The CFPB recently denied a petition to set aside a civil investigative demand. The ruling, the first of its kind, is the result of a petition filed by the subject—a mortgage lender—of an investigation into whether the practice of ceding premiums from private mortgage insurance companies to captive reinsurance subsidiaries of mortgage lenders violated the Real Estate Settlement Procedures Act and the Consumer Financial Protection Act. In its civil investigative demand, the CFPB's Enforcement Team requested interrogatories and documents in five areas: (1) the mortgage lender's captive reinsurance contracts, terms, and negotiations; (2) referrals of business from the mortgage lender to mortgage insurance providers; (3) financial statements reflecting funds ceded to the mortgage lender's captive reinsurer by mortgage insurers and reinsurance claims paid or projected; (4) actuarial, accounting, and other analyses of the legitimacy of the captive reinsurance arrangements; and (5) promotion and marketing of captive reinsurance arrangements. The mortgage lender vigorously opposed the CFPB's request and filed a petition challenging portions of the CID such as insufficient notice of the purpose of the investigation was provided, and that the CID was overbroad and imposed an undue burden (e.g., covers its entire mortgage business).
In denying the petition to set aside the CID, the CFPB first noted that CIDs serve the important function of closing the "substantial information gap" between the CFPB and a subject company. According to the CFPB, the CFPA and its implementing regulations authorize it to issue a CID whenever it "has reason to believe" that the subject has information or documents "relevant to a violation." Citing Oklahoma Press Publ'g Co. v. Walling, 327 U.S. 186, 209 (1946), the CFPB noted its broad latitude in the use of investigative subpoenas, which facilitate the CFPB's determination of the likelihood that a potential violation has occurred and/or is occurring. In reaching its decision, the CFPB concluded that the mortgage lender did not meet the standard set by courts in challenging an administrative subpoena as overbroad—that the information sought was irrelevant to the investigation or caused an undue burden. Of importance is the CFPB's apparent admonishment of the subject company for failing to make a "good faith effort" to negotiate the terms of the CID, serving as a cautionary tale to future parties of the importance of the mandatory meet and confer requirements prior to filing a petition to modify or set aside a CID.
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