April 22, 2016

Federal Court: CFPB Overstepped Jurisdiction in Issuing CID to For-Profit Colleges Accreditor

Holland & Knight Alert
Anthony E. DiResta | Kwamina Thomas Williford | Brian J. Goodrich

Judge Richard J. Leon of the U.S. District Court for the District of Columbia on April 21, 2016, ruled that the Consumer Financial Protection Bureau (CFPB) did not have authority to issue a Civil Investigation Demand (CID) to the Accrediting Council for Independent Colleges and Schools (ACICS). The Court found that the CFPB did not have authority to issue a CID in an investigation aimed at business practices that did not involve a consumer financial product or service.

This decision is the first time the CFPB's enforcement authority has been reined in by a court, and it comes on the heels of the heated oral argument in the U.S. Court of Appeals for the District of Columbia Circuit earlier this month in which the D.C. Circuit sharply questioned the CFPB's counsel during oral argument over the Bureau's constitutionality.

Background and Court Finding

In 2015, the CFPB issued a CID to ACICS, an accreditor of for-profit colleges. The stated purpose of the CID was to investigate whether any entity has or is violating federal consumer protection laws in connection with accrediting for-profit colleges. ACICS refused to comply with the CID and submitted a petition to the CFPB to set aside the CID. CFCB Director Richard Cordray denied the ACICS petition, and when ACICS continued to refuse to comply, the CFPB brought suit in federal district court to enforce the CID.

The Court denied the CFPB's petition, finding that the CFPB does not have enforcement authority over any laws that implicate the accrediting process of for-profit colleges. The Court dismissed the argument that the CFPB's authority to investigate private colleges' lending practices extended to the accreditation process.

The Court's ruling cut even further into the CFPB's investigative authority. It dismissed the CFPB's argument that it is entitled to investigate and determine for itself whether or not ACICS is engaged in accreditation activities that lie outside of the CFPB's jurisdiction. The Court evaluated the requests in the CID, finding that the investigation targets the accreditation process, an area it found to be patently outside of the CFPB's jurisdiction.

Conclusion and Impact

The CFPB has taken an aggressive approach to its enforcement authority, which has been questioned by many. This is the first time a court specifically limited the CFPB's reach and ruled that the CFPB did not have jurisdiction to investigate a certain business practice. The decision will likely galvanize many who question the expansive reach of the CFPB. Moreover, this presents a setback to the CFPB's recent enforcement agenda aimed at for-profit colleges.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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