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Third Circuit: The CFPB may use a CID to obtain information about all aspects of a company’s business.

On August 14, 2018 by Schnader in Finance

By Stephen J Shapiro

In order to pursue its Congressional mandate to enforce Federal consumer financial laws, the Consumer Financial Protection Bureau (CFPB) may compel the production of documents or testimony by issuing a civil investigative demand (CID) to anyone the CFPB believes has information relevant to a violation of those laws.  A CID must identify “(1) the nature of the conduct constituting the alleged violation [of the law] and (2) the provision of law applicable to such violation.”  The Third Circuit recently held that the CFPB may use a CID to request information relating to the entirety of a company’s operations, and need not limit its request to information relating to any specific aspect of those operations.

In Consumer Financial Protection Bureau v. Heartland Campus Solutions, ECSI, the CFPB issued a CID to Heartland, a student loan servicer.  The CID explained that the CFPB was investigating “whether student-loan servicers . . . have engaged in unfair, deceptive, or abusive acts or practices . . . or have engaged in conduct that violates the Fair Credit Reporting Act . . . .”  The CID identified the following categories of conduct among those on which the CFPB was focusing:  “processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting.”

Heartland conferred with the CFPB to address its concerns about the scope of the CID, but ultimately refused to comply with the CID.  The CFPB, following the procedure in the statute governing CIDs, filed in the United States District Court for the Western District of Pennsylvania a petition seeking enforcement of the CID.  The district court granted the petition.

On appeal, Heartland conceded that, had the CFPB requested information relating to any single one of the categories of conduct identified in the CID – “processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting” – the CID would have been valid.  However, Heartland argued, because the CID requested information about “‘all component functions of any student loan servicing business, [the CID provided] no notice of what conduct’” the CFPB was investigating and, therefore, was unreasonably broad.  The Third Circuit, in a non-precedential opinion, rejected Heartland’s argument:  “[Heartland’s argument] rests on the flawed assumption that the CFPB could not investigate all of [Heartland’s] conduct.  Nothing prohibits the CFPB from investigating the totality of [a company’s] business activities . . . .”  Therefore, the Third Circuit affirmed the district court’s grant of the CFPB’s petition to enforce the CID.

The Heartland decision suggests that, when negotiating with the CFPB over the scope of a CID, focusing on the particularized burden that responding to the CID would impose may be a more effective strategy than objecting generally to the broad scope of the request.

Category: Finance
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