By J. Preston Carter, J.D., LL.M.
The Consumer Financial Protection Bureau’s petition to enforce its civil investigative demand (CID) to a company was denied for failing to meet the statutory requirement that it advise the company of “the nature of the conduct constituting alleged violation which is under investigation and the provision of law applicable to such violation,” the U.S. Court of Appeals for the Fifth Circuit held (CFPB v. The Source for Public Data, LP, Sept. 6, 2018, Elrod, J.).
The CFPB issued a CID to the Source for Public Data, LP, a company that posts public record information about consumers on a website. Public Data objected to the CID for, among other things, failing to comply with the statute authorizing the CFPB to issue these demands (12 U.S.C. §5562). The CFPB filed a petition to enforce the CID, and the U.S. District Court for the Northern District of Texas granted the petition.
Whether the CID adequately described the nature of the conduct the Bureau was investigating, as required by 12 U.S.C. 5562(c)(2), was the main point of argument in the lower court. That court found the Bureau’s notification of purpose to be adequate. However, the appellate court disagreed. The judge said Section 5562(c)(2) requires that a civil investigative demand identify both: (1) “the nature of the conduct constituting the alleged violation which is under investigation;” and (2) “the provision of law applicable to such violation.” The judge found that the CFPB’s CID identified neither.
Nature of the conduct. The CID did not state the “conduct constituting the alleged violation which is under investigation,” the court said. The Bureau’s Notification of Purpose said it is investigating “unlawful acts and practices in connection with the provision or use of public records information.” However, judge said, this does not identify what conduct the CFPB believes constitutes an alleged violation. “Providing and using public records are not violations of federal law, and the CFPB fails to explain how these activities violate federal consumer law,” the judge said.
Applicable law. The judge also determined that, as the CID never identifies an alleged violation, it does not identify “the provision of law applicable to such violation.” Instead, the Notification of Purpose refers to the Fair Credit Reporting Act and states that the CFPB is investigating the violation of “any other federal consumer financial law.” In reaching its decision, the court referred to CFPB v. Accrediting Council for Independent Colleges & Schools, in which the U.S. District Court for the District of Columbia refused to enforce a CID the Bureau served on a college accrediting organization, as part of an investigation into student loan practices, because the Notification of Purpose was inadequate, failing to describe either the actions being investigated or the law that possibly was being violated. It did not provide a basis for a court to decide whether the bureau was acting under its statutory authority.
Reasonable relevance. The court added that it also could not enforce the Bureau’s administrative subpoena under the “reasonable relevance” standard. The CID failed to identify the conduct under investigation or the provision of law at issue.
Finally, using language from a 1994 D.C. District Court opinion, the judge said, “Simply put, the CFPB does not have ‘unfettered authority to cast about for potential wrongdoing.’”
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