Denying a petition by the Consumer Financial Protection Bureau to require the Accrediting Council for Independent Colleges and Schools (ACICS) to comply with the CFPB’s Civil Investigative Demand (CID), the U.S. District Court for the District of Columbia ruled that the CFPB lacked the authority to investigate the ACICS’s process for accrediting for-profit schools. In reaching its decision, the court stated, "Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress" (Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, April 21, 2016, Leon, R.).
CID. In 2015, the CFPB conducted an investigation of for-profit colleges "for deceptive practices tied to their private student-lending activities." In connection with that undertaking, in August 2015, the CFPB separately issued a CID to ACICS, an accreditor of for-profit colleges, for the stated purpose of determining "whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges."
After discussions with the CFPB about the CID reached an impasse, the ACICS formally petitioned the CFPB to set aside or modify the CID. As previously reported (see Banking and Finance Law Daily, Oct. 20, 2015), CFPB Director Richard Cordray denied the ACICS’s request and outlined his reasons for doing so. Later, the CFPB sought enforcement of the CID in court.
Framing the issue. In framing the legal issue before it, the court stated, "In the final analysis, this case boils down to the answer to one question: Did the CFPB have the statutory authority to issue the CID in question? Unfortunately for the CFPB, the answer is no."
Dodd-Frank Act. The court reviewed the CFPB’s statutory authority under the Dodd-Frank Act to issue the CID. Under the law (12 U.S.C §5562(c)), the CFPB may issue a CID "to any person [believed to] be in possession, custody, or control of any documentary material or tangible things, or may have any information, relevant to a violation" of federal consumer financial laws. Moreover, the CID must "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation."
Court’s analysis. The court pointed out that, by its own language, the CFPB’s CID focused on "unlawful acts and practices in connection with accrediting for-profit colleges, in violation of … [the Dodd-Frank Act] or other federal consumer financial protection law" (emphasis reflected by the court).
The court determined that the CFPB failed to establish a "clear nexus" between the consumer financial laws it enforces and the CFPB’s effort to investigate accreditation of for-profit colleges and schools. "As ACICS has repeatedly and accurately explained, the accreditation process simply has no connection to a school’s private student lending practices," the court asserted. Further, the court noted that ACICS is not involved in any financial aid decisions of the colleges and schools that it accredits and "plays no part in deciding whether to make or fund a student loan."
Next, the court addressed the CFPB’s argument that it is not obligated to "accept at face value" the description by ACICS concerning its interaction with the schools it accredits, and has a right to investigate and "determine for itself" whether these assertions are true. Rejecting this argument, the court emphasized that the CFPB’s CID "says nothing about an investigation into the lending or financial-advisory practices of for-profit schools."
In addition, the CFPB’s CID requested a list of all schools and all individuals involved in the accreditation of 21-named schools—an undertaking the "CFPB was never empowered to do" said the court. In the court’s view, the fact that the CFPB was separately investigating certain for-profit colleges for suspected violations of consumer financial laws regarding their lending and financial-advisory services did not somehow provide a platform for the CFPB to establish its statutory authority for the scope of its CID pertaining to the ACICS.
The case is No. 15-1838 (RJL).
Attorneys: Allyson B. Baker (Venable LLP) for Accrediting Council for Independent Colleges and Schools. Benjamin Zachary for the Consumer Financial Protection Bureau.
Companies: Accrediting Council for Independent Colleges and Schools
MainStory: TopStory CFPB DoddFrankAct EnforcementActions Loans OversightInvestigations Privacy
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