Banking and Finance Law Daily CFPB modifies civil investigative demands to conform with new policy
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Monday, May 13, 2019

CFPB modifies civil investigative demands to conform with new policy

By Colleen M. Svelnis, J.D.

CFPB Director declines to set aside civil investigative demands, but does modify several in response to petitions.

Kathleen L Kraninger, Director of the Consumer Financial Protection Bureau has issued decisions and orders on several requests to modify or set aside Civil Investigative Demands (CIDs) issued by the Bureau. The Director modified several under a new policy instituted by the Bureau, but did not set aside any of the CIDs involved. Earlier this year, the Bureau amended its policies regarding civil investigative demands to ensure that they provide more information about the potentially wrongful conduct under investigation. The new policy requires more information in CIDs regarding the focus of the investigation. Under the updated policy, CIDs must:

  • provide more information about the potentially applicable provisions of law that may have been violated;
  • specify the business activities subject to the Bureau’s authority; and
  • in investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, CFPB staff may specifically include that issue in the CID in the interests of the further transparency.

Notification of purpose. The Bureau sent Fair Collections and Outsourcing, Inc., and Fair Collections and Outsourcing of New England, Inc., a series of CIDs seeking information related to their debt collection and credit reporting activities. The notification of purpose stated that the CID was issued “to determine whether debt collectors or other unnamed persons have engaged in, or are engaging in, unlawful acts or practices in connection with the collection and reporting of consumer debts in violation of the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, or any other federal consumer financial law as well as to “determine whether Bureau action to obtain legal or equitable relief would be in the public interest.”

Fair Collections petitioned for the CID be set aside on the basis that the Bureau’s statutory structure is unconstitutional in that it is structured as an independent agency but is headed by a single Director. Fair Collections also argued that Bureau’s notification of purpose does not comply with law and was legally deficient because it fails to provide a statement as to the nature of the conduct constituting the alleged violation and also does not state the provision of law applicable to such violation. In support, the collection company pointed out that the notification contains a generic statement that the purpose is to determine whether “debt collectors or other unnamed persons have engaged in, or are engaging in, unlawful acts or practices in connection with” a number of Federal laws and regulations. The final argument given for why the CID should be set aside is because of the “fundamental unfairness” of the Bureau’s investigation.

The Bureau found that none of Fair Collections arguments warranted setting aside the CID, but did modify the CID’s notification of purpose.

Law firm employee. The Bureau issued a CID for oral testimony from Amy Plummer, a law firm employee who worked in administrative support but was not an attorney. The Bureau’s investigation was into suspected unfair, deceptive, or abusive acts or practices in connection with transactions in which persons purport to acquire the rights to veterans’ military pensions or other benefits in exchange for lump-sum payments. Plummer requested that the CID be set aside because the CFPB “lacks supervisory and enforcement authority” over Plummer’s law firm employer. Additionally, she claimed that the information was protected by attorney-client privilege and was privileged attorney work product. The Bureau <denied the petition, finding that the CID was within the Bureau’s statutory authority to issue, and that Plummer’s “premature blanket assertion of attorney-client privilege and work-product protection” was procedurally improper, substantively deficient, and lacked merit.

Confidentiality request. The Bureau’s petition sought oral testimony from Jawad Nesheiwat, a former executive at a mortgage lending company. The notification of purpose included information that the Bureau was investigating whether student loan debt-relief providers or mortgages originators have made false or misleading representations to consumers in a manner that was unfair, deceptive, or abusive in violation of the Consumer Financial Protection Act or used consumer reports in a way that violated the Fair Credit Reporting Act or made false or misleading representations to consumers in violation of the Telemarketing Sales Rule. The notification of purpose also advised that the investigation sought to determine whether Bureau action to obtain legal or equitable relief would be in the public interest.

Nesheiwat argued in his petition to set aside the CID that the statement of purpose did not state the nature of the conduct constituting the alleged violation under investigation. The director agreed and, consistent with the Bureau’s new policy, partially granted Nesheiwat’s petition to modify or set aside the CID and modified the CID to include more information in the notification of purpose. However, Kraninger stated that Nesheiwat’s argument based on the original, unmodified notification of purpose do not provide a basis to set aside or further modify the CID, stating that the modified statement of purpose “clearly satisfies the statutory standard.”

The Director also denied Nesheiwat’s request for confidential treatment, on the basis that the Bureau’s documents are “part of the public records of the Bureau” and that Nesheiwat did not show good cause to override this standard.

Limited inquiry. The Bureau denied a petition by FastBucks Holding Corporation to modify or set aside four CIDs sent by the Bureau as part of an investigation into whether small-dollar lenders or other persons violated the CFPA, the Equal Credit Opportunity Act and the FCRA in connection with the offering or provision of loans. The order was limited to address whether the petition had legal grounds to set aside or modify the CIDs, and found that Fastbucks failed to show that the CIDs were issues for an improper purpose. Instead, the Director found, the CIDs were issues to obtain information relevant to possible violations of multiple federal consumer financial laws.

Companies: Fair Collections and Outsourcing, Inc.; Fair Collections and Outsourcing of New England, Inc.; FastBucks Holding Corporation

MainStory: TopStory CFPB FCRA Loans Mortgages

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