceeding in 2015 against Integrity, a lender making short term loans, and Mr. Carnes alleging violations of the TILA, EFTA, and CFPA. In July 2016, a hearing was held before a Coast Guard administrative law judge (ALJ) who issued a recommended decision in favor of the CFPB. After the U.S. Supreme Court’s ruling in Lucia v. SEC that the appointment of an SEC ALJ violated the Appointments Clause of the U.S. Constitution, former CFPB Director Kraninger determined that the Coast Guard ALJ used by the CFPB had not been constitutionally appointed and remanded the matter to the CFPB’s ALJ for a new hearing. (By the time Lucia was decided, the CFPB had its own ALJ who was constitutionally appointed.)
The CFPB ALJ also issued a recommended decision in favor of the CFPB in which she recommended that the lender pay $132.5 million in restitution, that the CEO be held jointly and severally liable for $38.4 million of that amount, and that the lender and CEO pay, respectively, civil money penalties of $7.5 million and $5 million. The lender and CEO appealed that decision to former Director Kraninger who issued a decision in January 2021 (after Seila Law had been decided by the Supreme Court) reducing the total restitution amount to $34.5 million. As part of that decision, former Director Kraninger ratified the CFPB’s Notice of Charges that initiated the enforcement action.
The lender and CEO thereafter appealed former Director Kraninger’s decision to the Tenth Circuit. In the appeal, they argue that former Director Kraninger’s ratification was not effective because the applicable statute of limitations had expired before the ratification. They also argue that the Appointments Clause violation was not cured by the new hearing before a properly appointed ALJ because she did not in fact conduct a new hearing and instead relied on the existing record and routinely denied their requests to present evidence or make new arguments that were not raised in the first hearing.
Through its petition, the CFPB sought to enforce its final order issued pursuant to former Director Kraninger’s January 2021 decision. The final order directed the lender and CEO to pay the required amounts within 30 days but provided that if they appealed the decision, they could instead pay the amounts into an escrow account within 30 days. Pursuant to the CFPA, the appeal of a CFPB order to a court of appeals does not operate as a stay of the order unless a stay is specifically authorized by the appellate court. The lender and CEO did not seek a stay of the CFPB’s order from the Tenth Circuit.
In opposing the CFPB’s petition, the CEO argued that the CFPB’s final order was not valid and enforceable. While conceding that only the Tenth Circuit could address the merits of these arguments, he nevertheless asked the district court to exercise its discretion to delay its resolution of the CFPB’s petition pending the Tenth Circuit’s ruling on the appeal. The district court concluded that because the CFPA did not permit it to stay enforcement of the CFPB’s order, it could not grant the CEO’s request which it considered to be “tantamount to a request for…a stay or suspension.” Accordingly, the district court granted the CFPB’s petition and ordered the lender and CEO to comply with the final order by paying the restitution and civil money penalties.