CFPB’s ‘Bridge Too Far’ Becomes a Bridge to Nowhere
In a concise panel ruling (CFPB vs. Accrediting Council for Independent Colleges and Schools) that no doubt stings for the Consumer Financial Protection Bureau (CFPB), the US Court of Appeals for the DC Circuit has held that the CFPB failed to provide adequate notice of the purpose of a civil investigative demand (CID) it issued to an accrediting group for for-profit colleges, and has accordingly declined to enforce the CID.
The unanimous decision of the DC Circuit panel comes just a day shy of a year after a district court found that the CID was a “bridge too far.” As we reported at the time, that court also declined to enforce the CID.
The dispute arose when the CFPB issued a CID to the Accrediting Council for Independent Colleges and Schools (ACICS) for a vast array of data, even though ACICS itself does not engage in conduct that falls within the CFPB’s broad investigative authority. The CID contained (as it must under the authorizing statute) a Notification of Purpose, which simply recited the bare language of the statute and then added the catch-all phrase, “any other Federal consumer financial protection law.” The statute in question was the CFPB’s authority to investigate unfair, deceptive, or abusive acts or practices (UDAAP).
Because the definitions of these terms are often circular and (at best) unclear, subject businesses have complained that the lack of clarity in the notice provisions is far more than a mere procedural defect but rather amounts to a serious substantive shortcoming that deprives the courts of a meaningful opportunity to determine whether the CFPB has exceeded its authority. Where, as here, the CID is issued to an entity that does not itself engage in CFPB-regulated conduct, the risk of unfair treatment that cannot be adequately addressed after the fact is great.
When the district court declined to enforce the CID, it did so primarily because it questioned whether the CFPB was investigating a matter—the process of for-profit college accreditation—that was not within its jurisdiction. In affirming the district court’s decision, the DC Circuit took a different and narrower tack, concluding that the Notification of Purpose’s “perfunctory” recitation of the governing statute with a throwaway catch-all reference to other financial consumer laws “fails to state adequately the unlawful conduct under investigation or the applicable law.”
In a statement issued after the ruling, the CFPB’s director said that his agency “will make careful efforts to conform to the. . .ruling in [its] further investigations, whether in this case or any other case”—suggesting that the matter is at an end.
The federal courts generally give administrative agencies wide deference in conducting investigations, and it is not easy for an agency to cross the outer boundaries of what the courts allow the agency to investigate. In turn, this case is bad law for the CFPB because the damage was largely self-inflicted in that the defect was patent and easily avoided. That said, the cure for the CFPB is to issue a revised CID that more precisely states the conduct under investigation and the laws that may have been violated. The fact that the “fix” for the CFPB is relatively simple here may explain in part why the CFPB apparently has chosen not to appeal this ruling. Of course, if the CFPB decides to reissue the CID, it now will have to explain (as the district court pointedly questioned) how an inquiry into for-profit college accreditation practices is relevant to the CFPB’s consumer financial jurisdictional authority. In short, the fight over this CID may not be over yet.
The DC Circuit’s decision has implications not only for the CFPB but for all other federal and state government agencies with similar investigative or subpoena authority. The CFPB is not alone in issuing CIDs that often give no actual indication of the subject of the investigation. For example, the Federal Trade Commission and many state attorneys general have for years taken nearly the same approach, with impunity, as the CFPB did here. The DC Circuit’s decision will serve as a terse reminder to those enforcers that boilerplate statements in a CID or administrative subpoena will not suffice. In turn, enforcement agencies will need to describe in at least some detail what activities and violations they are investigating—lest that lack of specificity comes back to haunt them later in an investigation. The issues are particularly significant for those agencies in UDAAP matters (or matters related to its only slightly more limited predecessor, UDAP) because the statutory terms are so ill-defined.
By the same token, recipients of agency investigative process will benefit from paying close attention to CID or subpoena notice provisions and insisting on more specificity. Further, the decision should encourage some recipients to litigate if they do not receive appropriate clarity from the investigating agency. Knowing the purpose of a CID or administrative subpoena is of value to the recipient—although how much will depend on the level to which the CFPB takes the plain and simple words of the DC Circuit’s ruling to heart.