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WBK Industry News - Litigation Developments

D.C. Circuit Rules CFPB’s CID Non-Compliant with Statutory Notice Requirement

The U.S. Court of Appeals for the D.C. Circuit recently held that a civil investigative demand (“CID”) issued by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) did not comply with statutory requirements, rendering the CID unenforceable.

The CFPB’s enacting statute, the Consumer Financial Protection Act, empowers the CFPB to supervise regulated entities to ensure compliance with federal laws.  Pursuant to this authority, the CFPB may also issue CIDs requiring the production of documents and oral testimony from any person it believes may have information relevant to an investigation.  This authority is not limitless, however, and each CID must state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law that applies to the violation.

In the case, CFPB v. Accrediting Council for Independent Colleges and Schools, the CID issued by the Bureau was challenged on numerous grounds, including that the CFPB’s investigation was outside the scope of its statutory authority.  Agreeing with the challenger, the D.C. District Court held that the CFPB did not have the statutory authority to issue the CID because the subject matter that it covered – in this case, accreditation of for-profit universities – was not within the statutory jurisdiction of the Bureau.  The lower court believed the CFPB had stepped outside the bounds of the purview granted by Congress by targeting the accreditation process of for-profit universities generally.

Agreeing with the outcome of the lower court, the Circuit Court of Appeals held the CFPB did not have the statutory authority to issue this particular CID.  Although it agreed with the outcome, it answered the question using reasoning that at one level was narrower, and another more broad.  The lower court rested its decision on the theory that the CFPB had overstepped its statutorily-designated area of enforcement.  The appellate court did not address the scope of the CFPB’s statutory authority.  Instead, it focused on the lack of specificity in the CID itself, namely that the CFPB used over-broad language that did not give the recipient adequate notification of the purpose and intent of the information sought.  The court acknowledged that while the CFPB may define the boundary of its investigation “quite generally,” it must adequately state the unlawful conduct under investigation or the applicable law it believes was violated in order to provide sufficient notice as to the nature of the conduct and the alleged violation under investigation.

Moving forward, while this opinion was decided on more narrow grounds than the lower court’s decision on the scope of the CFPB’s statutory jurisdiction, the appellate court’s affirmation of the importance of the adequacy of the notification of purpose will provide guidance when responding to future CIDs.

The entire opinion of the Court of Appeals may be found here.