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Furnishers and CRAs Can Likely Expect Fewer and More Limited CFPB Investigations In Light Of Recent Guidance From Director Mick Mulvaney, But For How Long?

In 2010, Congress enacted the Dodd-Frank Act, which created the largely independent Consumer Financial Protection Bureau (“CFPB”) and empowered it with broad authority to investigate violations of consumer financial protection laws, including the Fair Credit Reporting Act (“FCRA”). Since then, the CFPB has grown in size and budget every year, along with an attendant annual increase in investigations and consumer complaints. Along with its increase in size and investigations, the CFPB has also increased its scope over time, and in October 2012, it began accepting FCRA complaints.  In 2017, the single largest category of consumer complaints (approximately 100,000) involved credit reporting. The potential investigations that follow from such complaints can be time-consuming and costly, and all the more so if the investigation is nearly limitless in scope, rather than a targeted inquiry.

A CFPB investigation begins with a “civil investigative demand” (“CID”), which must “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” Unfortunately for furnishers and CRAs, however, the courts have generally given the CFPB very generous deference regarding allowable scope of CIDs.

This almost limitless deference was a consistent theme until April 2017, when the U.S. Court of Appeals for the District of Columbia decided CFBP v. Accrediting Council for Ind. Colleges & Schools, 854 F.3d 683 (D.C. Cir. 2017) (the “ACICS” case). In ACICS, the D.C. Circuit examined a CID directed at a college accreditation entity, wherein the CFPB stated the purpose of the investigation was to “determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges, in violation of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536, or any other Federal consumer financial protection law.” Setting aside whether the CFPB had authority to investigate college accreditation, the D.C. Circuit determined that the CID was invalid as overbroad, because it did not provide ACICS with sufficient notice of the nature of the conduct and the alleged violation under investigation. The Court conceded that the applicable law gave the CFPB broad authority to define the scope of its investigation, but the law did not “afford it unfettered authority to cast about for potential wrongdoing.” Although the ACICS case did not address or involve the FCRA, the general applicability of the CIDs law to FCRA provided optimism to furnishers and CRAs that the courts might provide some meaningful check on the CFPB’s broad investigatory reach.

Recent developments, however, suggest this optimism may be misplaced.  In February of this year, the U.S. District Court for the Western District of Pennsylvania decided CFPB v. Heartland Campus Sols., ESCI, No. 17-1502, 2018 U.S. Dist LEXIS 31952 (W.D. Pa. Feb. 28, 2018) (“Heartland”), wherein a student loan servicer challenged the sufficiency of a very broadly-worded CID.  The CID in Heartland stated that the purpose of the investigation was to determine whether student loan services, “in connection with servicing of student loans, including processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting, have engaged in unfair, deceptive or abusive acts or practices in violation of [Dodd-Frank or FCRA].”  Heartland challenged the sufficiency of this CID, stating that the CFPB’s recitation of its various activities did not put Heartland on notice of what was actually being investigated, and instead the CID “merely categorize[d] all aspects of a student loan servicer.”

The Court held that even if the CFPB was merely reciting the whole of Heartland’s business, nothing prevented the CFPB from “investigating the totality of a company’s business operations.”  Moreover, the Court distinguished ACICS, stating that the CID in ACICS included a “catch-all” provision for statutes that might be the subject of the investigation which rendered it invalid, and further distinguished the Heartland case from ACICS because ACICS involved investigation of activity over which the CFPB lacked authority (although the ACICS court specifically rendered its decision on the narrower grounds of notice sufficiency).

If the Heartland line of cases represents the controlling rule—and the Heartland court cited two other recent district court cases similarly decided—judicial oversight of CIDs will be effectively zero. Under the Heartland rule, as long as the CFPB identifies in the CID any form of conduct (however broadly) and specific statutes that are the subject of the investigation, the courts will uphold the CID. One could foresee, for example, a court applying the Heartland decision to uphold a CID directed to a CRA stating that the CFPB intended to investigate whether “[CRA] violates 15 U.S.C. § 1681e(b) in issuing consumer reports,” without any additional detail or scope limit.

While early optimism as to judicial oversight following ACICS may have been misplaced, there remains some potential light at the end of the tunnel for furnishers and CRAs, and it comes from the unlikeliest of places—the CFPB itself. Acting Director Mick Mulvaney has been making waves in recent months by stressing the need for more oversight over the CFPB, along with a limit on authority and budget for the agency. Last month, Director Mulvaney, who has prior to his tenure at the CFPB issued scathing critiques of the agency, testified before Congress to the same effect. The CFPB further issued last month its Semi Annual Report for Fall 2017, wherein Director Mulvaney stated that the CFPB “will continue to execute the law, but will no longer go beyond its statutory mandate” and that “the Bureau is far too powerful and with precious little oversight of its activities.”

The CFPB has signaled what Mr. Mulvaney’s directorship might mean for investigations by way of a Request for Information published in the Federal Register in late January of this year. Although the Request is not a proposed rule, and only invites comments on recommendations regarding requirements for CIDs, the CFPB telegraphs its likely intent to limit the scope of CIDs through its categories of suggested feedback. Specifically, the Request invited comments on, among other things, the processes for initiating investigation, the steps the CFPB could take to improve recipients’ understanding of investigations, and the nature and scope of requests in CIDs. Comments have since closed on the Request, and the CFPB has not issued further guidance, but reading the tea leaves suggests that more targeted processes for CIDs may be on the horizon, and further that the CFPB under Director Mulvaney will seriously limit the amount of investigations.

These anticipated limits driven by the executive branch, however, all depend on the leadership of the CFPB. Mr. Mulvaney is, after all, the Acting Director, appointed by President Trump on an interim basis without Senate approval. Moreover, he is pulling double duty as Director of the OMB, and there is ongoing litigation aimed at his ouster in favor of a much more traditional proposed director, deputy director Leandra English, who would almost certainly reverse Mr. Mulvaney’s proposed reforms. It remains to be seen, therefore, whether the targeted and more limited investigation environment on the horizon will be a long-term institutional shift, or a brief pause of an otherwise steady upward trend. What seems clear, however, is that any lasting change will have to come from statutory or regulatory reform, because the Heartland ruling suggests that the courts are unlikely to provide any meaningful oversight of CFPB investigations in the near future.