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District Court compels college operator to testify in CFPB CID challenge
On April 20, a magistrate judge for the U.S. District Court for the District of Utah issued a report and recommendation in a CFPB action seeking to compel testimony from a private, non-profit operator of several colleges as part of its petition to enforce a 2019 civil investigative demand (CID). The CID seeks information about (i) the operator’s private student loan program to determine whether its private financing program violated federal consumer financial laws; and (ii) litigation involving the operator’s student loan program in which it has been a party in since 2012. The CID also sought testimony for what it said was an investigation into whether the operator had misled student borrowers about the offered loans or signed them up for loans without their knowledge or consent—a potential UDAAP violation. Former Bureau Director Kathleen Kraninger previously denied a petition to set aside the CID (and ultimately ratified its enforcement), but offered to narrow the CID’s scope to only require testimony regarding the first of these topics on the condition that the operator would testify as scheduled. The Bureau filed a petition to enforce the CID after the operator failed to comply. The operator challenged the Bureau’s single-director structure (which was addressed in rulings issued by the U.S. Supreme Court in Seila Law v. CFPB and Collins v. Yellen, covered by a Buckley Special Alert here and InfoBytes here), and argued, among other things, that the CID was “overly broad” and “burdensome.”
The magistrate judge rejected the majority of the operator’s arguments, which included constitutional arguments, lack of relevance, abuse of process, and that the demand is too indefinite, overly broad and burdensome. The magistrate judge concluded that enforcing the compromise offered by the Bureau back in 2019 would be an equitable solution and give the agency the necessary information without imposing undue burden, explaining that the defendant “has now had multiple years to prepare witnesses for deposition and should not be unduly burdened to answer questions regarding its own private-student-loan program.”
District Court denies motion to dismiss for lack of jurisdiction
On March 21, the U.S. District Court for the Western District of Virginia denied defendants’ motion to dismiss for lack of subject matter jurisdiction in a suit alleging that they misrepresented the cost of immigration bond services and deceived migrants to keep them paying monthly fees, including by making false threats of deportation for failure to pay. The defendants argued that “the CFPB lacks authority to exercise any power to enforce the CFPA with respect to [the defendants] because these corporations are regulated by state insurance regulators (12 U.S.C. § 5517(f)) and are merchants, retailors, or sellers of nonfinancial goods or services.” However, the district court noted that “limitations on the CFPB’s regulatory authority do not equate to limitations on this court’s jurisdiction.” The defendants also argued “that the exclusions to CFPB jurisdiction enumerated in the CFPA are jurisdictional limits on the court.” The district court found the defendants were “mistaken” and that “Congress did not expressly state that any threshold limitation on the CFPA’s scope shall count as jurisdictional limitations on the court. For these reasons, the court finds that it has subject-matter jurisdiction in this case.”
As previously covered by InfoBytes, the U.S. District Court for the District of Columbia denied the defendants’ request to enforce a modified Civil Investigative Demand (CID) and prevent the CFPB from obtaining personal information about the defendants’ clients via CIDs to third parties. In August 2017, the CFPB issued a CID to the defendants requesting various documents and information. The CFPB filed the present lawsuit in February 2021.
Texas AG issues CID to video streaming company
On February 18, the Texas attorney general issued two Civil Investigative Demands (CIDs) to a video streaming company that focus on the company’s potential facilitation of human trafficking and child privacy violations, as well as other potential unlawful conduct. According to the CIDs, the company allegedly violated section 140A.002, Civil Racketeering Related to Trafficking of Persons, of the Texas Civil Practice and Remedies Code. The CID orders to company to: (i) provide answers and documents in response to the CID; (ii) preserve documents and/or other data which relate to the subject matter or requests of the CID; and (iii) consult the AG prior to processing or making copies of hard-copy documents or electronically stored information in response the CID.
Courts order VoIP providers to give information to FTC
On February 14, the FTC announced that two federal courts in California ordered two Voice-over-Internet Protocol (VoIP) service providers to produce information that the agency is seeking as part of a continuing investigation into possible illegal robocalls. According to the first order, the VoIP service provider is required to comply with a CID as part of an FTC investigation. According to the FTC, “[a]lthough the CID directed [the respondent] to produce selected information and documents by the end of February 2021, the company produced only a small fraction of the required information, even after receiving an extension of the response deadline from Commission staff.” The FTC filed a petition in federal court seeking to compel compliance with the CID when further efforts to cooperate with the respondent were “unsuccessful.” The assigned magistrate judge issued a report and recommendation in December 2021, finding “that the FTC is entitled to enforcement of the remainder of the CID,” and recommending that the district judge enter an order requiring the respondent to comply. The court accepted that recommendation, and issued an order compelling the respondent’s compliance with the CID. The second VoIP service provider was likewise ordered to turn over information required under an FTC CID, issued to in January 2021. After failing to respond to the CID, the FTC filed suit to enforce compliance and claimed that “neither the company nor its principals had responded to the CID, which ‘materially impeded the FTC’s investigation.’” According to the FTC, the court granted the FTC’s petition, and in response, the respondent turned over the required information.
Seila Law will not petition Supreme Court a second time
On October 8, counsel for the appellant in CFPB v. Seila Law LLC sent a letter to the U.S. Court of Appeals for the Ninth Circuit stating that, after further consideration, the law firm has decided not to seek further review from the U.S. Supreme Court in its long-running challenge with the Bureau. Seila Law’s last trip to the Court resulted in a decision that declared the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert). October 11 was the deadline for Seila Law to file a certiorari petition with the Court after the 9th Circuit granted the law firm’s request to stay a mandate ordering compliance with a 2017 civil investigative demand (CID) issued by the Bureau. As previously covered by InfoBytes, the order stayed the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the Court if the law firm had filed its petition of certiorari. The letter did not explain Seila Law’s reasoning.
This announcement follows the Court’s recent decision not to hear a petition filed by a New Jersey-based finance company accused by the CFPB and the New York attorney general of misleading consumers about high-cost loans allegedly mischaracterized as assignments of future payment rights (covered by InfoBytes here), and may mark the beginning of the end of litigation over former Director Kraninger’s July 2020 ratifications of the Bureau’s private actions (covered by InfoBytes here). Since the Court’s decision in Seila, several courts have heard challenges from companies claiming the Bureau could not use ratification to avoid dismissal of their lawsuits.
CFPB denies debt collection company’s petition to set aside CID
On August 18, the CFPB denied a petition by a debt collection company to set aside a civil investigative demand (CID) issued by the Bureau in May. The CID requested information regarding whether debt buyers, debt collectors or persons associated with selling or collecting debt, have “made false or misleading representations to consumers or third parties in a manner that is unfair, deceptive, or abusive,” in violation of the CFPA, among other things. The company petitioned the Bureau on May 26 to set aside the CID, arguing, among other things, that the CID (i) “fails to identify sufficiently the nature of the conduct under investigation”; (ii) “fails to provide [the company] with any notice whatsoever of any potential witnesses or participants who may be necessary to respond to the CID”; and (iii) is overbroad and unduly burdensome.
In rejecting the company’s arguments described above, the Bureau found that: (i) “the Bureau’s notification of purpose identifies the nature of the conduct under investigation and is therefore not ‘too indefinite’”; (ii) it is not required that the Bureau provide any notice any potential witnesses or participants who may be necessary to respond to the CID; and (iii) the CFPB holds “broad authority to seek information which may be relevant to its investigations.”
9th Circuit stays Seila CID pending Supreme Court appeal
On June 1, the U.S. Court of Appeals for the Ninth Circuit granted Seila Law’s request to stay a mandate ordering compliance with a civil investigative demand (CID) issued by the CFPB. The order stays the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the U.S. Supreme Court should the law firm file its expected petition of certiorari. Last month, Seila Law announced its intention to ask the Court “whether the ratification of the CFPB’s civil investigative demand is an appropriate remedy for the separation-of-powers violation identified by the Supreme Court.” In its motion, Seila Law claimed that the Bureau’s “alleged ratification” was not legally sufficient to cure the constitutional defect and that “an action taken by an agency without authority cannot be ratified if the principal lacked authority to take the action when the action was taken.” Seila Law further argued that the only appropriate remedy is dismissal of the petition to enforce the CID. The Bureau countered that former Director Kraninger’s ratification was valid, emphasizing that the majority of the 9th Circuit denied en banc rehearing last month (covered by InfoBytes here). The Bureau further contended that Seila Law did not demonstrate good cause for the stay or suggest that it would suffer irreparable harm should the motion be denied, pointing out that “equities now weigh overwhelmingly in favor” of requiring Seila Law’s compliance with the CID.
CFPB denies lending agency’s petition to set aside CID
On April 26, the CFPB denied a petition by a title lending company to set aside a civil investigative demand (CID) issued by the Bureau in February. The CID requested information from the company to determine, among other things, whether “consumer-lending companies or title-loan companies, in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt, have made false or misleading representations” to consumers. On February 25, the company had petitioned the Bureau to set aside the CID, arguing, in part, that (i) the Bureau failed to provide the company “‘with fair notice as to the nature of the Bureau’s investigation,” as required under section 1052(c)(2) of the Consumer Financial Protection Act (CFPA); (ii) the CID did not enable the company to adequately assess “the relevance or the burdensomeness of the individual requests”; and (iii) part of the Bureau’s investigation related to the company’s sale of non-filing insurance (NFI), which is a particular concern “because NFI is a topic that appears to be completely outside of the Bureau’s authority,” as the CFPA does not authorize the Bureau to regulate the business of insurance.
The Bureau rejected the company’s request to set aside or modify the CID, finding that: (i) the Bureau notified the company that it is investigating conduct in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt’ as potential violations of §§ 1031 and 1036 of the CFPA, the Truth in Lending Act, the Military Lending Act, as well as a prior consent order to which the company is still subject; (ii) the company’s defenses are premature at the investigative stage, even if they “could be raised in defense against the potential legal claims contemplated by the CID”; (iii) although the company complained about the purported “vagueness of the description of the subjects of the investigation” and “whether all of the potential violations applied to the [c]ompany or only a portion,” the Bureau is not required to identify the subject of law enforcement investigations in its CIDs; and (iv) the notification at issue is “far more specific” than the notification of purpose in a different matter referenced by the company, and “identifies the precise conduct under investigation while expressly noting the conduct was committed ‘in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt.’”
CFPB denies guaranty agency’s petition to set aside CID
On December 16, the CFPB denied a petition by a non-profit guaranty agency that serves as a guarantor of federal student loans to set aside a civil investigative demand (CID) issued by the Bureau last September. The CID requested information from the company to determine, among other things, whether “debt collectors, guaranty agencies, or associated persons” violated the CFPA’s UDAAP provisions by improperly causing borrowers to incur costs or fees in connection with the collection of student loans. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that the Bureau lacked jurisdiction, because it does not provide a consumer financial product or service, but rather a commercial service to the Department of Education (Department). The company also argued that the Bureau lacked jurisdiction due to the company’s fiduciary relationship with the Department, citing a Memorandum of Understanding (MOU) between the Bureau and the Department related to their respective responsibilities for handling student borrower complaints. Additionally, the company claimed that any potential allegations are time-barred, and that, in the alternative, the CID should be stayed until the U.S. District Court for the District of Columbia issues a decision in a pending lawsuit challenging the validity of the Department’s Guaranty Agency Collections Fee Rule.
The Bureau rejected the company’s request to set aside or modify the CID, finding that (i) it has a “reasonable basis to investigate” whether guaranty agencies, like the company, fall within its jurisdiction; (ii) the CID is proper because it seeks information “relevant to a violation” of consumer financial protection laws, as well as information related to the company’s relationships with private collection agencies and loan servicers; (iii) the Bureau’s MOU with the Department has “no relevance” to the Bureau’s exercise of its investigative or enforcement authority; (iv) its investigation is not time-barred because the CFPA’s statute of limitations begins to run upon the Bureau’s discovery of the violation, and, moreover, the Bureau is not limited to gathering information from only within the limitations period; and (v) the company “fail[ed] to establish any basis for an indefinite stay of the CID.”
CFPB denies petition to set aside CID; cites authority to seek “reasonably relevant” information
On August 27, the CFPB denied a petition by an auto financing company to set aside a civil investigative demand (CID) issued by the Bureau in June. The CID requested information from the company to determine, among other things, “whether auto lenders or associated persons, in connection with originating auto loans (including marketing and selling products ancillary to such loans), servicing loans, collecting debts (including through repossessing vehicles), or consumer reporting” may have violated the Consumer Financial Protection Act’s UDAAP provisions, as well as the FCRA and TILA. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that because certain aspects of the CID do not fall within a “reasonable construction of the CID’s notification of purpose,” and thus failed to provide fair notice as to what the Bureau is investigating, the CID should be “modified to strike each of these requests or clearly confine them to the enumerated topics.”
The Bureau rejected the company’s request to set aside or modify the CID, countering that (i) the particular requests that the company objects to are “all reasonably relevant to the Bureau’s inquiry as described in the notification of purpose,” and that the company cannot rewrite the CID’s notification of purpose to describe only four specific topics and then argue that the Bureau is asking for irrelevant information; and (ii) the Bureau has broad authority to seek information that may be “reasonably relevant” to an investigation, and that the Bureau’s “own appraisal of relevancy must be accepted so long as it is not obviously wrong.” According to the Bureau, the company failed to overcome this “high hurdle established in the judicial precedent.” However, the Bureau granted the company’s request for confidential treatment of its petition and attached exhibits by agreeing to redact certain proprietary business information and confidential supervisory information.
- Keisha Whitehall Wolfe to discuss “Tips for successfully engaging your state regulator” at the MBA's State and Local Workshop
- Max Bonici to discuss “Enforcement risk and trends for crypto and digital assets (Part 2)” at ABA’s 2023 Business Law Section Hybrid Spring Meeting
- Jedd R. Bellman to present “An insider’s look at handling regulatory investigations” at the Maryland State Bar Association Legal Summit