Recipients of a Civil Investigative Demand (CID) from the Consumer Financial Protection Bureau (CFPB) have yet another reason to be wary of petitioning the Director to have the CID formally modified or set aside.
On February 11, 2016, CFPB Director Richard Cordray signed an order denying J.G. Wentworth’s petition to set aside a CID that was issued to the company in the fall of 2015. Cordray’s decision is the first order made public in 2016, and is yet another notch in the loss column for petitioners of CFPB CIDs. In particular, the CFPB made clear that fact-based challenges to the application of federal consumer protection laws will not act as a bar to the enforcement of a CID.
On September 11, 2015, the CFPB issued a CID to J.G. Wentworth that contained 14 document requests, seven interrogatories, and two requests for written reports regarding J.G. Wentworth’s business of purchasing structured settlement and annuity payments. The CID’s Notification of Purpose indicated that the CFPB was seeking:
to determine whether persons involved in advancing funds in exchange for the rights to future payments from structured settlements or annuities have engaged or are engaging in acts or practices that violate sections 1031 and 1036 of the Consumer Financial Protection Act of 2010 . . .; the Truth in Lending Act . . . or its implementing regulations; or any other Federal-consumer financial law, and whether Bureau action to obtain legal or equitable relief would be in the public interest.
Section 1052 of the Consumer Financial Protection Act (CFPA) and Section 1080.6 of the CFPB’s Rules Regarding Investigations give the recipient of a CFPB CID the ability to petition the Director to modify or set aside the CID. In order to file such a petition, the recipient must have “meaningfully engaged [with the CFPB] in the meet and confer process,” and must have raised, and attempted to resolve, the issues they wish to assert in the petition.
J.G. Wentworth met with the CFPB on September 21, 2015, and again on September 29, 2015. During the meet and confer process, J.G. Wentworth asserted that the CFPB lacked jurisdiction and requested that the CID be retracted. A CFPB Deputy Enforcement Director denied their request.
On October 1, 2015, J.G. Wentworth filed a formal Petition to Set Aside the CFPB’s CID, setting forth three arguments in support of its assertion that the CFPB lacked the authority to issue the CID in the first place. First, they argued that they are not a “covered person” as defined by the CFPA because they do not offer or provide any consumer financial products or services, and that the CFPB only has the authority under the CFPA to regulate “‘covered person[s] or service provider[s]’ who are engaged in ‘unfair, deceptive, or abusive act[s] or practice[s] under Federal law’.”
Director Cordray characterized this claim as “misplaced” and explained that the Bureau has the authority “to issue CIDs to ‘any person’ who may have information ‘relevant to a violation’.” Citing prior orders, Cordray went on to say that J.G. Wentworth’s fact-based argument that it is not subject to substantive provisions of the CFPA is not a defense against the enforcement of a CID.
Second, J.G. Wentworth argued that the CFPB lacked the jurisdiction to issue the CID because Truth in Lending Act (TILA) and its implementing regulations do not apply to their business of purchasing structured settlement and annuity payments. TILA and Regulation Z only apply to individuals or businesses that offer or extend credit, and, citing numerous federal court decisions, J.G. Wentworth contended that the assignment of a structured settlement is a sale, not a loan or credit transaction.
Again noting, that this is a substantive defense that does not address the scope of the CFPB’s investigative authority, Director Cordray rejected the argument and stated that it was not necessary to determine whether structured settlement transactions are subject to TILA, Regulation Z, or any other federal consumer financial laws in order to resolve this petition.
Finally, J.G. Wentworth argued that, while the CFPB generally has the authority to conduct preliminary discovery to determine whether a company’s business practices are within the Bureau’s authority, in this case the CFPB had already exhausted that authority through other previously issued CIDs, with which J.G. Wentworth had complied. By way of background, J.G. Wentworth’s petition explained that the CFPB first issued a CID in April 2014, and then issued another in April 2015. In response to the first CID, J.G. Wentworth produced over 40,000 pages of documents, and pursuant to the second CID, three J.G. Wentworth employees provided the Bureau with testimony about their business during investigational hearings. Therefore, J.G Wentworth argued that the CFPB already had more than enough information regarding its business to conclude that they did not have jurisdictional authority. In response, Director Cordray stated that J.G. Wentworth’s argument is moot because, as he had previously concluded, the Bureau does not lack jurisdiction to issue the CID.
Director Cordray concluded the order by directing J.G. Wentworth to produce all responsive documents, items and information within its possession, custody or control that were covered by the CID within 21 days.