District Court Upholds CFPB CID Targeting the Marketing of “Contracts for Deed”

Courts Consumer Finance CFPB Compliance

On February 17, a U.S. District Court held that home sellers who use contracts for deed are required to comply with CFPB Civil Investigative Demands (CIDs) asking for information about possible illegalities in selling or collecting residential property purchase loans. CFPB v Harbour Portfolio Advisors, LLC et al., [Order] No. 16-14183 (E.D. Mich. Feb. 17, 2017). Specifically, the Court found that the Bureau is not “plainly lacking” in jurisdiction to look into contracts for deed, and the CIDs were not unduly burdensome.

Back in November, the CFPB had petitioned the court to enforce CIDs served on Respondents. At issue before the Court was whether the Bureau’s investigative authority extends to the selling, marketing, and servicing of a financial product called an Agreement for Deed (“AFD”), otherwise known as a “contract for deed” or a “land installment contract.” Respondents thereafter petitioned the Bureau to set aside the CIDs, offering three reasons why the CIDs should not be enforced: (i) the CFPB exceeded its authority in issuing the CIDs; (ii) the companies had not been given fair notice that contracts for deed could be covered by federal financial consumer protection laws; and (iii) the CIDs were unduly burdensome and should be modified.

Each of these three arguments was rejected by the court: (i) as to the Bureau’s authority, the court found that objection premature, noting that the Bureau need only establish a “plausible reason” to believe the companies might have information related to violations of the federal financial consumer protection laws; (ii) the court similarly held the “fair notice” argument to be premature at the investigation stage; and (iii) in rejecting Respondent’s arguments that the burden of compliance was excessive, the court noted that the CFPB was entitled to documents that “will help the Bureau develop a complete understanding of Respondents’ practices and operations” and that Respondents’ assertions about the cost of compliance and the burden on its few employees were not corroborated.