Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On April 25, a coalition of 16 state Attorneys General issued a comment letter responding to the CFPB’s Request for Information (RFI) on Civil Investigative Demands (CIDs). (See previous InfoBytes coverage on the RFI here and here.) According to the letter, the coalition opposes “any effort to curtail the Bureau’s civil investigative demand authority,” noting, among other things, that (i) the CFPB’s implementation of its final rule relating to investigations was “non-controversial” and based on established FTC enforcement practices; (ii) federal agencies are allowed to fulfill their mandates through the legislative grant of civil investigative demand authority; (iii) judicial supervision over CIDs protects recipients’ rights; and (iv) the CFPB “has used its investigative authority responsibly and effectively.”
On April 17, the U.S. District Court for the Western District of Pennsylvania ordered a student loan servicer to comply with a CFPB Civil investigative Demand (CID), while the servicer awaits appeal. As previously covered by InfoBytes, in February the court enforced a CFPB CID issued against the student loan servicer in June 2017. In granting the Bureau’s petition to enforce the CID, the court found that the CID’s Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” The court also found that the investigation was for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome. On March 26, the servicer filed a motion to stay the court’s order pending appeal to the U.S. Court of Appeals for the 3rd Circuit. In denying the servicer’s motion, the court held that the servicer would not be irreparably harmed if it responded to the CID should the 3rd Circuit reverse the court’s decision as the Appeals Court could order all documents to be returned and prevent the CFPB from acting upon information learned through the CID. Additionally, the servicer argued that the CFPB would not be injured if the court granted the stay because the agency has not yet brought an enforcement action. The court disagreed with this argument, holding that the CFPB cannot bring an enforcement action without reviewing the relevant documents and granting the stay would only “further stall the CFPB’s efforts to obtain documents and information that it requested nine months ago.”
On March 27, the FTC’s Bureau of Consumer Protection (BCP) released its comment letter responding to the CFPB’s Request for Information (RFI) on Civil Investigative Demands (CIDs) – the first RFI in a series seeking feedback on the CFPB’s operations (previously covered by InfoBytes here). According to the BCP, good government requires an agency to use restraint both when deciding to issue compulsory CIDs and when making specific demands, because courts are deferential to an agency’s request. The BCP emphasizes the need for a balance between the enforcement of laws by an agency and the potential burden on the party whom receives the demand.
The FTC response is notable as it is not common for a federal agency to submit comments to another agency’s RFI. However, as the BCP points out, the CFPB originally used the FTC’s Rules of Practice and Procedure as a model when establishing its CID process, and in July 2017, the BCP implemented several reforms to its consumer protection CID process. (Previously covered by InfoBytes here.) The comment letter notes the BCP’s belief that the reforms “have been quite successful in lessening burdens on recipients and improving transparency while continuing to allow the agency to obtain the information it needs to enforce the law.” In response to the CFPB’s specific requests, the BCP outlined its internal processes and provided the Bureau with specific recommendations, while recognizing the inherent differences in each agency’s authority, mission and organizational structure. The BCP recommendations include:
- Opening/closing investigations. Increase oversight by senior agency leadership with respect to the opening and closing of investigations by staff in the Office of Enforcement.
- Issuing CIDs. Delegate authority to issue CIDs to more senior officials (as opposed to the Deputy Assistant Directors of the Office of Enforcement) or to officials who are not directly involved in the investigation.
- Explaining purpose of investigation. Ratify the Bureau’s currently informal process of articulating a more specific purpose for the CID and using the CFPB’s “meet-and-confer” requirement under 12 C.F.R. § 1080.6(c) to constructively engage with the recipient to better improve their understanding of the CID’s purpose.
- Scope of requests. Use the meet-and-confer process to resolve or narrow concerns regarding potentially broad CID requests in order to avoid unnecessary burdens on the recipient and delays caused by a petition to limit or quash a CID.
- Incorporating certain Federal Rules by reference. For the taking of testimony of an entity and the handling inadvertent production of privileged information, publicly acknowledge the intent to follow the relevant standards under the Federal Rules of Civil Procedure and Evidence.
- Rights afforded to individuals in investigational hearings. Continue to prevent witnesses from consulting with counsel while a question is pending and counsel from objecting to a question or instructing the witness not to answer (except with regard to privilege). The BCP stated that, in addition to being consistent with its rules, these limitations are “consistent with federal court practice and are appropriate given that the investigational hearing is part of the agency’s non-public investigation to determine whether a violation has occurred and whether an action would be in the public interest.”
- Response requirements. Consider streamlining guidelines for document submission of electronically stored information
As for the process for petitions to modify or set aside CIDs, without providing a specific recommendation to the Bureau, the BCP spent considerable time outlining certain outside criticisms of its own process, including that petitioners do not receive the BCP rely brief given to the assigned Commissioner in response to a petitions and that the Commissioner’s ruling on the petition is placed on the public record, revealing the underlying non-public investigation. The BCP defended these practices, emphasizing that the reply briefs contain protected information regarding the FTC’s internal investigation process and the burden to redact the information outweighs the minimal benefit to the petitioner. Additionally, the BCP stated that publicly disclosing the Comissioner’s ruling is consistent with ensuring the government is subject to the “watchful eye” of the public.
As previously covered by InfoBytes, all comments to the CFPB RFI are now due by April 26.
On February 28, the U.S. District Court for the Western District of Pennsylvania granted the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued against a student loan servicer. According to the opinion, the student loan servicer filed a petition with the CFPB to set aside a June 2017 CID because the statutorily-mandated Notification of Purpose did not comply with the Bureau’s notice requirements under 12 U.S.C. § 5562(c)(2). The loan servicer argued that the CID’s list of activities under investigation—i.e., processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting—failed to provide the servicer with fair notice as to the nature of the investigation because it “merely categorize[s] all aspects of a student loan servicing operation.” The CFPB denied the petition, and in November 2017, filed a petition in court to enforce the CID. In granting the Bureau’s petition, the court found that the Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” Moreover, the court also found that the CID’s Notification of Purpose met the necessary requirements regarding administrative subpoenas set forth by the U.S. Court of Appeals for the 3rd Circuit, concluding that the investigation is for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome.
On January 25, the CFPB released its Request for Information (RFI) on Civil Investigative Demands (CIDs), which solicits public comment on “how best to achieve meaningful burden reduction or other improvement to the CID processes while continuing to achieve the Bureau’s statutory and regulatory objectives.” The RFI broadly requests feedback on “all aspects” of the CID process but also highlights specific topics on which comment is requested, including (i) the Bureau’s process for initiating investigations and issuing CIDs; (ii) the delegation of authority to officials within the CFPB’s Office of Enforcement; (iii) steps the Bureau could take to improve recipients’ understanding of investigations and the information sought by CIDs; (iv) timeframes and certifications for responses; (v) modifications and objections to CIDs; and (vi) the rights of entities and individuals who are compelled to provide testimony, including the right to have counsel present.
As previously covered by InfoBytes, the CFPB announced its plan to publish a series of RFIs seeking public input on the way the Bureau is performing its statutory obligations. The RFI was published in the Federal Register on January 26 and comments are due by March 27.
CFPB succession update: CFPB requests zero funding; seeks public comment regarding Bureau’s activities; & more
On January 17, in a letter to Federal Reserve Chair Janet Yellen, acting CFPB Director Mick Mulvaney requested zero dollars for the Bureau’s quarterly operating funds. Each fiscal quarter, as required by law, the CFPB formally requests that the Federal Reserve transfer a specified amount of money to the Bureau so it can perform the functions outlined in its budget. In his letter, Mulvaney stated that the prior Director maintained a “reserve fund” for the CFPB, and the money in this fund is sufficient to cover the CFPB’s expenses for the second quarter. This will be the first time in the history of the CFPB that its Director has requested no additional amount to fund quarterly operations. The CFPB also announced its plan to publish a series of Requests for Information (RFIs) in the Federal Register seeking public input on the way the Bureau is performing its statutory obligations. These RFIs will request “comment on enforcement, supervision, rulemaking, market monitoring, and education activities.” The first RFI will seek information regarding the Bureau’s Civil Investigative Demand processes and procedures.
On January 18, the CFPB voluntarily dismissed its case against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed, previously covered by InfoBytes here. The complaint, filed in the United States District Court for the Northern District of Illinois, alleged, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of the Dodd-Frank Act—by collecting on installment loans that are partially or wholly void under state law. In September 2017, the case was transferred to Kansas, where the Bureau’s notice of dismissal was filed. The notice does not specify a reason for the dismissal.
On June 8, the CFPB filed a petition to withdraw a 2015 CID issued to a financial services company concerning its structured settlement and annuity payment purchasing activities, and subsequently agreed to the dismissal of the petition to enforce the CID as moot due to lack of subject-matter jurisdiction. The action stems from a petition filed by the company to set aside the CID, arguing that structured settlements and annuity payment purchasing is not an extension of credit, nor qualifies as a consumer financial product. Therefore, the company claimed, its business activities do not fall under the CFPB’s UDAAP or Truth in Lending Act authority. The Bureau denied the petition, and in June 2016, it filed a memorandum in the U.S. District Court for the Eastern District of Pennsylvania for an order requiring the company to comply with the CID, asserting that “regulations authorize the Bureau to petition the district court in ‘any judicial district in which [that entity] resides, is found, or transacts business’ for an order to enforce the CID.” However, on June 5, the CFPB filed a notice to withdraw stating that “[b]ecause the CID is no longer active, the Bureau intends to soon dismiss the Petition,” and asked the court to “refrain from ruling on the petition.” The CFPB did not disclose a reason for its decision to withdraw the CID.
Notably, before the dismissal, the U.S. Chamber of Commerce (Chamber) filed an amicus brief opposing the CFPB’s petition. The Chamber opined that, should the CFPB be allowed to issue CIDs under a “virtually unlimited definition of the term ‘financial advisory services,’” under which it would include “advice with a financial element offered in connection with transactions unrelated to a consumer financial product,” it would expand the Bureau’s jurisdiction beyond the limits of Dodd-Frank’s prohibition on unfair, deceptive, and abuse acts and practices.
In a Decision and Order released last month, the CFPB denied a Petition to set aside or modify a civil investigative demand (CID) directed to a data provider (“Petitioner”). The order also directed Petitioner to produce responsive information within 10 calendar days.
The CFPB originally issued the CID on January 5 in connection with its efforts to gather information about Petitioner’s business, products, services, and operations. According to Petitioner, the stated purpose of the CID “purport[ed] to exercise jurisdiction over [Petitioner] under the Fair Credit and Reporting Act (‘FCRA’) or under ‘any other federal consumer financial law.’” On January 25, Petitioner moved to set aside or modify the CID arguing, among other things, that: (i) the Bureau lacks jurisdiction over Petitioner because Petitioner is neither a consumer reporting agency (“CRA”), nor a “covered person” or “service provider” under a “federal consumer financial law”; (ii) the CID’s Notification of Purpose is impermissibly vague in that it fails to adequately state the “nature of the conduct constituting the alleged violation” and/or “the provision of law applicable to such violation”; and (iii) the CID is “impermissibly overbroad and seeks information which cannot possibly be related to or reasonably relevant to the inquiry at hand (which itself remains unclear and undefined).”
Ultimately, the CFPB determined that none of three objections raised by Petitioner “warrant[ed] setting aside or modifying the CID.” In response to the argument that the CFPB lacks jurisdiction, the Bureau interpreted its authority under the Consumer Financial Protection Act to include investigative authority to issue CIDs to “any person” who may have information “relevant to a violation” of any federal consumer financial law, regardless of whether that person or entity is subject to CFPB authority. In response to Petitioner’s argument regarding the vagueness of the CID’s Notification of Purpose, the Bureau stated that the argument fails because “it is well settled that the boundaries of an agency investigation may be drawn ‘quite generally.’” Finally, as to Petitioner’s objection that the CID was overbroad and/or sought irrelevant information, the Bureau concluded that this was merely a restatement of the jurisdictional argument and fails for the same reasons. The CFPB explained that the question of whether Petitioner is properly subject to CFPB authority need not be answered at the outset of an investigation, because it is the type of question “the investigation is designed and authorized to illuminate.”
In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB
On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.” Judge Kavanaugh—who back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.
As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.
- Sherry-Maria Safchuk to discuss "Final CCPA regulations: Compliance considerations" at a CUCP virtual meeting
- H Joshua Kotin to discuss "Servicing GSE payment deferrals" at a Mortgage Bankers Association webinar
- Daniel R. Alonso to discuss "When can trial lawyers take their case to the public? The Harvey Weinstein case and beyond" at a New York City Bar Association webcast
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)