On Friday, April 21, 2017, the U.S. Court of Appeals for the D.C. Circuit upheld a district court ruling that a civil investigative demand (CID) issued by the Consumer Financial Protection Bureau (CFPB) against the Accrediting Council for Independent Colleges and Schools (ACICS) is unenforceable. The case is Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, Case No. 16-5174, in the U.S. Court of Appeals for the D.C. Circuit. Venable represented ACICS in both the initial proceeding and on appeal.
The decision represents the first time in decades in which a federal appeals court has struck down an administrative subpoena issued by the federal government.
Judge David B. Sentelle, writing for the unanimous three-judge panel, held that the CFPB did not have the statutory authority to issue the civil CID in question. Specifically, the Court held that the CFPB failed to provide ACICS with sufficient notice as to the nature of the conduct and the alleged violation under investigation, as required by statute. The Court emphasized the CFPB's inability to provide specifics regarding the nature of the investigation: "Tellingly, in attempting to explain the scope of its investigation, the Bureau merely repeats the broad language used in the Notification of Purpose." According to the Court, the CFPB was "required by statute to adequately inform ACICS of the link between the relevant conduct and the alleged violation." The Court agreed with the district court that the CID "says nothing" about this potential link.
The Court rejected the CFPB's references to broad statutory provisions and "uninformative catch-all" phrases, and explained that "[i]ndeed, were we to hold that the unspecific language of this CID is sufficient to comply with the statute, we would effectively write out of the statute all of the notice requirements that Congress put in."
The Court's holding is not only likely to have a broader impact on CFPB CIDs moving forward, but may also affect administrative subpoenas of other agencies, such as the Federal Trade Commission (FTC). Though the D.C. Circuit wrote that its holding here was "on narrower grounds" than that of the district court because the court "need not and probably cannot accurately determine whether the inquiry is within the authority of the agency," the Court's ruling will likely affect how much information an administrative agency must provide to a CID recipient about the scope of the agency's investigation. Specifically, the Court cautioned that vague statements about a "possible connection" and "intersection" between the agency's authority and the CID recipient's business are insufficient. This panel of the D.C. Circuit made clear that the CFPB (and, arguably, other agencies) does not have "unfettered authority to cast about for potential wrongdoing."
Moving forward, recipients of CFPB CIDs and administrative subpoenas from other agencies now have a stronger footing from which to push back for additional clarity and specificity regarding the scope of the agency's investigation. This is particularly important for CIDs asserted under the wide range of potential issues and business practices under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP, or UDAP as it relates to the FTC) umbrella, which the CFPB and FTC often broadly assert. Furthermore, the FTC's statutory authority for issuing CIDs is similar to that of the CFPB such that this case is likely to affect the level of specificity in FTC CIDs. However, the FTC's expansive authority over a range of industries, which is broader than the CFPB's focus on consumer financial products or services, means that this case may in turn affect a broader range of businesses. Regardless of whether the CFPB, FTC, or other administrative agencies reform their CID practices, recipients now have greater latitude to challenge sweeping and open-ended requests.