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INSIGHT: Steps Toward Greater Clarity in CFPB Investigations

May 17, 2019, 8:00 AM

Companies once left to contemplate frustratingly broad civil investigative demands from the Consumer Financial Protection Bureau may soon get a bit more clarity about the purpose behind them.

The CFPB recently announced it would take steps to better identify the conduct and activities it is investigating when issuing a CID—steps likely to be welcomed by CID recipients, and ones that potentially signal additional changes in the near future to how the CFPB operates.

CFPB Policy Change

The CFPB has always had a responsibility to provide some details about the reason for an investigation, but as noted in a prior article, its notification of purpose—a required element of the CID—typically lacked specificity, leaving companies and individuals in the dark. That policy earned the CFPB criticism from CID recipients, the courts, and the CFPB’s inspector general.

The CFPB’s announcement described two important policy changes to how it carries out its notification requirement. The announcement said CIDs “will provide more information about the potentially applicable provisions of law that may have been violated” and that they will “typically specify the business activities subject to the Bureau’s authority.”

It also said that if determining the extent of the CFPB’s authority over the relevant activity was one of the significant purposes of the investigation, agency staff might “specifically include that issue in the CID” in the interests of further transparency.

What’s Behind the Changes?

The CFPB said recent court decisions, a report by its inspector general, and public comments in response to a request for information about the CID process all played a role in the policy changes.

The D.C. Circuit and the Fifth Circuit had found that notifications of purpose containing only references to broad, non-specific provisions of law were inadequate. The CFPB’s inspector general identified the same issue, noting that inadequate notifications limit companies’ ability to respond to CIDs and can prolong investigations.

Public comments to the CFPB also advocated for change, including letters from several trade associations related to the CID and enforcement processes that urged the CFPB to provide more information about: (i) the specific conduct being investigated; (ii) specific laws and regulations at issue and, where the laws or regulations are broad, the relevant legal theories; and (iii) how the specific conduct may violate those laws and regulations.

The change concerning the CFPB’s authority over the activities under investigation appears to derive in large part from the D.C. Circuit’s April 2017 decision involving the Accrediting Council for Independent Colleges and Schools.

In that case, the organization challenged both the adequacy of the notification of purpose and the CFPB’s overall authority to investigate the organization’s activities. In finding the notification of purpose was inadequate, the court focused on the CFPB’s ultimately unsuccessful arguments for jurisdiction over the organization’s activities, observing that the notification failed to demonstrate jurisdiction.

The court’s jurisdictional concerns likely prompted the CFPB to announce more transparency about when the threshold question of its authority over a certain activity is part of an investigation.

What Does This Mean for CFPB Investigations?

Companies and individuals receiving CIDs should expect to see more details about the legal violations and business activities that the CFPB is investigating.

How material the additional details are in practice remains to be seen, but the additional information should help recipients respond more effectively and efficiently to the CFPB’s requests—a worthy goal for both the CFPB and subjects of investigations. More information may also allow for better informed strategies in responding to investigations and permit companies to address valid concerns earlier than they otherwise would have had they been kept in the dark.

Greater transparency in the notification of purpose may also signal a more open approach by the CFPB in conducting investigations. Public comments to the CFPB about the CID process called for more frequent communications throughout the investigation to ensure institutions have fair opportunities to respond to the requests and to make the process more efficient.

The policy changes on CIDs indicate that the CFPB leadership is willing to implement substantive policy revisions based on public feedback, including comment letters and court decisions. Given that the CFPB made several requests for information in 2018 seeking feedback on numerous other agency policies and procedures, the movement on CIDs could portend additional changes to come.

In the meantime, the policy changes on CIDs mark an important shift for CID recipients. While determining how to answer a CFPB CID will always be a challenging task, at least companies and individuals may now have a better sense of why the CFPB came knocking in the first place.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Aaron C. Mahler is a partner and Brendan Clegg is an associate at Buckley LLP, where they represent banks and nonbank financial institutions in government examinations, investigations, and enforcement actions.

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