Monday, April 25, 2016

FYI: DC Fed Ct Holds CFPB Exceeded Its Statutory Authority in Issuing CID

The U.S. District Court for the District of Columbia recently denied a petition by the Consumer Financial Protection Bureau (CFPB) to enforce a Civil Investigative Demand (CID) issued to an accreditor of for-profit colleges, holding that the CFPB did not have statutory authority to issue the CID.


A copy of the opinion is available at:  Link to Opinion


The CID issued by the CFPB required the respondent to designate a representative to give oral testimony regarding the respondent's policies, procedures, and practices relating to the accreditation of seven schools. The CID also required the respondent to name all post-secondary educational institutions accredited by it since 2010 and to identify all individuals who performed accreditation reviews related to twenty-one specific schools.


The respondent objected to the CID on the grounds that an investigation into the accreditation of for-profit schools is outside of the CFPB's statutory authority.


The CID's statement of purpose 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 . . ." But the Court noted that the CFPB's investigative authority "is limited to inquiries to determine whether there has been a violation of any consumer financial laws." 


Because the consumer financial laws do not address or regulate the accrediting process of for-profit schools, the Court agreed with the respondent that the stated purpose of the investigation was not within the statutory authority of the CFPB.


The Court was not convinced that the CFPB's authority to investigate the lending services of for-profit schools carries with it the authority to investigate whether an entity has engaged in any unlawful acts relating to the accreditation of those schools. Indeed, the Court described this after-the-fact justification as a "bridge too far."


The Court also rejected the Bureau's argument that it had the right to investigate and determine for itself whether the respondent's accreditation process is in any way connected with a school's private lending practices, something the respondent denied. 


Although the Court recognized that the CFPB would have the authority to learn whether the respondent was connected in any way to potential violations of the consumer financial laws by the schools it accredits, the CID's statement of purpose and the Bureau's requests reveal that its investigation actually targeted the accreditation process itself, a subject beyond the CFPB's authority.


In a footnote, the Court hinted that the CFPB's petition might have been denied even if the stated purpose of the CID was within the scope of the CFPB's authority. For a CID to be enforceable, the information sought must be reasonably relevant to its purpose. The Court appeared to doubt whether information related to the respondent's accreditation process was relevant to an investigation of the lending practices of for-profit schools.




Ralph T. Wutscher
Maurice Wutscher LLP
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