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From Banking and Finance Law Daily, April 18, 2013

CONSUMER FINANCIAL PROTECTION BUREAU—Bureau Rejects Challenges to Civil Investigative Demand

By Richard A. Roth, J. D.

The Consumer Financial Protection Bureau has once again rejected the assertion that a civil investigative demand should be withdrawn because the CID did not adequately describe the conduct under investigation and sought information beyond the bureau’s enforcement authority. According to a petition by mortgage company Aspire Financial, Inc., the defects meant that the CID should be withdrawn or at least modified to apply to a shorter time span (In the Matter of Aspire Financial, Inc., 2013-MISC-Aspire Financial-0001).

The bureau’s CID arose from its concern over possible false advertising in the mortgage lending industry. A November 2012 press release warned mortgage lenders and brokers "to clean up potentially misleading advertisements" and made the bureau’s interest in the area clear. The CID, served in January 2013, instructed Aspire to answer 12 interrogatories and satisfy eight requests for documents relating to the company’s mortgage advertisements. Aspire asked the bureau to either modify or withdraw the CID.

Description of investigation. TAccording to Dodd-Frank Act Section 1052, a CID has to "state the nature of the conduct constituting the violation which is under investigation." Aspire asserted that the CID was too general to satisfy that requirement.

The bureau disagreed, however, noting that the CID named two specific statutes and two specific regulations that applied. That information, plus what could be deduced from the interrogatories and document requests, made clear what conduct was being investigated.

The same argument had previously been raised by another company and rejected, the bureau noted. PHH Corporation, which operated a captive reinsurance company, had objected to a CID seeking information on the practice of ceding premiums from private mortgage insurance companies to mortgage lenders’ captive reinsurance subsidiaries. The bureau overruled PHH’s objection, saying that the CID was clear.

CFPB enforcement authority. Aspire also took issue with the time span covered by the CID, noting that the bureau had asked for information about the company’s practices before the Dodd-Frank Act and mortgage advertising rule took effect. Since the CFPB had no authority to address violations that occurred before it existed, information about such violations was not within the bureau’s jurisdiction, the company argued.

The CFPB noted that the same argument had unsuccessfully been raised by PHH. A CID had a broader reach, covering information relevant to conduct the bureau could investigate. Information on Aspire’s course of conduct was important because of what it could show about the company’s knowledge of the results of its actions. What changes the company had made in order to comply with the requirements of the new laws and regulations also was relevant, the bureau said.

Companies: Aspire Financial, Inc.; PHH Corporation.

RegulatoryActivity: CFPB ConsumerCredit EnforcementActions Loans Mortgages TruthInLending

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