All Things FinReg


In a clear and concise decision, the US District Court for the District of Columbia has ruled that the Consumer Financial Protection Bureau (CFPB) lacked the statutory authority to issue a Civil Investigative Demand (CID) to the Accrediting Council for Independent Colleges and Schools (ACICS), an accreditor of for-profit colleges. In Judge Richard Leon’s opinion in Consumer Financial Protection Bureau vs. Accrediting Council for Independent Colleges and Schools, he termed the CFPB’s action “a bridge too far.”

In August 2015, the CFPB issued a CID to ACICS with the stated purpose of determining whether ACICS had engaged in “unfair, deceptive or abusive acts and practices” (UDAAP). However, the CFPB’s supervisory and enforcement authority with respect to UDAAP is limited by statute to a “covered person or service provider” and only in connection with a transaction with a consumer for “consumer financial products or services.”

Because ACICS does not meet the definition of a “covered person,” the CFPB argued that the CFPB’s authority to investigate the consumer lending practices of schools accredited by ACICS grants it the necessarily authority to investigate whether ACICS has engaged in violations of the law in accrediting those schools.

This, the district court held, was “a bridge too far.” In addition, Judge Leon looked to the demands made in the CID and noted that the information sought far exceeded what could reasonably be required for the CFPB to determine whether ACICS’s conduct furthered or otherwise assisted and facilitated the schools’ conduct. Accordingly, he denied the CFPB’s motion to enforce its CID and dismissed the action.

Key Takeaways

The federal courts routinely give federal administrative agencies broad discretion to conduct investigations and use compulsory process in support of their investigative activities, so it is notable when a court refuses to allow an agency to exercise investigative powers—especially a court such as the DC district court, which historically has been relatively hospitable to federal agency enforcement activities. Although this matter will not likely end here (we would surmise that the CFPB will appeal this decision unless it can reach some sort of accommodation with ACICS in the meantime), the decision shows not only just how far the CFPB is seeking to extend its legal jurisdiction, but also that others (here, the courts) are prepared to put the brakes on its assertion of jurisdiction.

The ruling also offers lessons for organizations that are drawn into the CFPB investigation process. The target of a CID should move forward on two simultaneous paths: First, the ordinary “meet and confer” process that relates to the scope and production schedule, and second, if there is a basis for challenge, the formal challenge process to ensure absolute and strict compliance with all procedural deadlines.

Any commitments made in the first part of the process should always be subject to the second. All of this must be weighed and decided in the CFPB’s tight timelines, which can prove challenging, especially to targets that generally do not view their business as being engaged in providing consumer financial products or services.