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From Banking and Finance Law Daily, April 24, 2019

Bureau amends civil investigative demand policy in response to court challenges, comment letters

By Stephanie K. Mann, J.D.

The CFPB has amended its policies regarding civil investigative demands to ensure that they provide more information about any potential wrongdoing.

After having multiple Civil Investigative Demands (CIDs) stuck down for overbreadth and in response to numerous comment letters, the Consumer Financial Protection Bureau has announcedchanges to its policies regarding CIDs to ensure that they provide more information about the potentially wrongful conduct under investigation. The amendments are also consistent with a 2017 report by the Office of Inspector General for the CFPB, which recommended improved guidance for Bureau employees to improve enforcement attorneys’ practices for crafting notifications of purpose for CIDs to reduce the risk that notifications of purpose may result in legal challenges from CID recipients (Banking and Finance Law Daily, Sept. 28, 2017).

The Consumer Financial Protection Act authorizes the Bureau to issue investigational subpoenas when looking into potential violations of law. The act requires that each CID "shall state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation." CIDs issued by the Bureau set out this information in a section known as the "notification of purpose."

Under the updated policy, CIDs must:

  • provide more information about the potentially applicable provisions of law that may have been violated;
  • specify the business activities subject to the Bureau’s authority; and
  • in investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, CFPB staff may specifically include that issue in the CID in the interests of the further transparency.

Court decisions. The CFPB’s use of that authority has been the subject of court challenges as companies have contested the breadth of the information demanded, the identification of the law that might have been violated, and the relevance of the information to that law.

The U.S. District for the District of Columbia denied a petition by the Bureau to require the Accrediting Council for Independent Colleges and Schools (ACICS) to comply with the CFPB’s CID. The court ruled that the CFPB lacked the authority to investigate the ACICS’s process for accrediting for-profit schools. In reaching its decision, the court stated, "Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress" (CFPB v. Accrediting Council for Independent Colleges and Schools ).

The Bureau’s petition to enforce its CID to Source for Public Data, LP, a company that posts public record information about consumers on a website, was denied because it failed to advise the company of "the nature of the conduct constituting alleged violation which is under investigation and the provision of law applicable to such violation." The U.S. Court of Appeals for the Fifth Circuit determined that the CID failed to identify the conduct under investigation or the provision of law at issue. The judge ruled that, "Simply put, the CFPB does not have ‘unfettered authority to cast about for potential wrongdoing’" (CFPB v. The Source for Public Data, LP ).

Industry comments. In 2018, the CFPB issued a request for information on the Bureau’s use of CIDs (Banking and Finance Law Daily, Jan. 24, 2018). While the RFI stated that CIDs are "an essential tool for fulfilling the Bureau’s statutory mission of enforcing Federal consumer financial law," then Acting Bureau Director Mick Mulvaney also expressed concern that CIDs are imposing excessive burdens on the companies that must respond to them.

Many comment letters echoed Mulvaney’s concerns. A joint comment letter from Consumer Bankers Association, Financial Services Roundtable, and Consumer Mortgage Coalition called the process "opaque, burdensome, and often unfair to providers of financial services."

The Real Estate Services Providers Council, Inc., submitted a comment letter in which it advocated for: a committee to initiate investigations, as opposed to a single director; more specific stated purposes and narrow tailoring for CIDs; a 30-day time period for compliance; use of the Federal Rules of Civil Procedure and Evidence for any CID proceedings, and fewer limits on a party’s ability to object or obtain the advice of counsel during proceedings; a less adversarial process for meeting and conferring on CIDs; more reasonable response times; and the nondisclosure of petitions to modify or set aside CIDs. Following the change in policy, RESPRO commended the Bureau for "following our suggestion."

The Ballard Spahr law firm submitted a comment letter based upon its experience representing bank and non-bank clients in more than 50 CFPB investigations. According to the comment letter, the CFPB "has a history of using CIDs for broader purposes that are not authorized by the Dodd-Frank Act but rather are more akin to an extensive, unfocused supervisory examination in order to uncover potential violations." The letter also put forward proposals intended to restrict the CID process to its "proper role, the investigation of suspected violations of specific consumer financial protection laws."

Companies: Accrediting Council for Independent Colleges and Schools; Ballard Spahr LLP; Consumer Bankers Association; Consumer Mortgage Coalition; Financial Services Roundtable; Real Estate Services Providers Council, Inc.; Source for Public Data, LP

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