United States: Another One Bites The Dust: BCFP Loses CID Appeal

Last Updated: September 11 2018
Article by Ori Lev

The Bureau of Consumer Financial Protection (the "Bureau") has struck out again in trying to enforce a Civil Investigative Demand ("CID") that contains broad and generic language about the nature of the agency's investigation. For the second time, a US Court of Appeals has ruled that a CID issued by the Bureau was invalid because the agency failed to meet the statutory requirement that the CID identify the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation, as required by 12 U.S.C. § 5562(c)(2). As we previously discussed, last year the DC Circuit ruled that a CID that the Bureau issued to a college accrediting agency failed to meet the statutory threshold when it merely identified "unlawful acts and practices in connection with accrediting for profit colleges" as the conduct under investigation. CFPB v. ACICS, 854 F.3d 683 (D.C. Cir. 2017).

Now, a unanimous panel of the Fifth Circuit has followed suit and held that a CID issued to the Source for Public Data, "a company that provides public records to the public through an Internet-based search engine," is invalid because it uses similarly broad language that does not comply with the statute. The CID to the Source for Public Data identified the investigation's purpose as:

[D]etermin[ing] whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act [("FCRA")], 15 U.S.C. §§ 1681, et. seq., Regulation V, 12 C.F.R. Part 1022, or any other federal consumer financial law. (emphasis added)

Like the DC Circuit before it, the Fifth Circuit held that "this Notification of Purpose does not identify what conduct, it believes, constitutes an alleged violation." The court noted that "[p]roviding and using public records are not violations of federal law," and that "the CFPB fails to explain how these activities violate federal consumer law." The court also held that the CID fails to identify "the provision of law applicable to such violation," as required by the statute. Although the CID referenced the FCRA and Regulation V, the court noted that the FCRA is "an expansive law governing all activities relating to the reporting of consumers' credit information" and that "such reference to a broad provision of law that the CFPB has authority to enforce does nothing to clarify what conduct is under investigation."

Like the DC Circuit, the Fifth Circuit noted that the requirement to identify the conduct under investigation is critical to enabling judicial review of CIDs, as the standard for review includes ascertaining whether the information sought in the CID is reasonably relevant to the investigation. That determination is impossible if the CID fails to identify the conduct under investigation. But the Fifth Circuit went a step further and also criticized the CFPB for not indicating whether the Source for Public Data was itself a target of the investigation or merely a third party, holding that such information is critical to ascertaining whether the CID's requests are unreasonably broad or burdensome (another aspect of judicial review of a CID). This aspect of the court's holding may have significant implications for the Bureau, which does not, as a rule, inform CID recipients whether or not they are targets of an investigation.

The CID at issue in the case was issued under former Director Richard Cordray and before the DC Circuit issued its decision in ACICS. But the briefing before the Fifth Circuit took place earlier this year, after the ACICS decision and under the leadership of Acting Director Mick Mulvaney. Interestingly, the Bureau defended the adequacy of the CID's Notification of Purpose before the Fifth Circuit. Time will tell what that means for the Bureau's review of its CID processes. The agency is expressly considering whether to change how it can improve CID recipients' understanding of investigations.

Coupled with the ACICS decision, the Fifth Circuit's ruling represents a prime example of what happens when an agency tries to swing for the fences. The Bureau's investigation in ACICS, like its novel interpretation of RESPA in the PHH case, represented an aggressive interpretation of the agency's authority that ultimately led to a judicial opinion with broad ramifications for the Bureau. Now the ACICS decision has led to another appellate court rebuke of the agency's CID practices. It is just such long-term consequences that should play into agency decision-makers' calculations when they consider taking novel and aggressive actions. The worst that can happen is not just losing the case, but establishing precedent that comes back to haunt you later.

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