The first enforcement action filed by the CFPB under the Biden Administration was a lawsuit filed in a Virginia federal district court jointly with the Attorneys General of Virginia, Massachusetts, and New York against Libre by Nexus, Inc. (Libre).  (Also named as defendants are  Libre’s parent company and three individual owners of the parent company.)  The lawsuit involves Libre’s activities directed at immigrants seeking to obtain bonds in order to be released from federal detention centers.  Last week, the district court denied the defendants’ motion to dismiss for lack of subject matter jurisdiction.

The complaint alleges:

  • Libre acted as an intermediary between the immigrants and the sureties and bond agents.  In exchange for the immigrants entering into agreements with Libre requiring certain payments, Libre agreed to indemnify the sureties and their bond agents for any losses in connection with the bonds.
  • Libre violated the CFPA by engaging in deceptive and abusive acts and practices in connection with the agreements.
  • Libre is a “covered person” under the CFPA because its transactions with consumers are “consumer financial products or services.”
  • The transactions are “consumer financial products or services” because Libre leads consumers to “reasonably believe that Libre offers or provides a credit transaction in which consumers incur a debt and defer the right to repay.”  More specifically, consumers are led to believe “that Libre has paid cash bonds, that consumers owe a debt to Libre in the amount of the cash bonds, and that monthly payments pay down that debt.”

The complaint includes a claim that the other defendants also violated the CFPA by providing substantial assistance to Libre’s deceptive and abusive acts and practices.  It also includes claims that the defendants violated the Virginia Consumer Protection Act (VCPA) as well as Massachusetts and New York consumer protection laws.

In their motion to dismiss, the defendants argued that the court lacks subject matter jurisdiction to hear the case because Libre is exempt from CFPB regulation as a person regulated by a state insurance agency and as a merchant of non-financial services, and is not a “covered person” under the CFPA because it does not provide consumer financial products.   The defendants also argued that Libre is exempt from the VCPA because it has been regulated by the Virginia Bureau of Insurance.

In response to the motion, the CFPB and state plaintiffs argued that (1) the motion should properly be construed as one to dismiss for failure to state a claim under Rule 12(b)(6) rather than one to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), and (2) the question of whether a defendant is covered by the CFPA is distinct from the question of whether the court has jurisdiction to hear the case.  The Virginia AG argued that the defendant corporations were covered by the VCPA.

Taking the defendants’ motion at face value as a challenge to the court’s subject matter jurisdiction, the court concluded that it did have subject matter jurisdiction because the CFPB had brought a claim under a federal statute, the CFPA, which gave rise to federal question jurisdiction.  According to the court, whether the CFPB had adequately pled all elements of its CFPA claim, such as whether the defendants are “covered persons” under the CFPA, is not a jurisdictional question, and instead relates only to the merits of the claim.  The court stated that “limitations on the CFPB’s regulatory authority do not equate to limits on this court’s jurisdiction.” The court also concluded that it had supplemental jurisdiction over the VCPA claim and other state law claims.

Having lost the opportunity for the court to decide whether Libre is a “covered person “on their motion to dismiss, it would appear that the defendants’ next chance to argue that the CFPB’s case cannot proceed because Libre is not a “covered person” will be in a motion for judgment on the pleadings after the defendants answer the complaint.