Companies That Transact Business with Financial Institutions Need to Be Aware of the Bureau's Robust Use of CIDs

HIGHLIGHTS:

  • Consumer Financial Protection Bureau Director Richard Cordray rejected challenges to the CFPB's investigation powers and the Bureau's use of broadly worded civil investigative demands (CIDs) in a published opinion.
  • Director Cordray vigorously insisted that the CFPB may serve CIDs on companies that transact business with financial institutions.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray rejected challenges to the CFPB's investigation powers and the Bureau's use of broadly worded civil investigative demands (CIDs). Director Cordray did so in a published opinion on Aug. 6, 2015, accompanying his denial of a petition to set aside a CID filed by a lead generator. In his denial, Director Cordray vigorously insisted that the CFPB may serve CIDs on companies that transact business with financial institutions.

In May 2015, the CFPB served Selling Source, LLC and one of its employees with a CID seeking oral testimony. The CFPB sends CIDs, which are similar to subpoenas, to initiate an investigation. Within 20 days of receiving a CID, the recipient may petition the CFPB to modify or set aside the CID. In June 2015, Selling Source did so, challenging the CFPB's authority to target their company in an investigation.

CID Notification of Purpose Can Be Broadly Worded

Selling Source argued the CFPB should set aside the CID because the required "notification of purpose" in the CID was not specific enough. The company stated that simply listing that the purpose of the CID is to investigate "lead generators or other unnamed persons" for violations of a series of laws was not sufficient notice to give Selling Source a description of the purpose for, and scope of, the investigation. Director Cordray defended the CFPB's use of broadly worded notifications, stating that the practice preserves the Bureau's right to expand (or contract) the scope of an investigation as it proceeds. Additionally, Director Cordray disagreed with Selling Source's charge that such a practice was misleading and lacking in specificity.

Companies That Transact Business with Financial Institutions Must Comply with CIDs

Selling Source also argued that Congress did not give the CFPB enforcement authority over lead generators, and thus the investigation related to a potential enforcement proceeding not within the scope of the CFPB's authority. Director Cordray disagreed, and made clear that the CFPB may send CIDs to companies that transact business with a financial institution. Director Cordray also remarked that Selling Source had in fact waived the ability to make that objection because Selling Source's counsel did not raise it during the initial meet and confer with the CFPB. However, Director Cordray also affirmed his rejection of Selling Source's challenge on the merits, stating that such an objection is a "substantive defense to claims the Bureau has yet to assert," and not a defense to enforcement of a CID.

CFPB Will Continue Vigorous Use of CIDs

The take-away from Director Cordray's denial is clear: the CFPB plans to continue its robust use of CIDs and enforcement powers. Dodd-Frank requires the director to rule on petitions to set aside CIDs; Director Cordray's opinions thus serve as guidance for financial institutions and their counsel. To date, Director Cordray has never ruled to set aside a CID.