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Ballard Spahr attorneys have submitted comments to the CFPB in response to its Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes.

Based on the extensive experience of Ballard Spahr attorneys in representing bank and non-bank clients in connection with more than 50 CFPB investigations, our comment letter include proposals to address the lack of basic procedural safeguards in the CFPB’s current CID process and help alleviate the unreasonable burdens that the current process imposes on CID recipients.  In addition to myself, the Ballard Spahr attorneys who participated in drafting our comment letter are Alan Kaplinsky, Chris Willis, Theodore Flo, Daniel Delnero, and Eleanor Bradley-Huyett.

As we observe in our letter, the CFPB has a history of using CIDs for broader purposes that are not authorized by the Dodd-Frank Act but rather are more akin to an extensive, unfocused supervisory examination in order to uncover potential violations.  Our proposals are intended to restrict the CID process to its proper role, namely the investigation of suspected violations of specific consumer financial protection laws.

Our letter includes the following proposed modifications to the CID process:

  • Requiring a CID to contain a more definite “statement of purpose” that identifies the precise law at issue and the conduct the CFPB believes violates the law
  • Adding a relevancy standard for CID information requests
  • Requiring a minimum response time of 30 days from receipt of a CID
  • Allowing a longer deadline for filing a petition to modify or set aside a CID
  • Making petitions to modify or set aside a CID, and rulings thereon, non-public
  • Making the process for resolving petitions to set aside or modify a CID more transparent
  • Permitting objections at investigational hearings
  • Allowing investigational hearing witnesses to automatically receive copies of transcripts and exhibits
  • Creating a rule prohibiting CFPB examination staff from sharing attorney-client privileged documents with enforcement staff
  • Modifying the form of certifications required by CID recipients
  • Abandoning the CFPB’s proposal to prohibit CID recipients from disclosing the CID’s existence

Our full comment letter is available here.

The FTC has filed comments on the CFPB’s Request for Information regarding its civil investigative demands and investigational hearings.

In the RFI, the CFPB requested feedback on various aspects of the CFPB’s processes and requirements for issuing CIDs, responding to CIDs, and conducting investigational hearing.  The FTC’s comments primarily describe the FTC’s comparable processes and requirements and highlights changes made in 2017 to the CID process used by the FTC’s Bureau of Consumer Protection (BCP).  Those changes included (1) adding more detail about the scope and purpose of investigations to give companies a better understanding of the information sought, (2) limiting the relevant time periods to minimize undue burden on companies and focus the FTC’s resources on investigating harms that have an immediate impact on consumers, (3) shortening and simplifying the instructions for providing electronically stored data, and (4) increasing response times for CIDs, where appropriate.

In addition to describing its own processes and requirements, the FTC makes several specific suggestions for the CFPB to consider including the following:

  • The FTC suggests that the CFPB may wish to consider applying an approach to opening and closing investigations that is similar to the FTC’s approach while remaining consistent with the CFPB’s structure, management, workload, and other relevant considerations.  At the FTC, the BCP Director is responsible for implementing the Commission’s enforcement agenda and meets regularly with the FTC Chairman and the other FTC Commissioners to obtain views about investigations and possible investigations to accomplish that agenda.  On a day-to-day basis, the BCP Director is responsible for ensuring that other BCP managers make opening and closing decisions in conformity with the FTC’s enforcement priorities and objectives.  The BCP Director has regular and frequent communications with other BCP managers, including regular discussions about specific divisional or regional office work, including matters currently under investigation and those as to which an investigation is contemplated.  Other BCP managers check with the BCP Director before opening, continuing, or closing an investigation that might not be in line with FTC priorities and objectives or that might present other challenging or sensitive issues.
  • The FTC observes that its procedures for CID issuance appear to be significantly different from those of the CFPB.  When a BCP staff member believes issuance of a CID is appropriate, he or she drafts the CID along with a supporting recommendation and, once approved  by the BCP Director, he or she submits the proposed CID and recommendation memo to the FTC.  Since any Commissioner is permitted to issue a CID relating to any matter under investigation, a single Commissioner generally reviews the proposed CID and recommendation memo to determine whether to approve, modify, or reject a proposed CID.  The FTC believes that because approval is sought for hundreds of proposed CIDs each year, it is more efficient and less burdensome to have a single Commissioner rather than the full FTC review each CID.  Also, Commissioner-approval ensures that there will be an independent assessment of a CID’s costs and benefits by someone who is not conducting the investigation.  In contrast, at the CFPB, not only the Director but also the Assistant Director and the Deputy Assistant Directors of the Office of Enforcement have authority to issue CIDs.  In addition, it is generally a CFPB Deputy Assistant Director who authorizes the issuance of a CID and that individual may be involved in direct oversight of investigations in a way that an FTC Commissioner is not.  The FTC suggests that because its approach has allowed the FTC to successfully balance the need to obtain information without imposing unnecessary or undue burdens, the CFPB may wish to consider the FTC’s experience, including revising its delegation of authority to one or more senior officials who are not directly involved in an investigation.
  • The FTC suggests that the CFPB may want to consider adopting requirements for processing requests for extending the dates and manner of compliance with CIDs that are similar to the FTC’s requirements.  To ensure that the meet-and-confer process is productive, the FTC requires CID recipients to make available persons who are familiar with the recipient’s information management system and the requested materials.  BCP staff conducts the meet-and-confer sessions, which are usually held telephonically.  After having the meet-and-confer, the appropriate BCP manager with the delegated authority can extend the compliance date if the CID recipient “has demonstrated satisfactory progress toward compliance,” and can also modify the terms of compliance with the CID.  The FTC believes that this combination of the meet-and-confer requirement and the delegated authority to modify the time and manner upon a demonstration of satisfactory progress toward compliance allows the FTC to reduce unnecessary and undue burden while at the same time advancing the purposes of the investigation.
  • The FTC observes that the BCP’s current guidelines for submission of electronically stored information (ESI) appear to be significantly shorter and less complex than the most recently available CFPB production requirements.  As streamlined in 2017, the BCP’s production requirements for submission of ESI in response to a CID are less complex, require the processing and production of fewer fields, and no longer require that each field meet exacting requirements for specialized eDiscovery applications.  By providing ESI in the new streamlined format, data can be used in any subsequent proceedings, obviating the need for the recipient to reproduce the data at a later time.

 

 

 

On September 20, 2017, the Federal Reserve’s Office of Inspector General (“OIG”) issued a report on the CFPB’s process for issuing Civil Investigative Demands (“CID”). The OIG found that the CFPB “generally complied” with requirements for issuing CIDs, with two exceptions. First, the CFPB failed to use notifications of purpose that adequately informed recipients about the nature of the investigation. Second, the CFPB failed to keep complete organized records of challenges to CIDs.

First, the OIG found that the CFPB’s internal policy manual encouraged investigators to “describe the nature of the conduct and the potentially applicable law in very broad terms.” Investigators apparently told the OIG that the notifications of purpose must be “necessarily broad.” This, they said, is to allow the investigation to “develop over time.” The OIG found that such notifications of purpose might “increase the risk that the language in the CID’s [] notification of purpose does not comply with [] case law.” Such notifications “may [also] limit the recipient’s ability to understand the basis for requests and thereby heighten the risk that the CID may face a legal challenge. . . .” These findings are not new. As we mentioned earlier this year, the D.C. Circuit recently affirmed a lower court’s determination that a CID was invalid because the notification of purpose was impermissibly vague. The OIG noted that the CFPB took steps to correct this deficiency. It found that those steps effectively cured the problem.

Second, the OIG found that the CFPB could do a better job at records management. It found that the CFPB maintained only decentralized records of CID challenges and lacked a centralized record-keeping system. In reaching this conclusion, the OIG noted that “The lack of a centralized record of all petitions and supporting documents may have contributed to the Office of the Executive Secretariat’s delay in responding to our request for the number of petitions filed to date.” The decentralized record-keeping issue is relevant to the public and the industry because the CFPB posts CID challenges on its website. The OIG noted that the CFPB took steps to centralize its record-keeping. It indicated, however, that further follow-up was needed to verify that the new system addressed the issue.

The CFPB is asking a Michigan federal district court to hold two companies in contempt for failing to comply with civil investigative demands.  While the CFPB has filed numerous petitions to enforce a CID, the contempt motion is reported to represent the first time that the CFPB has sought to have a CID recipient held in contempt for failing to comply.

In February 2017, the federal district court granted the CFPB’s petitions to enforce the CIDs.  The CIDs had sought information related to agreements of deed offered by the companies.  The companies argued that the CFPB did not have jurisdiction because such agreements are not credit products.  The court ruled that unless the CFPB’s jurisdiction was “plainly lacking,” it was required to enforce the CIDs.  Since there was a “plausible basis” for finding an agreement for deed to be a credit product, the court held that the CFPB had jurisdiction to issue the CIDs and ordered the companies to comply within 30 days.  It thereafter denied the companies’ motion to stay the court’s order enforcing the CIDs pending appeal and gave the companies an additional seven days beyond the 30-day deadline to comply.

Approximately six weeks after the new deadline to comply, the CFPB filed a motion to hold the companies in civil contempt.  In the motion, the CFPB asserted that companies had produced nothing until about two weeks after the extended deadline and then provided “only limited, incomplete responses that are qualified by frivolous ‘general objections’ (some of which were previously rejected by the Court)” and had “yet to produce any documents in response to some requests.”  The CFPB asked the court to impose a daily monetary fine of $5,000 on each company until they had complied with the court’s order.

In opposing the CFPB’s motion, the companies argued that their actions do not rise to the level of contempt.  According to the companies, they “have—and continue to—respond [to the CIDs] in good faith.”  A hearing on the CFPB’s contempt motion has been scheduled for August 23.

 

The CFPB’s petition filed in a Pennsylvania federal district court last June to enforce a CID issued to J.G. Wentworth, LLC, a purchaser of structured settlements and annuities, was denied by the court last week as moot.  The order denying the petition was entered after the CFPB filed a Notice in which it indicated that it had withdrawn the petition on June 1, stated that “because the CID is no longer active, the Bureau intends to soon dismiss the Petition,” and asked the court to refrain from ruling on the petition.  The Notice was followed by a “Suggestion of Mootness” filed by the CFPB in which it stated that because it had withdrawn the CID, the action was moot and must be dismissed by the court for lack of subject matter jurisdiction.  No reason was given by the CFPB for its decision to withdraw the CID.

The CFPB had issued the CID to J.G. Wentworth in September 2015 to investigate alleged violations of consumer protection laws.  J.G. Wentworth filed an administrative petition to set aside the CID as beyond the CFPB’s statutory authority, arguing that its purchase of settlements and annuities was not a consumer financial product or extension of credit subject to the CFPB’s UDAAP authority or TILA.  The CFPB denied the petition to set aside, asserting that J.G. Wentworth might be providing financial advisory services to consumers in connection with offers to purchase structured settlements or annuities, which would constitute a “consumer financial product or service” subject to Dodd Frank’s UDAAP prohibition.  Alternatively, the CFPB asserted that the purchases could be extensions of credit subject to TILA.  After its petition was denied, J.G. Wentworth produced some initial information to the CFPB, but ultimately refused to comply with the CID on the grounds the CFPB lacked jurisdiction over its activities.  In response, the CFPB filed the petition to enforce the CID.

The Chamber of Commerce of the United States of America filed an amicus brief opposing the CFPB’s petition in which the Chamber argued that the petition represented an attempt by the CFPB to expand its jurisdiction beyond the limits of Dodd-Frank.  The CFPB has consistently pushed the jurisdictional envelope by adopting broad interpretations of its statutory authority with the most aggressive and public example of the CFPB’s “jurisdictional creep” being its efforts to indirectly regulate the conduct of car dealerships (which is expressly carved out from the CFPB’s jurisdiction by Dodd-Frank) by applying a questionable interpretation of ECOA to impose disparate impact liability against auto finance companies.

In April 2017, the D. C. Circuit affirmed the D.C. federal district court’s April 2016 denial of the CFPB’s petition to enforce a CID issued in 2015 to the Accrediting Council for Independent Colleges and Schools (ACICS).  The district court ruled that the CFPB exceeded its statutory authority by issuing the CID because the ACICS’s accreditation process for-profit schools, which was the focus of the CID, was not a financial product or service, and had no connection to a for-profit school’s private student lending practices.  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 limited its analysis to whether the CID satisfied the CFPA  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.”  It concluded that the Notification of Purpose in the ACICS CID failed to adequately state the unlawful conduct under investigation or the applicable law.

 

For years many industry participants wondered if allowing their real estate agents or loan officers to engage in co-marketing on Zillow Group applications and websites posed a risk to their companies under RESPA.  The industry may soon know the answer, as Zillow Group advised in recent prepared remarks on first quarter earnings that “Over the past two years, the Consumer Financial Protection Bureau, or CFPB, has been reviewing our program for compliance with the Real Estate Settlement Procedures Act, or RESPA, which is a regulation designed to protect consumers.”

To say that the CFPB is not a fan of marketing arrangements between settlement service providers is an understatement.  We previously reported on an October 2015 bulletin in which the CFPB addressed its experiences with such marketing arrangements.  The CFPB stated “In sum, the Bureau’s experience in this area gives rise to grave concerns about the use of [marketing services agreements] in ways that evade the requirements of RESPA.”  The recent announcement by Zillow may cause industry members to assess co-marketing arrangements.

While the Zillow announcement indicates that the CFPB investigation has occurred over the past two years, the apparent reason for the announcement is the disclosure that “Recently, the CFPB requested additional information and documents from us as part of their evaluation, which we are working with them on.”  Zillow also notes that it considers its co-marketing program to be compliant, and that it has continually encouraged consumers to shop around while looking for a mortgage.

 

 

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.

 

 

 

 

 

 

Last week, the D. C. Circuit held oral argument in the CFPB’s appeal from the D.C. federal district court’s April 2016 ruling that the CFPB exceeded its statutory authority when it issued a CID 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 CID’s statement 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 also has authority to investigate whether any entity has engaged in any unlawful acts relating to accrediting such schools. 

The district court observed that ACICS had “repeatedly and accurately explained [that] the accreditation process simply has no connection to a school’s private student lending practices” and that ACICS was not involved in financial aid decisions, meaning that it played “no part in deciding whether to make or fund a student loan.”  While noting that the CFPB might be “entitled to learn whether ACICS is connected to potential violations of the consumer financial laws by schools its accredits,” the court stated that the CID’s “statement of purpose and the CFPB’s actual requests belie any notion that its inquiry is limited in this way.  Indeed, the statement of purpose says nothing about an investigation into the lending or financial-advisory practices of for-profit schools.” 

At the oral argument in the D.C. Circuit, the CFPB’s attorney sparred with Judge David Sentelle as to whether the CFPB had satisfied the CFPA requirements that a CID must “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.”  In particular, Judge Sentelle questioned whether the CID’s use of the phrase “unlawful acts or practices” and reference to the CFPA and “any other Federal consumer financial protection law” was sufficiently specific to provide notice of how the conduct under investigation related to financial activity regulated by the CFPB.  The CFPB’s attorney argued that the CFPB was not required to describe the nature of the potentially unlawful conduct under investigation with greater specificity in a CID.

The CFPB’s attorney stressed the CFPB’s authority under the CFPA to issue a CID to anyone who might have information relevant to violations of laws enforced by the CFPB even if the CFPB could not enforce such laws directly against the CID recipient.  To explain why ACICS might have relevant information, he pointed to the CFPB’s enforcement actions against for-profit colleges accredited by ACICS that made loans to their students and allegedly made misrepresentations to their students about the schools’ accreditation status.  The CFPB’s attorney also resisted Judge Karen Henderson’s suggestion that for purposes of whether the CID constituted “fair notice” to ACICS, given the CFPB’s obligation under the CFPA to identify “the provision of law” applicable to the alleged violation under investigation, it would have been “an easy enough matter” for the CFPB to have added the CFPA’s definitions of “federal consumer financial law” and “financial product or service” to put ACICS on notice “of what you were looking at.”

ACICS’s attorney asserted that the CID did not conform to the authority of the CFPB because conduct “in connection with accrediting for-profit colleges” did not implicate any consumer financial  laws enforced by the CFPB.  In response to Judge Robert Wilkins’ suggestion that ACICS was asking the court to take a “strict construction” of the CID’s wording and ignore other information about the nature of the CFPB’s investigation, ACICS’s attorney argued that even under a broad view, the phrase “in connection with” could not be used to expand the CFPB’s jurisdiction beyond information that could be relevant to a violation of a consumer financial protection law.

Judge Wilkins reacted to that argument by commenting that ACICS was aware of the nature of the potential violations being investigated and that an accrediting organization could have relevant information.  ACICS’s attorney asserted, in response, that the stated purpose of the investigation was for the CFPB to look at “conduct in connection with accrediting” for-profit schools rather than to look at for-profit schools and that nothing in “accrediting non-profit colleges” touched on laws that the CFPB has authority to enforce.  She also argued that the CID’s deficiency was not one of “semantics,” as Judge Wilkins suggested, but rather that the CID did not fulfill its purpose of providing notice of alleged unlawful conduct “that touches anything the CFPB has the authority to enforce.”

An affirmance by the D.C. Circuit is likely to lead other courts to more closely scrutinize CFPB CIDs for whether they adequately put the recipient on notice of the nature of the investigation and whether the investigation is within the CFPB’s jurisdiction.

The D.C. federal district court has ruled that the CFPB exceeded its statutory authority when it issued a CID to the Accrediting Council for Independent Colleges and Schools (ACICS) in August 2015.

ACICS’s petition to modify or set aside the CID was denied by the CFPB on October 8, 2015, and the CFPB thereafter filed a petition in D.C. federal district court to enforce the CID.  The CID’s statement 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.”  The CFPB argued that because it has authority to investigate for-profit schools in relation to their lending and financial advisory services, it also has authority to investigate whether any entity has engaged in any unlawful acts relating to accrediting such schools.

According to the court, the CFPB’s justification was “a bridge too far.”  The court observed that ACICS had “repeatedly and accurately explained [that] the accreditation process simply has no connection to a school’s private student lending practices” and that ACICS was not involved in financial aid decisions, meaning that it played “no part in deciding whether to make or fund a student loan.”

In response to the CFPB’s claim that it was not obligated “to accept at face value” ACICS’s description of its interaction with the schools it accredits and had the right to independently determine the truth of that description, the court stated simply “Please.”   While noting the CFPB might be “entitled to learn whether ACICS is connected to potential violations of the consumer financial laws by schools its accredits,” the CID’s “statement of purpose and the CFPB’s actual requests belie any notion that its inquiry is limited in this way.  Indeed, the statement of purpose says nothing about an investigation into the lending or financial-advisory practices of for-profit schools.”

The court also observed that the information requested by the CFPB included a list of all schools accredited by ACICS and a list of individuals involved in the accreditation of certain schools.  The court stated that such requests “clearly reveal [the CFPB’s] investigation targets the accreditation process generally.  This the CFPB was never empowered to do.”

In a footnote, the court commented that even if the CFPB had provided an investigatory purpose within its authority, such as the lending practices of for-profit schools, information regarding the accreditation process could still “be beyond [the CFPB’s] reach as not reasonably relevant  to that purpose.”  The court pointed to ACICS’s explanation that the accreditation process did not touch a school’s lending or financial-advisory services.”

The court concluded its opinion denying the CFPB’s petition to enforce the CID with the following admonition: “Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.”

We have previously commented on the CFPB’s aggressive approach to asserting its jurisdiction.  Last summer, Ballard Spahr attorneys conducted a webinar: “Pushing the Envelope: Are There Limits to the CFPB’s Jurisdiction?” in which we discussed the CFPB’s continuing “jurisdiction creep” and explored the limits of the CFPB’s jurisdiction.