By Thomas G. Wolfe, J.D.
A California federal trial court has partially granted the Consumer Financial Protection Bureau’s petition to enforce a civil investigative demand (CID) issued to Seila Law, LLC, a law firm that, among other things, provides debt-relief and credit-counseling services to consumers. On one hand, the court rejected three of the firm’s four challenges to the CID and the CFPB’s authority to issue it. On the other hand, the court determined that the CID’s pertinent interrogatories and requests for documents concerning the firm’s “services” could be construed to encompass information about other facets of the firm’s legal practice beyond the reasonable scope of the CID. Accordingly, in its order, the court compelled Seila Law to comply with the Bureau’s CID but limited its scope.
Generally, the CFPB has sought to investigate whether certain companies providing debt-relief and credit-counseling services have violated the Federal Trade Commission’s Telemarketing Sales Rule and/or provisions of the Consumer Financial Protection Act prohibiting unfair, deceptive, or abusive acts or practices. Although the Seila Law firm provided some answers to the seven interrogatories and four document requests set forth in the Bureau's CID, the CFPB considered the firm’s response to be inadequate. As a result, the Bureau filed a lawsuit in the U.S. District Court for the Central District of California (Consumer Financial Protection Bureau v. Seila Law, LLC) to obtain a court order compelling Seila Law to comply with its CID.
CFPB’s constitutionality. Rejecting Seila Law’s contention that the CFPB is unconstitutionally structured, the court noted that the Bureau’s receipt of funding outside of the annual Congressional appropriations process was “no different than several other financial regulators, such as the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation … In fact, unlike these other agencies, the CFPB’s non-appropriated budget is capped by statute.”
In addition, the court determined that even if an independent agency like the CFPB could not be constitutionally headed by a director, “the proper remedy would not be to refuse to enforce the CID.” Moreover, because Congress unquestionably wields subpoena power, the CFPB “may lawfully execute this power as well” to obtain information as part of its investigation, the court stated.
Notification of purpose. The Seila Law firm maintained that the Bureau’s CID failed to provide sufficient notice about the purpose and nature of the CFPB’s investigation. The court disagreed. In reviewing the statutory underpinning for the CID and accompanying case law, the court concluded that the CFPB was not seeking to enforce a generic CID; rather, the CFPB was seeking information “about Seila Law from Seila Law.” Consequently, the law firm’s argument did not prevail.
Practice-of-law exclusion. Next, the court addressed Seila Law’s contention that a “practice of law” exclusion would prevent any enforcement action against the law firm. First, the court emphasized that the Consumer Financial Protection Act (CFPA) empowered the CFPB to issue a CID to enforce the Federal Trade Commission’s Telemarketing Sales Rule because that rule does not contain an exception for those engaged in the practice of law. Second, while Congress included a practice-of-law exclusion in the CFPA “to ensure that the CFPB did not employ its general authority over unfair, deceptive, and abusive practices to regulate the practice of law,” an attorney is not exempt from enforcement by the CFPB “merely because of his or her status as an attorney.”
Overbreadth and vagueness. Seila Law argued that the CID’s request for information about “services” or “other services” could be construed to include information “related to the firm’s immigration, personal injury, criminal defense, and real estate practices” that had nothing to do with the CID’s stated purposes. The court agreed with Seila Law on this point.
The court noted that the Bureau’s CID did not define or describe what these “other services” were. Accordingly, while the court compelled Seila Law to comply with the Bureau’s CID, the court restricted its order to specify that references in the CID to “services” and “other services” were to be construed as meaning “the advertising, marketing, or sale of debt relief services or products, including debt negotiation, debt elimination, debt settlement, and credit counseling.”
For more information about the Consumer Financial Protection Bureau's investigation and enforcement efforts affecting the financial services industry, subscribe to the Banking and Finance Law Daily.
