One of the primary concerns that we have with the CFPB is the triple – or quadruple – role that it plays in determining violations of consumer laws and regulations by members of the industry, and doling out the punishment to industry members. This fact is made no more apparent than in connection with “appeals” of Civil Investigative Demands (CID). Let's analyze a recent appeal of the breadth and scope of a CID. First, some background:
The CFPB has been investigating the role of both for-profit and not-for-profit colleges and universities in connection with higher education loans. On August 25, 2015, the CFPB issued a CID to the Accrediting Council for Independent Colleges and Schools (ACIS), in connection with the investigation of for-profit colleges. The CID sought sworn testimony from an ACIS company representative, to be selected by ACIS, on the subjects of its policies, practices and procedures for accrediting certain member for-profit colleges. And, the CID asked for a list of the accredited colleges and the individuals who conducted the accreditations.
ACIS timely objected to the breadth and scope of the CID. ACIS and the CFPB then failed to resolve ACIS' objection. Thereafter, ACIS formally appealed the CID on September 4th. The CFPB appellate process leads straight to Director Richard Cordray. Not surprisingly, Director Cordray denied the appeal on October 8th. Not incidentally, we have never seen a published report of a CID appeal that has been sustained by the Director.
In denying the appeal, the Director pointedly responded that a CID need not detail a specific narrative of what the CFPB is looking for, and the investigatory powers of the CFPB are by their nature, broad.
More specifically, the Director found that since the CFPB is not a private plaintiff seeking to enforce the Higher Education Act, it is not conducting an enforcement action limited to the Secretary of Education. Further, the argument that ACIS is not a “covered person” is an issue that is a substantive defense to any future enforcement action against ACIS that the CFPB may choose to bring; however, such an argument does not apply to the scope of the CFPB's investigative authority under the Dodd-Frank Act.
So, what is going on here? The CFPB as “prosecutor” seeks a subpoena of sorts from a target. When the target objects to the scope of the inquiry, the CFPB as “judge” overrules the objection. And, we venture to guess that if and when the CFPB seeks an enforcement action against ACIS, then the CFPB as “jury” will determine guilt and the scope of punishment.
So, all that will be left is execution…