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CFPB Turns to Ninth Circuit to End Consumer Relief Losing Streak

Sept. 23, 2021, 10:01 AM

The Consumer Financial Protection Bureau, arguing before the Ninth Circuit Thursday, will try to break a string of high-profile court decisions limiting federal power to recoup ill-gotten gains from fraudsters in civil cases.

The CFPB faces a daunting task in arguing that the U.S. Supreme Court’s June 2020 decision in Liu v. Securities and Exchange Commission—and a more recent Seventh Circuit ruling—shouldn’t restrict the bureau’s ability to get redress for consumers.

The Liu decision limited the SEC’s ability to get disgorgement as equitable relief for harmed investors, saying the regulator could only go after net profits from a fraudulent scheme, as opposed to net revenue. In July, the U.S. Court of Appeals for the Seventh Circuit applied Liu’s limitations to CFPB v. Consumer First Legal, reversing a $21.7 million restitution that the bureau won against firms that allegedly scammed borrowers seeking mortgage relief help.

Now the spotlight turns to the CFPB’s bid for $197 million in consumer redress against online lender CashCall Inc. and its founder, J. Paul Reddam, for allegedly offering loans in states where triple-digit interest rates were illegal. The U.S. Court of Appeals for the Ninth Circuit has asked the parties to address both the Liu and Consumer First cases at Thursday’s oral arguments, hinting at a path forward.

The Ninth Circuit “appears very concerned about equitable restitution,” said Craig Cowie, a professor at the University of Montana Alexander Blewett III School of Law and a former top CFPB enforcement official.

The appeal stems from a 2018 ruling by Judge John F. Walter of the U.S. District Court for the Northern District of California. He found that CashCall violated the Consumer Financial Protection Act (CFPA), but only assessed a $10 million civil penalty and no restitution.

The Ninth Circuit heard oral arguments in the CFPB’s appeal of that ruling in September 2019, and the court’s three-judge panel appeared skeptical of Walter’s ruling. But the case was put on hold as the Seila Law LLC v. CFPB case went to the Supreme Court, ultimately resulting in a ruling that changed the bureau’s leadership structure.

The Ninth Circuit relisted the CashCall case, setting up arguments on whether the CFPB’s restitution powers under the Dodd-Frank Act are unique and weren’t addressed by Liu.

‘Staightforward’ Relief.

The CFPB sued Orange, Calif.-based CashCall and Reddam in 2013 for issuing payday loans—through a tribal lender—that violated state interest rate caps in more than a dozen states, including California, New York and North Carolina.

The CFPB says Dodd-Frank gives it the authority to get equitable relief in the form of restitution, based on net revenues paid by consumers who didn’t rightfully owe the companies in the first place. The Liu case addresses a different type of equitable relief where getting restitution for profits is more appropriate, the bureau says.

“It does not follow that a person deceived into paying amounts she did not owe has no entitlement to the return of that money,” the CFPB said in an April 13 brief. “That is as straightforward a restitutionary remedy as they come.”

In a subsequent filing in August, the CFPB said the Seventh Circuit was simply “wrong” in applying Liu to the Consumer First Legal enforcement action. The CFPB is expected to move for a rehearing in that case.

CashCall countered by saying that allowing the CFPB to get equitable relief on net revenues—by calling such a move restitution, rather than disgorgement of ill-gotten gains—would improperly evade Liu.

“It is inconceivable that Liu could be easily sidestepped by merely recasting a request for equitable relief from ‘disgorgement’ to ‘restitution,’” CashCall said in a March brief.

Disgorgement takes away the profits earned by the wrongdoer from the illegal conduct, but isn’t concerned with revenue or the amount of damages sustained by the victims of the unlawful conduct.

The company’s lawyers said the Ninth Circuit should follow the Seventh Circuit in an August filing.

Emboldening Defendants

The Seventh Circuit’s decision in Consumer First Legal is likely to provide a path forward for the Ninth Circuit, said Jonathan Pompan, co-chair of Venable LLP’s consumer financial services practice group.

A CFPB loss at the Ninth Circuit could further embolden companies looking to fight a CFPB enforcement action, he said.

“Companies with their backs against the wall that only have one source of revenue that’s under attack could possibly have greater leverage when litigating,” Pompan said.

But that leverage may have limits, according to Cowie.

The Dodd-Frank Act gave the CFPB a host of powers that would allow them to go after all of an alleged fraudster’s net revenues if it deceived consumers into paying money they don’t owe, he said.

Among them are the ability to seek legal remedies, including stiff damages awards, that may require jury rather than bench trials, Cowie said.

The CFPB argued in its briefing papers that even if the Ninth Circuit rules for CashCall on grounds set by Liu, the bureau still should be allowed to get the same relief for consumers as a “refund of money” or “payment of damages” as allowed under Dodd-Frank.

That is a model the CFPB is likely to follow in the future, Cowie said.

“In cases where they’re in federal court, they should be advancing arguments for legal remedies in addition to equitable remedies, in case they lose,” he said.

The case is CFPB v. CashCall Inc., 9th Cir., No. 18-55407, Oral Arguments 9/23/21

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editors responsible for this story: Michael Ferullo at; Roger Yu at