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.