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Volume XII, Number 340

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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.

Background

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.

Takeaways

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.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 118
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About this Author

Nicholas Gess, Government and regulatory attorney, Morgan Lewis
Of Counsel

Nicholas M. Gess counsels on state and federal government enforcement and regulatory actions and their impact on business. He advises corporate clients on how to achieve results with governmental agencies and how to manage the risks of government action, particularly in the current environment where state enforcement authorities conduct parallel investigations with federal authorities such as the CFPB, DOJ, and FTC.

202-373-6218
Charles Horn, financial services attorney, Morgan Lewis
Partner

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

202-739-5951
Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

202-739-5883
David Monteiro, Morgan Lewis, litigation attorney
Partner

David Monteiro focuses his practice on counseling companies facing government investigations and enforcement litigation. A former enforcement attorney with the Federal Trade Commission’s Bureau of Consumer Protection, Division of Financial Practices, David guides financial institutions and other companies in complying with state and federal consumer protection laws and regulations, responding to examinations and investigations, and defending litigation against the government.

214-466-4133
Timothy Shea, Morgan Lewis, Litigation Attorney
Principal, Of Counsel

Timothy J. Shea counsels clients on the impact of state and federal law enforcement actions on business, advising corporate clients about how to manage the risks of state government action, particularly when it occurs in the context of complex civil litigation, class action law suits, federal criminal inquiries, federal regulatory reviews, and Congressional oversight. He provides counsel to companies facing litigation, regulation, inquiries, and other activities by the states, particularly multistate investigations by State Attorneys General.

617-951-8806
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