By Thomas G. Wolfe, J.D.
Notably, the U.S. District Court for the District of Columbia recently denied 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). In deciding that the CFPB lacked the authority to investigate the ACICS’s process for accrediting for-profit schools, 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.”
To provide some background for the court's ruling in Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, the CFPB conducted an investigation of for-profit colleges “for deceptive practices tied to their private student-lending activities.” In connection with that undertaking, the CFPB, in August 2015, 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. However, 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 legal issue before it, the court noted, “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.”
After outlining the CFPB’s statutory authority under the Dodd-Frank Act to issue the CID, 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 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, the court determined. “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. Moreover, 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 was not obligated to “accept at face value” ACICS’s description of its interaction with the schools it accredits. The CFPB contended it had a right to investigate and “determine for itself” whether ACICS’s assertions were true and accurate. Rejecting the CFPB’s 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 called for the ACICS to provide 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. Ultimately, 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.
For more information about the boundaries of the Consumer Financial Protection Bureau's authority, subscribe to the Banking and Finance Law Daily.
