Firms and individuals receiving CIDs now have at least two solid bases — endorsed by federal courts — to attack CIDs.
On April 21, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion in CFPB v. Accrediting Council for Independent Colleges & Schools, affirming a decision by the D.C. district court to deny enforcement of a civil investigative demand (CID) issued by the CFPB against the Accrediting Council for Independent Colleges and Schools (ACICS). In finding the contested CID unenforceable, the Court of Appeals first noted that the CFPB is required by federal law “to adequately inform ACICS of the link between [its] relevant conduct and [the] alleged violation.” The court then characterized the CID’s description of the laws that were allegedly violated (i.e., “unlawful acts and practices in connection with accrediting for profit colleges”) as amounting to nothing more than “an uninformative catch-all phrase,” which, if relied on as the basis for enforcing a CID, “would effectively write out of the statute [governing CIDs] all of the notice requirements Congress put in.”
The ACICS is a nonprofit organization that accredits for-profit colleges. Over the past several years, the CFPB has investigated and pursued enforcement actions against a number of for-profit colleges in connection with allegedly deceptive student-lending practices. The CID in question sought information regarding the for-profit institutions that ACICS accredited and the ACICS-affiliated individuals who participated in those accreditations. ACICS first petitioned the CFPB for withdrawal or modification of the CID, and then refused to comply with the CFPB’s order denying that request. The CFPB responded to these actions by seeking enforcement of the CID in federal district court.
The district court’s memorandum decision denying the CFPB’s petition concluded that the CFPB was attempting to conduct an investigation outside its statutory authority, noting that the laws enforced by the CFPB under the Dodd-Frank Act do not “address, regulate or even tangentially implicate the accrediting process of for-profit colleges.” In confirming the district court’s decision, the Court of Appeals noted that, “we reach the same conclusion as the district court — albeit on narrower grounds — that is, the CID does not comply with the requirements of the [authorizing federal] statute.” The Court of Appeals also noted that the “CFPB’s recognition that it lacks statutory authority over the accreditation process of for-profit colleges further illustrates the CID’s inadequacy.”
In concluding that the CID failed to give ACICS reasonable notice of its alleged unlawful activities, the Court of Appeals opined that “the CFPB’s ability to define its scope of investigation broadly ‘does not afford it unfettered authority to cast about for potential wrongdoing,” citing In re Sealed Case (Admin. Subpoena), 42 F.3d 1412, 1418 (D.C. Cir. 2014). Rather, as noted above, the court determined the CFPB was statutorily obligated to inform ACICS of the specific link between its alleged conduct and the violations of law committed by for-profit colleges, and the CFPB could not rely on mere assertions of “unspecific language” and “uninformative catch-all phrase[s]” in meeting this statutory burden.
Firms and individuals receiving CIDs now have at least two solid bases — endorsed by federal courts — to attack CIDs: (1) that the CID is beyond the scope of the CFPB’s authority to investigate and (2) that the CID is not specific enough to put the recipient on notice of the alleged illegal conduct.
The decision may force the CFPB to more specifically identify the alleged violations, the scope of its investigation, and the connection between the federal consumer finance law and the recipient’s conduct or risk lengthy and costly challenges to CIDs.
There has been speculation by firms subject to the CFPB’s jurisdiction that the CFPB has used CIDs to obtain information when there is not a solid basis for an investigation. The CFPB’s use of more fulsome descriptions of its investigations may end this practice by the CFPB and cause firms to have more confidence that CID misuse has ended.