In Integrity Advance LLC v. Consumer Financial Protection Bureau, a panel of the U.S. Court of Appeals for the Tenth Circuit affirmed a CFPB Order requiring Integrity, a lender making short-term loans, and its CEO, James Carnes, to pay $38.4 million in legal and equitable restitution and imposing civil penalties against Integrity ($7.5 million) and Carnes ($5 million), for alleged violations of the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. 

The initial Notice of Charges was filed against Integrity and Carnes (collectively, the “Petitioners”) in 2015, and an Administrative Law Judge (“ALJ”) from the U.S. Coast Guard, importantly not a CFPB ALJ, heard the case and recommended to the CFPB Director that Petitioners be ordered to pay $38 million in restitution, jointly and severally, plus civil penalties against Integrity ($8.1 million) and Carnes ($5.4 million).

In 2016, Petitioners appealed the initial ALJ decision to the Director, but the appeal was held in abeyance pending the Supreme Court’s decision in Lucia v. SEC, 138 S. Ct. 2044 (2018). This case would ultimately determine the constitutional status of Securities & Exchange Commission administrative law judges. When Lucia ruled ALJs were constitutional officers and, thus, required to be appointed under the Appointments Clause, the Director remanded the case in 2019 to be reviewed by the CFPB’s ALJ—by the time Lucia was decided, the CFPB had its own constitutionally appointed ALJ.

A second review was conducted by a new ALJ properly appointed under the Appointments Clause. Although Petitioners requested an entirely new hearing, the second ALJ stated she would review the record de novo, and weigh the parties’ arguments with respect to whether the record needed to be supplemented or whether portions of the record should be struck. The ALJ declined to conduct additional pre-hearing discovery or to conduct a new evidentiary hearing, and both parties moved for summary disposition on the existing record.

The ALJ subsequently recommended Petitioners be held liable on all counts, and recommended the Director hold Integrity liable for $132.5 million in equitable restitution, with Carnes jointly and severally liable for $38.4 million. The ALJ also recommended the imposition of civil penalties against Integrity ($7.5 million) and Carnes ($5 million).

On appeal in 2021, the Director (now former Director Kraninger) reduced the award against Integrity to $38.4 million but agreed the entire reduced restitution amount was joint and several as between Petitioners, and also affirmed the full award of civil penalties against Integrity and Carnes. While the ALJ characterized the restitution amount as equitable, the Director concluded restitution was warranted under “equity or law”. Because the CFPB’s Notice of Charges was filed in 2015 before the U.S. Supreme Court ruled in Seila Law that the CFPB was unconstitutionally structured, the Director also ratified the Notice of Charges to cure the constitutional defect.  

Petitioners raised several arguments before the Tenth Circuit, but two are particularly noteworthy. The first is the Petitioners’ argument that the Order should be set aside because the CFPB was unconstitutionally structured when the charges were filed. Even though the ratification occurred after the 3-year limitations period for filing the Notice of Charges had expired, the Court declined to set aside the enforcement action, essentially endorsing the ratification process used by the CFPB. The Court noted that a party could assert a claim for “compensable harm” caused by the CFPB’s unconstitutional structure. But the Court concluded Petitioners had not directed the Court to any such compensable harm. Also noteworthy was Petitioners’ argument that Lucia required a new hearing before a constitutionally appointed ALJ as the remedy for an Appointments Clause violation. Again, the Court approved the CFPB’s actions in this case, and held that the second ALJ’s de novo review satisfied the requirement of a “new hearing”.   

In a separate concurrence, Judge Phillips raised concerns about “legal restitution” under 12 U.S.C. § 5565(a). While noting the issue was not properly preserved in this case, Judge Phillips explained that “legal restitution” was questionable for three reasons: (1) restitution is generally an equitable remedy; (2) a claim to “legal restitution” could render superfluous “payment of damage or other monetary relief” separately listed under the statute; and (3) allowing the CFPB to obtain “legal restitution” in an administrative proceeding raises Seventh Amendment concerns because of guaranteed jury trial rights to parties sued for legal remedies.