By now you may have heard that the CFPB has now twice denied petitions to modify or set aside a civil investigative demand (CID). No surprises here, and the CFPB has yet to modify or set aside such a CID. As reported by our CFPB-Lawblog in September, the CFPB earlier denied a petition by PHH Corporation (PHH). Now CFPB Director Cordray has again refused to modify or set aside a petition from Next Generation Debt Settlement, Inc. In this most recent denial, Cordray now includes some meaningful warnings for financial services providers regarding the CID process.
The first lesson: Pay attention to deadlines and other procedural requirements. Here, the CFPB rejects the petition for failure (1) to file the petition within 20 calendar days of service of the CID (12 U.S.C. § 5562(f)(l); 12 C.F.R. § 1080.6(e)); and (2) to meet and confer with a Bureau investigator within 10 calendar days after receipt of the CID (12 C.F.R. § 1080.6(c)). Next Generation was served with the CID on August 4, 2012, but apparently failed to file its petition until September 4, 2012—11 days late. Next Generation, the CFPB states, failed “to meet and confer with Bureau staff prior to filing [its petition].” The CFPB added that the “lack of any attempt to meet and confer provides an additional basis to deny the petition.”
The second lesson: The CFPB won’t let the limits of its own investigative authority get in the way of a CID. Next Generation argued in its petition that the CID should be waived or modified because the company had substantive defenses to any enforcement action. The CFPB, citing Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 201 (1946), rejected those arguments. Here, Director Cordray stated that the Bureau has investigative authority “to discover and procure evidence, not to prove a pending charge or complaint, but upon which to make one if, in the Bureau's judgment, the facts thus discovered should justify doing so.” This part of the ruling, which was unnecessary given Next Generation’s purported procedural failings, was plainly intended to send a message to covered entities that a defense based on the merits to the CFPB’s investigations is not a defense to the CID itself. “[F]acts relating to whether Next Generation is covered by or has violated a federal consumer financial law are not defenses to the enforcement of a CID, even if they might eventually be defenses to legal claims contemplated in the CID.”
For covered entities, remember that Cordray's word on this subject may well be the final one: Under the federal Administrative Procedure Act, an affected person may appeal only from final agency action, and a CID determination probably will not qualify. Stay tuned to the CFPB-Lawblog for updates and analysis as this story evolves.