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  • CFPB asks 9th Circuit to enforce Seila CID

    Courts

    On August 31, the CFPB filed a supplemental brief in the U.S. Court of Appeals for the Ninth Circuit, arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” As previously covered by InfoBytes, in 2017, the CFPB ordered Seila Law to comply with a CID seeking information about the firm’s business practices to determine whether it violated the CFPA, the Telemarketing Sales Rule (TSR), or other federal consumer financial laws when providing debt-relief services or products, but the law firm refused to comply, arguing that the CID was invalid because the CFPB’s structure was unconstitutional. Last year, after the 9th Circuit upheld the CID (covered by InfoBytes here), Seila Law appealed the decision to the Supreme Court. Following the Supreme Court’s opinion in June—which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert)—the Bureau noted that Kraninger formally ratified the agency’s decisions regarding the CID in July.

    Among other things, the Bureau highlighted in its brief Seila Law’s argument “that the CID still should not be enforced because at the time this action commenced, the Supreme Court had not yet held invalid the removal provision.” The Bureau countered that any defect in the initiation of this action has been resolved because the CID, and the action to enforce it, “have now been formally and expressly ratified” by two Bureau officials removable at will by the President. The Bureau also asked the 9th Circuit to consider what may happen if the appellate court chooses to ignore the ratifications and rule in favor of Seila Law. According to the Bureau, such a result “could also, depending on the [c]ourt’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.” Should the 9th Circuit choose to set aside the CID, the appellate court would not only further delay a “legitimate law-enforcement investigation,” but also “undermine the very Article II authority that the Supreme Court so emphasized in deciding this case,” the Bureau argued.

     

    Courts Appellate Ninth Circuit CIDs Seila Law

  • CFPB denies company’s petition to set aside CID, citing investigative authority broader than enforcement authority

    Courts

    On August 13, the CFPB denied a petition by a credit repair software company to set aside a civil investigative demand (CID) issued by the Bureau in April. The CID requested information from the company “to determine whether providers of credit repair business software, companies offering credit repair that use this software, or associated persons, in connection with the marketing or sale of credit repair services, have: (1) requested or received prohibited payments from consumers in a manner that violates the Telemarketing Sales Rule [(TSR)]. . .; or (2) provided substantial assistance in such violations in a manner that violates [the CFPA or TSR].” The company petitioned the Bureau to set aside the CID, arguing, among other things, that the CID exceeds the Bureau’s jurisdiction and scope of authority because the agency lacks investigative and enforcement authority over companies that provide credit repair services and companies that provide customer relationship management software for such services. The company also argued that (i) the CID is invalid because the company does not engage in telemarketing, perform credit repair services, or market or sell credit repair services to consumers; (ii) the company is not a “covered person” or “service provider” under the CFPA; and (iii) the company is not required to respond to the CID because “it is clear that [the company] does not provide any assistance, let alone substantial assistance, to any covered person in violation of the CFPA.”

    The Bureau rejected the company’s arguments, countering that its “authority to investigate is broader than its authority to enforce.” According to the Bureau, “[r]egardless of whether [the company] itself engages in telemarketing or accepts payments from consumers in a manner that violates the TSR, the Bureau has the authority to obtain information from [the company] that will help it assess whether others may have done so.” Furthermore, the Bureau stated that the CFPA grants it the authority to prohibit unfair, deceptive, or abusive acts or practices committed by a “covered person” or a “service provider,” and “the authority over those who, knowingly or recklessly, provide substantial assistance to a covered person,” which include companies that provide credit repair services. “Whether a company that sells business software to credit repair firms does, in fact, substantially assist any violations committed by those firms depends upon the facts,” the Bureau explained.

    Courts Payday Lending CFPB CIDs

  • State AGs urge industry group develop better tools to fight illegal robocalls

    State Issues

    On May 4, the National Association of Attorneys General published a letter to US Telecom, an industry group of telecommunications providers, and the Industry Traceback Group, an industry group dedicated to assist with the tracing of illegal robocalls. The letter noted that state attorneys general intend to intensify enforcement efforts against illegal robocallers, and urged US Telecom and the Industry Traceback Group to expand capabilities related to tracebacks in anticipation of growth in the need for data analysis and the number of civil investigative demands and subpoenas that will be issued directly to the Industry Traceback Group. The need for action has been tied to an increase in Covid-19 related robocalls.

    State Issues Covid-19 State Attorney General Robocalls Enforcement CIDs

  • CFPB partially grants confidentiality request and modifies CID’s notification of purpose

    Federal Issues

    On April 13, the CFPB released a Supplemental Decision and Order partially granting a payment technology company’s request for confidential treatment of its petition that sought to set aside a 2019 CID seeking information related to, among other things, the company’s payment processing activities. The CFPB noted in its supplemental decision and order that while the company’s initial confidentiality arguments were rejected, it provided the company an opportunity to make an additional submission following a U.S. Supreme Court decision that clarified the standard for determining what information may be withheld under Exemption 4 of FOIA. The Bureau ultimately granted the company’s confidentiality request with respect to its payment processor information only.

    The supplemental decision and order is related to the company’s now-published original petition to set aside the CID, in which it asserted that it is not a covered person under the Consumer Financial Protection Act because even though it sells various products and services, it does not provide payment processing services. The company also argued that it is not a service provider because it does not offer or provide consumer financial products or services, nor does it provide services to a covered person. Furthermore, because it is not a financial institution, the company claimed that the CFPB has no EFTA authority over it. The original petition requested that the CID be set aside because it exceeds the Bureau’s jurisdictional authority. The Bureau responded that the company’s arguments did not warrant setting aside the CID because the investigation was “not patently outside” its authority, but it partially modified the CID’s Notification of Purpose to provide greater detail about the conduct the Bureau was investigating. The Bureau also contended that the fact that the company is not a financial institution does not affect whether the Bureau can conduct an investigation into potential violations of section 1005.10(b) of Regulation E (EFTA), which “applies to any person.”

    Federal Issues CFPB CIDs CFPA EFTA Payment Processors

  • Supreme Court hears arguments on CFPB’s structure

    Courts

    On March 3, the U.S. Supreme Court heard oral arguments in Seila Law LLC v. CFPB to consider whether the Constitution prohibits an agency being led by a single director who cannot be removed at will by the President. In addition, the arguments addressed the question of the appropriate remedy if the Court determines that the limitation on the President’s ability to remove the director is unconstitutional.

    The case arises out of a Civil Investigative Demand (CID) issued by the CFPB to the petitioner Seila Law, a law firm providing debt relief services to consumers. Seila Law refused to respond to the CID, arguing that it is invalid because the CFPB’s structure is unconstitutional. The CFPB and the DOJ agreed with the contention that the statute is unconstitutional. However, the parties differed on the question of remedy. The government argued that the removal restriction should simply be severed from the statute, leaving the remainder of the Consumer Financial Protection Act in place. But Seila Law argued that to do so would amount to a judicial “rewrite” of the statute, and the Court should instead simply hold that the CID is unenforceable and leave to Congress the task of revising the statute to comply with the Constitution.

    Because the government was not defending the constitutionality of the statute, the court appointed a former Solicitor General to act as an amicus to defend the constitutionality of the statute. In addition, the House of Representatives, which had filed an amicus brief on behalf of that legislative body, also defended the constitutionality of the statute at the oral arguments.

    Find continuing InfoBytes coverage of Seila Law here.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank CIDs CFPA

  • CFPB denies tribal lenders’ joint request to set aside CIDs

    Federal Issues

    On February 18, the CFPB released a Decision and Order denying a joint request to set aside civil investigative demands (CIDs) issued in 2019 to four online installment lenders owned by a federally recognized Indian tribe, as well as a processing services company. The CIDs in dispute were issued to the petitioners last October and sought information “to determine whether lenders or associated individuals or entities have violated the Consumer Financial Protection Act’s (CFPA) prohibition on unfair, deceptive, and abusive acts and practices [(UDAAP)] by collecting amounts that consumers did not owe or by making false or misleading representations to consumers in the course of servicing loans and collecting debts.” As previously covered by InfoBytes, four of the petitioners were also part of a 2017 CFPB enforcement action, which alleged that the lenders’ practices violated UDAAP and the Truth in Lending Act. This action was voluntarily dismissed without prejudice in 2018 (covered by InfoBytes here).

    According to the CFPB, the joint petition to set aside or modify the CIDs sets out five primary arguments: (i) the CFPB “lacks authority to investigate entities that are arms of a tribe”; (ii) the lenders cannot comply with the CIDs without violating a protective order issued by the Tribal Consumer Financial Services Regulatory Commission; (iii) “the CIDs lack a proper purpose”; (iv) “the CIDs are overly broad and unduly burdensome”; and (v) the CIDs should be withdrawn or stayed pending the U. S. Supreme Court’s ruling in Seila Law LLC v. CFPB about whether the structure of the CFPB is unconstitutional.

    The CFPB’s denial of the petitioners’ request addresses each of the arguments. First, it rejects that it lacks authority to investigate “arms of a tribe” based on, among other things, a Ninth Circuit case holding that the CFPA applies to tribal businesses and numerous cases holding that tribes “do not enjoy sovereign immunity from lawsuits brought by the federal government.” Second, while noting the CFPB’s “utmost respect” for, and desire to coordinate with, state and tribal regulators, the agency is not required to coordinate with such regulators before carrying out its responsibility to investigate potential violations of federal consumer law. Third, with respect to whether the CIDs have a proper purpose, the CFPB asserts, among other things, that the dismissal of the earlier lawsuit does not preclude it from bringing future actions, and moreover, even if some of the requested information relates to potentially time-barred conduct, it does not undermine the overall validity. Fourth, concerning the petitioners’ claims that the CIDs are overbroad or unduly burdensome, the CFPB states that the petitioners did not meaningfully engage during the meet-and-confer-process and have not adequately specified or identified how or why the CIDs would be unduly burdensome. Finally, regarding the constitutional issue, the CFPB notes that it has consistently stated that “the administrative process set out in the [CFPB’s] statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the [CFPB’s] statute.” The CFPB directs the petitioners to comply with the CIDs within 30 days of the order.

    Federal Issues CFPB CIDs CFPA UDAAP Tribal Immunity

  • CFPB denies debt collection law firm’s request to set aside CID

    Federal Issues

    On February 10, the CFPB denied a debt collection law firm’s request to modify or set aside a third-party Civil Investigative Demand (CID) issued to the firm by the Bureau while investigating possible violations of the FDCPA, CFPA, and the FCRA. As previously covered by InfoBytes, the Bureau also denied a request by a debt collection company to modify or set aside a CID, which sought information about the company’s business practices and its relationship with the firm in the same investigation. The firm’s petition asserted arguments largely based on the theory that the CFPB’s structure is unconstitutional, and that the Dodd-Frank Act provides the Bureau’s director with “overly broad executive authority.” Alternatively, the firm argued that if the CID is not set aside, it should be modified, stating, among other things, that the CID’s scope exceeds applicable statutes of limitation.

    As it did in the debt collection company’s request to set aside or modify the CID, the Bureau rejected the firm’s constitutionality argument, stating that “[t]he administrative process for petitioning to modify or set aside CIDs is not the proper forum for raising and adjudicating challenges to the constitutionality of provisions of the Bureau’s statute.” Additionally, the Bureau’s Decision and Order discounts the firm’s statute of limitations argument, contending that “the Bureau is not limited to gathering information only from the time period in which conduct may be actionable. Instead, what matters is whether the information is relevant to conduct for which liability can be lawfully imposed.” The Bureau also directed the firm to comply with the CID within ten days of the Order.

    Federal Issues Agency Rule-Making & Guidance CFPB Enforcement FDCPA CFPA FCRA Debt Collection Statute of Limitations Consumer Finance CIDs Single-Director Structure Dodd-Frank

  • U.S. Solicitor General: Supreme Court can decide on severability clause without deciding CFPB's future

    Courts

    On February 14, U.S. Solicitor General Noel J. Francisco filed a reply brief for the CFPB in Seila Law LLC v. CFPB, arguing that the U.S. Supreme Court could decide whether the CFPB’s single-director structure violates the Constitution’s separation of powers under Article II without deciding whether the Bureau as a whole should survive. “Although the removal restriction is unconstitutional, Congress has expressly provided that the rest of the Dodd-Frank Act shall be unaffected,” Francisco said, replying in part to arguments made by Paul D. Clement, the lawyer selected by the Court to defend the leadership structure of the Bureau. As previously covered by InfoBytes, Clement argued, among other things, that Seila Law’s constitutionality arguments are “remarkably weak” and that “a contested removal is the proper context to address a dispute over the President’s removal authority.” Clement also contended that “there is no ‘removal clause’ in the Constitution,” and that because the “constitutional text is simply silent on the removal of executive officers” it does not mean there is a “promising basis for invalidating an Act of Congress.” According to Francisco, Seila Law’s arguments for invalidating the entirety of Title X of Dodd-Frank “are insufficient to overcome the severability clause’s plain text,” and its “arguments for ignoring the severability questions altogether are both procedurally and substantively wrong.” Francisco further emphasized that “refusing to apply the severability provision . . .would be severely disruptive” because the Bureau is the only federal agency dedicated solely to consumer financial protection.

    Seila Law also filed a reply brief the same day, countering that Clement offered “no valid justification” for the Court to rule on the severability question separately, and arguing that a “civil investigative demand issued and enforced by an unaccountable director is void, and the only appropriate resolution is to order the denial of the CFPB’s petition for enforcement.” Seila Law further contended that the Court should reverse the U.S. Court of Appeals for the Ninth Circuit’s decision from last May—which deemed the CFPB to be constitutionally structured and upheld a district court’s ruling enforcing Seila Law’s obligation to comply with a 2017 civil investigative demand—and “leave to Congress the quintessentially legislative decision of how the CFPB should function going forward.”

    Notably, Francisco disagreed with Seila Law’s argument that the 9th Circuit’s judgment should be reversed outright, stating that to do so “would deprive the Bureau of ratification arguments” that the 9th Circuit chose not to address by instead upholding the removal restriction’s constitutionality. The Bureau’s ratification arguments at the time, Francisco stated, contended that even if the removal restriction was found to be unconstitutional, “the CID could still be enforced because the Bureau’s former Acting Director—who was removable at will—had ratified it.” As such, Francisco recommended that the Court “confirm that the severability clause means what it says and remand the case to the [9th Circuit] to resolve any remaining case-specific ratification questions.”

    The same day, the Court approved Seila Law’s motion for enlargement of time for oral argument and for divided argument. The time will be divided as follows: 20 minutes for Seila Law, 20 minutes for the solicitor general, 20 minutes for the court-appointed amicus curiae, and 10 minutes for the House of Representatives.

    Find continuing InfoBytes coverage on Seila here.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank CIDs Appellate Ninth Circuit

  • CFPB denies debt collector’s request to set aside CID

    Federal Issues

    On February 6, the CFPB released a Decision and Order denying a debt collection company’s (petitioner) request to set aside or modify a third-party Civil Investigative Demand (CID) issued by the Bureau, and directing the petitioner to provide all information required by the CID. The CID in dispute was issued to the petitioner by the CFPB in November and seeks documents and written responses pertaining to the petitioner’s business practices and its relationship with a New York-based debt collection law firm. The CID requests information regarding whether “debt collectors, furnishers, or associated persons” had, among other things, (i) violated the Consumer Financial Protection Act by ignoring warnings regarding debts resulting from identity theft “in a manner that was unfair, deceptive or abusive”; (ii) violated the FDCPA by disregarding cease-and-desist requests or by failing to provide required notices or making false or misleading statements; or (iii) violated the FCRA by “fail[ing] to correct and update furnished information, or fail[ing] to maintain reasonable policies and procedures.”

    In its petition to set aside or modify the CID, the petitioner set out four primary arguments: (i) the structure of the CFPB is unconstitutional, and it therefore “lacks authority to proceed with enforcement activity”; (ii) the CID improperly seeks attorney-client privileged information; (iii) the CID is “overly broad,” does not apply to the petitioner, and does not sufficiently provide the “nature of the conduct under investigation and the applicable provisions of law”; and (iv) the CID improperly seeks information beyond the applicable statute of limitations.

    The Bureau’s denial of the petitioner’s request addresses each of the petitioner’s arguments. Regarding the constitutionality of the CFPB’s structure, the order asserts that “the administrative process set out in the [B]ureau’s statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the [B]ureau’s statute.” In response to the petitioner’s attorney-client privilege argument, the order states that the petitioner “does not ask…to modify the CID to avoid seeking privileged information—it only asks that the CID be quashed in its entirety.” The Bureau states that because the petitioner makes a “blanket assertion” of attorney-client privilege rather than providing the required privilege log in order to properly claim privilege over materials requested in the CID before filing its petition, the petitioner’s argument is “procedurally improper” and does not show that the “CID should be set aside on these grounds.” To the petitioner’s lack of specificity argument, the order states that the CID “sets forth in detail both the conduct under investigation and applicable laws,” adding that there is no requirement that the Bureau disclose the targets of its “ongoing and confidential law-enforcement investigations.” The order also rejects the petitioner’s statute of limitations argument, explaining that the Bureau is not limited to the three years preceding the CID, but “instead what matters is whether the information is relevant to conduct for which liability can be lawfully imposed.”

    Federal Issues CFPB Enforcement Consumer Finance CIDs Debt Collection Single-Director Structure Statute of Limitations Dodd-Frank FDCPA FCRA

  • CFPB denies petitioner’s request to postpone CID pending Seila decision

    Federal Issues

    On December 26, the CFPB denied a petition by a student loan relief company to modify or set aside a civil investigative demand (CID) issued by the Bureau last October. According to the company’s petition, the CID requested information as part of an investigation into the company’s promotion of student loan debt relief programs. As previously covered by InfoBytes, stipulated orders were entered against the company by the FTC and the Minnesota attorney general for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the company being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services. In its petition, the company argued that the CFPB’s requests were duplicative of the FTC’s earlier investigation. The company also argued that the documents and materials sought in the CID were overly burdensome and the time frame to respond was too short. Furthermore, the company stated that until the U.S. Supreme Court issues a decision in Seila Law v. CFPB on whether the Bureau’s structure violates the Constitution’s separation of powers under Article II, the CID should either be withdrawn or stayed because of the uncertainty surrounding the Bureau’s ability to proceed with enforcement actions.

    The Bureau denied the petition, arguing that “the administrative CID petition process is not the proper forum for raising and deciding constitutional challenges to provisions of the Bureau’s statute.” The Bureau also noted that the company failed to show that it engaged with Bureau staff on ways to alleviate undue burden, such as proposing modifications to the substance of the requests, and that even though the Bureau proposed an extension to the CID deadline, the company did not seek such an extension.

    Federal Issues CFPB CIDs Single-Director Structure Enforcement Seila Law FTC State Attorney General TILA Telemarketing Sales Rule Debt Relief

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