The Office of Inspector General for the Fed and CFPB recently issued an audit report entitled “The CFPB Can Strengthen Contract Award Controls and Administrative Processes.”  The objective of the OIG’s audit was to assess the CFPB’s compliance with applicable laws, regulations and CFPB policies and procedures related to contract solicitation, selection and award processes, as well as the effectiveness of the CFPB’s associated internal controls.

While finding the CFPB to be generally compliant, the OIG found occasions on which reviews and approvals were overlooked or not documented as required by regulation or CFPB policy.  Among its other findings was that the CFPB could improve the documentation used to support price reasonableness determinations for sole-source contracts (i.e. contracts where there is other than a full and open competition).

The OIG’s work plan updated as of April 1, 2017 includes the following initiated projects in which the OIG will evaluate:

  • the CFPB Enforcement Office’s processes for protecting confidential information obtained through the use of the CFPB’s enforcement powers, such as information received in response to a CID (completion expected second quarter 2017)
  • the CFPB’s compliance with the requirements for issuing CIDs including those in the Dodd-Frank Act (completion expected third quarter 2017)  (Last week, the D.C. Circuit affirmed the district court’s denial of the CFPB’s petition to enforce a CID because the CFPB had not complied with the Dodd-Frank requirements.)
  • the effectiveness of the CFPB’s management of examiner commissioning and training (completion expected third quarter 2017)

Planned projects described in the work plan include (1) an evaluation of the effectiveness of the Division of Supervision, Enforcement, and Fair Lending in monitoring and ensuring that supervised entities take timely action to correct deficiencies identified in examinations, (2) an evaluation of the risk assessment framework used by the CFPB to prioritize examinations, and (3) a review of the extent to which the CFPB has assessed the risks associated with the collection, maintenance, storage, and disposal of privacy data and personally identifiable information and applied appropriate information security controls and protection over the data to mitigate those risks.

 

 

The D. C. Circuit has affirmed the D.C. federal district court’s April 2016 denial of the CFPB’s petition to enforce a CID issued to the Accrediting Council for Independent Colleges and Schools (ACICS) in August 2015.

After denying ACICS’s petition to modify or set aside the CID in October 2015, the CFPB filed a petition in D.C. federal district court to enforce the CID.  The CFPA allows the CFPB to issue a CID to “any person” that the CFPB believes may be possession of “any documentary material or tangible things, or may have any information, relevant to a violation” of laws enforced by the CFPB.  The CID’s Notification of Purpose indicated that the purpose of the CFPB’s investigation 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, in violation of sections 1031 and 1036 of the [CFPA prohibiting unfair, deceptive, or abusive acts or practices], or any other Federal consumer financial protection law.”  The CFPB argued that because it has authority to investigate for-profit schools in relation to their lending and financial advisory services, it had authority to investigate whether any entity has engaged in any unlawful acts relating to accrediting such schools.  The district court denied the CFPB’s petition, holding that the CFPB lacked statutory authority to investigate the accreditation process.

In affirming the denial of the CFPB’s petition to enforce the CID, the D.C. Circuit declined to reach the broad question of whether the CFPB had statutory authority “to investigate the area of accreditation at all” and instead stated that it would “confine our analysis to the invalidity of this particular CID.”  More specifically, the D.C. Circuit considered only whether the CID satisfied the CFPB requirement that “[e]ach [CID] shall state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.”

The D.C. Circuit concluded that “as written, the Notification of Purpose [in the ACICS CID] fails to state adequately the unlawful conduct under investigation or the applicable law.”  In reaching that conclusion, the D.C. Circuit relied on case law holding that to determine whether to enforce a CID, a court should consider only whether the inquiry is within the agency’s statutory authority, whether the request is not too indefinite, and whether the information sought is reasonably relevant.

The CFPB’s Notification of Purpose defined the relevant conduct constituting the violation under investigation as “unlawful acts and practices in connection with accrediting for-profit colleges.”  According to the D.C. Circuit, because the Notification of Purpose gave “no description whatsoever” of the “unlawful acts and practices” the CFPB sought to investigate, the court “need not and probably cannot accurately determine whether the inquiry is within the authority of the agency and whether the information sought is reasonably relevant.”  The D.C. Circuit noted that the CFPB had argued that, even if it did not have statutory authority over the accreditation process, it had an interest in the possible connection between the lending practices of ACICS-accredited schools and the accreditation process.  However, the court observed that “[e]ven if the CFPB is correct, that interest does not appear on the face of the Notification of Purpose,” and the agency had failed to adequately inform ACICS of the link between the relevant conduct and the alleged violation.

The CID had identified “sections 1031 and 1036 of the [CFPA prohibiting unfair, deceptive, or abusive acts or practices], or any other Federal consumer financial protection law” as the laws applicable to the alleged violation under investigation  The D.C. Circuit determined that the this language was “similarly inadequate” because, coupled with the CID’s failure to adequately state the unlawful conduct under investigation, the statutory references “tell ACICS nothing about the statutory basis for the Bureau’s investigation.”  The court noted that although the CFPA provides detailed definitions of “Federal consumer financial law” and “consumer financial product or service,” the CID “contains no mention of these definitions or how they relate to its investigation.”  It also commented that the inclusion of the “uninformative catch-all phrase ‘any other Federal consumer financial protection law’ does nothing to cure the CID’s defect.”  According to the court, “were we to hold that the unspecific language of this CID is sufficient to comply with the statute, we would effectively write out of the statute all of the notice requirements that Congress put in.”

Because the D.C. Circuit did not reach the broader question of the CFPB’s authority to investigate the accreditation process and “express[ed] no opinion on whether a revised CID that complies with [the CFPA CID requirements] should be enforced,” the CFPB will get another bite at the apple should it decide to reissue the CID.   While the decision will likely result in more detailed Notifications of Purpose in future CFPB CIDs, because it does not substantively change the scope of the CFPB’s broad power to issue CIDs, the decision’s overall impact will likely be minimal.  In addition, there continues to be a fairly low standard for what constitutes relevant information in discovery and litigation.

 

 

 

 

 

 

We previously reported that the Connecticut Attorney General, on behalf of the Attorneys General of Indiana, Kansas and Vermont, (the “state AGs”) had filed a joint motion to intervene in a CFPB enforcement action to request a Consent Order modification permitting unused settlement funds to be paid to the National Association of Attorneys General (“NAAG”).  Under the proposed modification, the undistributed settlement funds would be used by NAAG for the purpose of developing the National Attorneys General Training and Research Institute Center for Consumer Protection (“NAGTRI”).

The state AGs’ motion and supporting memorandum was filed in CFPB v. Sprint Corporation, a litigation in which the Bureau alleged that Sprint had violated the Consumer Financial Protection Act by allowing unauthorized third-party charges on its customers’ telephone bills.  The associated Stipulated Final Judgment and Order (“Consent Order”) authorized the implementation of a consumer redress plan pursuant to which Sprint would pay up to $50 million in refunds.  The redress plan provided for the payment of refund claims on a “claims made” basis subject to a filing deadline.  Any balance remaining nine months after the claim filing deadline was to be paid to the CFPB.

The Bureau, in consultation with the AGs of all fifty states and the District of Columbia, which were parties to concurrent settlement agreements with Sprint relating to similar billing practice claims, and the FCC, was then to determine whether additional consumer redress was “wholly or partially impracticable or otherwise inappropriate.”  If so, the Bureau, again in consultation with the states and the FCC, was authorized to apply the remaining funds “for such other equitable relief, including consumer information remedies, as determined to be reasonably related to the allegations set forth in the Complaint.”  Any funds not used for such equitable relief were to be deposited in the U.S. Treasury as disgorgement.

In a recent Memorandum and Order recounting the history of the litigation, the district court stated that “the siren song of $15.14 million in unexpended funds [had] lured some new sailors into the shoals of this litigation” because “[d]espite full restitution to Sprint customers and subsequent consultations with the Attorneys General and the FCC, the CFPB could not identify any equitable relief to which $15.14 million in unexpended settlement funds could be applied.”  The court observed that, “[a]pparently, the prospect of simply complying with the Consent Order by paying the funds into the U.S. Treasury lacked sufficient imagination.”

Although the defendant initially filed a memorandum in opposition to the intervention motion, it subsequently filed a joint submission with the state AGs that adopted their proposal to redirect $14 million of the unused settlement funds from the U.S. Treasury to NAGTRI and proposed redirecting the remaining $1.14 million to a community organization that provides internet access to underprivileged high school students.  (The court acknowledged that these were perhaps noble causes worthy of consideration.)  The joint submission stated that the CFPB had been consulted about the proposed modification but “[took] no position” on it.  The court characterized its failure to do so as remarkable, given that the Bureau was “the plaintiff in this lawsuit responsible for securing the $50 million settlement.”

The district court thus observed that it had been left “in a quandary” because:

  • The proposal would “alter the Consent Order in a fundamental way by redirecting elsewhere $15.14 million earmarked for the U.S. Treasury”;
  • The proposal may raise an issue under the Miscellaneous Receipts Act, which requires that government officials receiving money for the government “from any source” must deposit such money with the Treasury;
  • The proposed modification “does not appear, at least at first blush, to be ‘reasonably related to the allegations set forth in the Complaint’”; and
  • The defendant had concurrently entered into settlements with the Attorneys General of all 50 states and the District of Columbia and already paid them $12 million to resolve a multi-state consumer protection investigation.

The court characterized as “particularly galling” the argument that Fed. R. Civ. P. 60(a) permits the proposed modification to correct a clerical mistake.  It noted that the parties had “unmistakably understood that the Consent Order related to federal claims and that any undistributed settlement funds would be paid to the U.S. Treasury.”

In view of the foregoing, the court concluded that it needed “to hear from the Government” because of “the peculiar posture of the intervention application.”  Specifically, the court noted that the CFPB, as the plaintiff in the action, needed to take a position on the proposed intervenors’ motion and application to modify the Consent Order.  And because the proposed modification would redirect funds earmarked for the U.S. Treasury, the court noted that the United States has a direct interest that should be considered.

Accordingly, the court directed the CFPB and the Department of Justice to respond separately to the proposed intervenors’ motion and application to modify the Consent Order.  Their separate memoranda must be filed by May 10, 2017; the state AGs and the defendant may file responsive memoranda by May 24, 2017.  The court stated that the responsive submission of the Bureau “should advise this Court where the unexpended funds have been deposited during the pendency of the intervenors’ application.”   We will continue to monitor developments in this case.

 

Last Friday in New Orleans, the ABA Business Law Section Consumer Financial Services Committee hosted a fascinating program about CFPB enforcement at the Section’s 2017 Spring Meeting.  The program was entitled:  “Too Much or Too Little?  Is the CFPB Exercising its Enforcement Power with Appropriate Restraint?”  As might  be expected, the two industry representatives on the panel criticized certain of the CFPB’s enforcement initiatives, including, among others, the PHH case and the use of disparate impact analysis in connection with  discretionary dealer pricing to assess Equal Credit Opportunity Act (“ECOA”) compliance by auto finance companies.  The industry representatives’ principal complaint was that the CFPB routinely eschews rulemaking in favor of using consent orders, a practice which has been pejoratively referred to as “regulation by enforcement.”

Professor Chris Peterson of the University of Utah School of Law defended the CFPB’s enforcement initiatives by updating certain statistics contained in his law review article “Consumer Financial Protection Bureau Law Enforcement: An Empirical Review,” 90 Tulane Law Review 1057 (2016).  According to Professor Peterson:

  • The CFPB wins the vast majority of the cases that it initiates, 146 out of 150 cases.
  • Over 95% of all consumer relief was awarded in cases in which the CFPB uncovered evidence of deceptive conduct.
  • Over 95% of all consumer relief was awarded in cases in which the CFPB collaborated with other state or federal law enforcement agencies.
  • No bank has contested a public CFPB enforcement action.

Professor Peterson opined that the greatest risk today is that a change in the CFPB’s governance, such as replacing the current single director with a multi-member commission as has been proposed, will bring the CFPB “to heel” and result in industry capture.  Jeffrey Langer, formerly Assistant Director of Installment and Liquidity Lending Markets in the CFPB’s Research, Markets, and Regulations Division, observed that the CFPB has been (and still is) “significantly understaffed” in its Research, Markets and Regulations Division.  (It was suggested that the CFPB’s emphasis on enforcement has contributed to the understaffing by reducing interest among CFPB staff in working in the Regulations Division.)

Professor Peterson agreed with Jeff’s observation, adding that “rulemaking is very labor intensive” and that the Regulations Division does not have the “bandwidth” needed to engage in more robust rulemaking.  He further noted that CFPB regulations run the risk of being “thrown out” by Congress under the Congressional Review Act.  Professor Peterson made the obvious point that regulations only operate prospectively and “don’t return money” to consumers.

Patrice Ficklin, the Assistant Director of Fair Lending and Equal Opportunity of the CFPB’s Office of Supervision, Enforcement and Fair Lending, viewed the program as an audience member.  Speaking from the audience, she made several comments in defense of the CFPB’s use of disparate impact analysis to determine whether banks and non-banks that purchase motor vehicle installment sales contracts from auto dealers are violating the ECOA by enabling the dealers to use discretionary pricing.  Ms. Ficklin made the following points:

  • The CFPB was not the first federal law enforcement agency to deploy disparate impact analysis. She described the CFPB as having received a “hand-off” of disparate impact analysis from “sister agencies,” including DOJ, that were already using that analysis.
  • In using disparate impact analysis, the CFPB is not “clarifying the law” because the “law is clear.” Ms. Ficklin was, of course, basing her claim on language in Regulation B that purports to legitimize the use of disparate impact analysis.

Unfortunately for the CFPB, however, the law is anything but clear, particularly in the aftermath of the U.S. Supreme Court’s Inclusive Communities decision.  While language in Regulation B does purport to authorize the use of disparate impact analysis, there are powerful arguments supporting the proposition that such language is contrary to the ECOA’s express language.

Peggy Twohig, Assistant Director of Supervision Policy of the Office of Supervision, Enforcement and Fair Lending, was also an audience member.  Ms. Twohig had previously spent 17 years with the Federal Trade Commission where she was the Associate Director of the FTC’s Division of Financial Practices.  Speaking from the audience, she observed that many years ago the FTC was “put down” for what Congress considered to be overly aggressive rulemaking.  Ms. Twohig was, of course, referring to the Magnusson-Moss standards enacted in 1980 which made it virtually impossible for the FTC to engage in rulemaking for more than 30 years.  Ms. Twohig seemed to imply that, if history is any guide, the CFPB should be cautious in using its rulemaking authority.

PHH filed its reply brief with the D.C. Circuit on April 10 in the en banc rehearing of the PHH case. We have blogged extensively about the case since its inception. Central to the case is whether the CFPB’s single-director-removable-only-for-cause structure is constitutional. Of course, the CFPB fiercely defends its structure, while PHH, the DOJ, and others argue that the CFPB’s structure epitomizes Congressional usurpation of executive power in violation of the constitution’s separation of powers principles.

If the CFPB’s structure is constitutional then there is no reason why Congress can’t divest the President of all executive power, PHH argues. “[I]f Congress can divest the President of power to execute the consumer financial laws, then it may do so for the environmental laws, the criminal laws, or any other law affecting millions of Americans.” “The absence of any discernible limiting principle is a telling indication that the CFPB’s view of the separation of powers is wrong.”

Even if existing Supreme Court precedent authorizes Congress to assign some executive power to independent agencies, PHH argued that the CFPB’s structure goes too far. “No Supreme Court case condones the CFPB’s historically anomalous combination of power and lack of democratic accountability, and the Constitution forbids it.” The fact that the CFPB has the power of a cabinet-level agency while lacking any democratic accountability or structural safeguards is a sure sign that its structure is unconstitutional.

The only remedy to the CFPB’s unconstitutional structure, PHH argues, is to dismantle the agency entirely. “The CFPB’s primary constitutional defect, the Director’s unaccountability [], is not a wart to be surgically removed. Congress placed it right at the agency’s heart, and it cannot be removed without changing the nature of what Congress adopted.”

* * *

PHH’s reply completes the briefing in this appeal. Oral arguments are scheduled to take place on May 24, with each side being given 30 minutes to argue. On April 11, the D.C. Circuit granted the DOJ’s request for 10 minutes to present its views during oral argument.

On March 30, Director Cordray gave his annual speech to the United States Chamber of Commerce’s 11th Annual Capital Markets Summit.  His prepared remarks focused on the CFPB’s role in adopting regulations.

He spoke at length about the factors involved in the economic meltdown and how Congress responded, in part, by creating the CFPB.  He trumpeted the CFPB’s promulgation of detailed regulations for the mortgage industry.  He also mentioned the CFPB’s regulation dealing with  international remittances.  Finally, he mentioned, in passing, pending rulemakings pertaining to arbitration, debt collection, and small dollar lending.  He curiously omitted mentioning the final prepaid cards regulation which is the only CFPB final regulation not mandated by Dodd-Frank.  He shed no light on the status of any of the pending rulemakings.

Although Director Cordray’s prepared remarks did not address the consent orders and lawsuits arising from the CFPB’s enforcement initiatives, several media reports indicated that he was asked why the CFPB often decides to make law through consent orders rather than regulations.  He stated that “rulemaking is prospective in nature and by definition then, in many respects, more evenhanded.  But it does take time to fashion the rules, and it is a difficult process.  It requires a lot of data, a lot of thought, a lot of input….  Enforcement is different.  It’s meant to address particular situations that arise.  It’s much more factually-based.  It may be more unique to a certain circumstance than a rulemaking.  It needs to be.”

As he has previously stated, Director Cordray indicated  that under his “principle of equal justice,” non-parties to consent orders should still consider consent orders to be guideposts of activity which the CFPB considers to be unlawful.  He stated that “[i]f we don’t enforce with the principle of equal justice in mind, then you’re taking random enforcement actions here and there that don’t have any generalized impact.  That is why, when we take enforcement actions, we make a point to publish a detailed order describing what the facts were.”  The Chamber of Commerce has previously criticized this type of “regulation by enforcement.”

We expect that during the remainder of Director Cordray’s term (which expires in July 2018), the CFPB will continue to focus on enforcement instead of rulemaking since it would face the risk of any new regulations it issues being overridden by Congress under the Congressional Review Act.

 

 

The Department of Justice, with the consent of PHH and the CFPB, has filed an unopposed motion with the D.C. Circuit requesting ten minutes of argument time in the oral argument to be held on May 24, 2017 in the rehearing en banc in the PHH case.

The DOJ filed an amicus brief in which it agreed with PHH’s position that the CFPB’s structure is unconstitutional but advocated a more limited remedial measure than PHH is seeking.  In contrast to PHH which has argued that the CFPB should be dismantled in its entirety, the DOJ supports keeping the CFPB intact with a director removable at will by the President.

The D.C. Circuit has allocated 30 minutes per side for oral argument.  In its motion seeking argument time, the DOJ states that because “our position in this case does not fully align with either party,” it is requesting that “instead of sharing time with either party, we receive a total of ten minutes for the United States.”

 

 

Several individuals and organizations filed amicus briefs in support of the CFPB in the en banc rehearing in the PHH case. Among the amici is a brief filed by current and former members of Congress, including Chris Dodd and Barney Frank, the principal architects and namesakes of the Dodd-Frank Act, which created the CFPB. Senator Sherrod Brown and Representative Maxine Waters, both of whom previously sought to intervene, joined the brief as well.

The current and former members of Congress assert that the structure of the CFPB is constitutional and critical to the congressional design of Dodd-Frank. They stress the importance of the CFPB’s “independence” and the ability of a single director “to avoid the delay and gridlock to which multi-member agencies are susceptible.” These themes are repeated throughout the brief.

Of course, the flipside of independence is unaccountability. The CFPB’s structure heavily shields it from the consequences of an election. The ability of voters to voice their approval or disapproval with the CFPB’s enforcement and rulemaking is far lower than that of other important agencies such as the EPA. And although a single director may be able to move more swiftly than a multi-member commission, faster is not always better. Before a multi-member commission reaches a decision, it must debate the matter internally among a group of commissioners with diverse perspectives and experiences. That internal debate arguably has the ability to produce a better, more efficient outcome than any individual commissioner would be able to reach on their own. Indeed, input from multiple commissioners is particularly valuable to an agency like the CFPB that relies more heavily on enforcement actions than notice-and-comment rulemaking to effect industry-wide change.

A group of financial regulation scholars likewise submitted a brief in support of the CFPB’s position, focused entirely on the constitutionality of the CFPB’s structure. The scholars’ brief is, not surprisingly, more esoteric than many of the other briefs submitted in the case. Unlike the CFPB, the scholars concede that its structure is “novel,” but argue that the novel structure is evidence of a creative legislative approach to an issue, not evidence that it is unconstitutional. The brief then attempts to argue two seemingly inconsistent positions: 1) that the CFPB’s independence is necessary to prevent regulatory capture, but 2) the CFPB is subject to significant oversight.

The scholars’ regulatory capture argument is particularly weak. They claim that three features of the CFPB’s structure are key to preventing business interests from capturing the CFPB: “non-appropriated funding; a for-cause removal standard; and a single director.” The scholars correctly note that industry funding can create regulatory capture in the classical sense in that the regulated industry has direct control over the agency’s funding. That argument has no relevance to the actual issue in this case, however, since the real controversy is whether the CFPB should be subject to Congressional appropriations, not whether it should be industry funded.

The scholars then switch from capture theory to public-choice theory to argue that Congressional appropriation is unwise because concentrated industry groups have greater influence over Congress and the Executive Branch than individual consumers. In making this argument, the scholars focus not on industry capture of the CFPB but of the entire Legislative and Executive Branches. And the activities with which the scholars take issue – lobbying and campaign contributions – are key First Amendment activities. The scholars therefore argue that the CFPB’s structure is necessary because members of the public might exercise their First Amendment rights successfully to oppose the actions of the CFPB.

The scholars then undercut their legislative-and-executive-capture argument completely in the next session of their brief, in which they argue that the CFPB is, in fact, subject to extensive legislative oversight and control. This argument is wholly inconsistent with the prior argument that the CFPB is completely independent and thus immune from capture. Namely, if the CFPB is subject to extensive oversight and control, then it is also subject to Legislative-and-Executive capture.

A group of separation of powers scholars likewise filed an amicus brief heavy on theory. As their name suggests, the separation of powers scholars focus on whether the single director, removable-for-cause feature of the CFPB violates constitutional separation of powers principals. The brief firsts undertakes an originalist-style historical analysis of early federal-and-state executive agencies. Next, the scholars argue that the number of commissioners is irrelevant to the constitutional analysis. Then, they argue that the for-cause removability feature leaves enough Presidential discretion over the CFPB Director to preserve its constitutionality.

Finally, in a preview of arguments likely designed to drive a wedge between Justice Kennedy and other members of the Supreme Court, Chief Justice Roberts in particular, the scholars argue that abstract concerns over the protection of “individual liberty” and separation of powers do not supply independent constitutional bases to invalidate the CFPB structure. Instead, they argue that the structure must violate a specific constitutional provision, not an abstract ideal. This particular line of argument will likely receive greater attention if the constitutional issues reach the Supreme Court, as there are different views regarding it among the conservative majority.

A host of “consumer and civil rights organizations who advocated for the CFPB’s creation,” many of which unsuccessfully sought to intervene, filed a brief that mainly covers public policy arguments in favor of the CFPB’s structure. They essentially argue that the CFPB has succeeded where other agencies failed in terms of protecting consumers.

The AARP also filed an amicus brief in support of the CFPB’s position. Unlike other amici, however, the AARP brief focused more on the RESPA issues in the case than the more esoteric constitutional issues. The AARP claimed that kickbacks and “junk fees” have a disproportionate impact on older individuals.  It argued that older individuals are often the target of “unscrupulous mortgage lending practices,” which increases the cost of homeownership to older individuals by several thousand dollars. After the policy-heavy introduction, the brief tackles the history and purpose of the RESPA provisions at issue, which we blogged about in detail.

Although the constitutional issues received the most attention in the press, the RESPA issues discussed in the AARP brief could very well be more important to the outcome of the appeal. The court could reverse the district court on the RESPA issues and invoke the doctrine of constitutional avoidance to decline to reach the overall constitutionality of the CFPB’s structure.

On March 31, the CFPB and supporting amici submitted their briefs in the en banc rehearing of the PHH case. We have blogged extensively about the PHH case in which the D.C. Circuit is grappling with four critical issues: (i) whether the CFPB’s structure is constitutional (the CFPB says, yes), (ii) whether administrative actions brought by the CFPB are subject to a statute of limitations (the CFPB says, no), (iii) whether the CFPB’s interpretation of RESPA is correct (the CFPB says, yes), and (iv) whether the CFPB’s interpretation of RESPA, which differs from HUD’s historical interpretation, can be applied retroactively (the CFPB says, yes). We’ll focus here on the CFPB’s constitutional arguments.

The CFPB’s main argument is that under Humphry’s Executory and its progeny, there is only one relevant question to determining whether its structure is constitutional: Is its structure “of such a nature that [it] impede[s] the President’s ability to perform his constitutional duty” to take care that the laws are faithfully executed? It insists that the  D.C. Circuit panel erred in undertaking “’an additional inquiry’ into whether an agency’s structure somehow threatens individual liberty.”

This is, of course, a strained argument. On the one hand the CFPB grants that its structure is a “departure from tradition” in that “most independent agencies[, like the FTC,] have been headed by multi-member commissions.” Yet, at the same time, the CFPB argues that the D.C. Circuit must slavishly apply precedents such as Humphry’s Executor which address (and, indeed, create) the “traditional” structure of independent agencies. It seems obvious that a different structure demands a different analysis.

In making this argument, the CFPB ignores the underlying separation of powers issue by insisting that the protections for individual liberty in the structure of other independent agencies are irrelevant to the constitutional analysis.  Counsel for PHH put it succinctly in recent testimony before a Senate sub-committee. Quoting James Madison, he pointed out that the consolidation of executive, judicial, and legislative power in one person is the “very definition of tyranny.”  By constituting other independent agencies as commissions, Congress prevented that consolidation and avoided the very problem the U.S. structure of government was designed to prevent. Yet, the CFPB argues that the commission and single-director structures are “indistinguishable” from a constitutional perspective.

The CFPB also ignores other features of agencies with a  commission structure that  make them more likely to operate as “independent” agencies, a precondition to the courts’ acceptance of their constitutionality. For example, no more than three of the FTC’s five commissioners can be of the same political party. As a result, the decision-making body at the FTC is required to receive input from those with differing views.  Not so with the CFPB director. He can set an agenda driven by the politics of his party without any check on his authority, even if that agenda is completely contrary to that of the President. This too is irrelevant from the CFPB’s perspective.

The CFPB announced that it has entered into a consent order with Experian, a consumer reporting agency, for allegedly engaging in the deceptive marketing of credit scores in violation of the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices.  The consent order also settles allegations that the company displayed advertisements to consumers before providing free annual credit reports in violation of the Fair Credit Reporting Act.  The consent order requires the company to pay a $3 million civil money penalty to the CFPB.

According to the consent order, Experian developed its own proprietary credit scoring model, which was offered directly to consumers as an “educational” credit score.  The CFPB alleges that the score was not used by lenders despite Experian’s claims that the score provides consumers with the same type of information lenders see.  Despite disclosures accompanying Experian’s marketing materials about the nature of its educational credit score, the CFPB concluded that the disclosures were neither conspicuous nor in close proximity to the deceptive claims.  The consent order dictates the form of future Experian disclosures relating to credit scores by requiring:

For all written communications, and for Internet offers, on each landing page or email where an educational credit score is advertised, ensure that, in the first instance in which the disclosure appears, the disclosure contains a label in a font size double that of the disclosure that says: “What You Need to Know.”

The CFPB is also requiring Experian to collect and review the following data metrics in order to improve its communications with consumers regarding all of its credit score products, not just the educational scores at issue:

  • Key performance metrics, such as Consumer Complaints (both those it receives directly as well as those it receives through other channels, such as the CFPB and State Attorneys General Offices), for evidence of consumer confusion regarding credit scores it offers to consumers; and
  • Empirical data regarding consumer perceptions of Experian’s advertising with regard to the nature of credit scores and the pricing structure of credit scores for evidence of consumer confusion regarding the credit scores it offers to consumers.

The consent order also alleged that Experian required consumers to view advertisements before consumers could receive a free credit report despite a prohibition against such advertising in the FCRA.  The CFPB alleged that the Experian website to which consumers are directed after requesting a file disclosure through AnnualCreditReport.com contained banner ads and product links, but not the full file disclosure.