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5th Cir. Holds CFPB’s CID Did Not Adequately Advise of Alleged Violation

The U.S. Court of Appeals for the Fifth Circuit held that a civil investigative demand (CID) issued by the Consumer Financial Protection Bureau did not adequately advise the respondent of the nature of the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation.

Accordingly, the Fifth Circuit reversed the ruling of the trial court granting the CFPB’s petition for an order to enforce the CID.

A copy of the opinion in Consumer Financial Protection Bureau v. The Source for Public Data, L.P. is available at:  Link to Opinion.

Under 12 U.S.C. § 5562(c)(1), the CFPB may issue a CID to “any person” whom the CFPB “has reason to believe” may have documents, tangible things, or information “relevant to a violation.”

Each CID must “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.”  12 U.S.C. § 5562(c)(2).

This is known as “notification of purpose.”  12 C.F.R. § 1080.5.  If a recipient does not comply with the CID, the CFPB may file a petition in federal court to enforce it.  12 U.S.C. § 5562(e)(1).

Here, the CFPB issued a CID to a company that provides public records to the public through an internet-based search engine.

The CID’s “Notification of Purpose” read: “The purpose of this investigation is to determine whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer financial law.  The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest.”

During a meet and confer with the CFPB, the company asserted that the Notification of Purpose was inadequate, and that the CFPB did not have jurisdiction over it.  The company then filed a petition with the CFPB to set aside the CID, which was denied.

The CFPB filed a petition in federal court seeking an order to enforce the CID.  The trial court rejected the company’s argument that the CID failed to provide fair notice of the violation under investigation as required by section 5562(c)(2), and that the CFPB lacked jurisdiction.  Accordingly, the trial court ordered that the company respond to the CID.

The company appealed.

On appeal, the Fifth Circuit determined that “[t]he CFPB did not comply with 12 U.S.C. § 5562(c)(2) when it issued this CID to [the company].”  In so ruling, the Court noted that the CFPB did not state the “conduct constituting the alleged violation which [was] under investigation,” rather the Notification of Purpose provided only that the CFPB was investigating “unlawful acts and practices in connection with the provision or use of public records information.”

The Fifth Circuit determined that “this Notification of Purpose does not identify what conduct, it believes, constitutes an alleged violation.”

Further, the CID did not identify “the provision of law applicable to such violation,” as required.  Instead, the Notification of Purpose referred only “to the Fair Credit Reporting Act, an expansive law governing all activities relating to the reporting of consumers’ credit information.  Such reference to a broad provision of law that the CFPB has authority to enforce does nothing to clarify what conduct is under investigation.”

Moreover, the Fifth Circuit noted that the Notice of Purpose’s statement that the CFPB was investigating “any other federal consumer financial law” defeated “any specificity provided by the reference to FCRA.”

The Court further explained that a “reasonable relevance” standard applies to enforcement of administrative subpoenas.  Under the “reasonable relevance” standard, the court will enforce an administrative subpoena if: “(1) the subpoena is within the statutory authority of the agency; (2) the information sought is reasonably relevant to the inquiry; and (3) the demand is not unreasonably broad or burdensome.”

The Fifth Circuit determined that “[b]ecause the CID issued to [the company] fails to identify the conduct under investigation or the provision of law at issue, we cannot review it under our ‘reasonable relevance’ standard.”

As “the CFPB does not have ‘unfettered authority to cast about for potential wrongdoing,’” it “must comply with statutory requirements.”

The Fifth Circuit held “that the CFPB failed to 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.’”  12 U.S.C. § 5562(c)(2).

Thus, the ruling of the trial court was reversed.

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Jeffrey Karek practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in defending consumer finance lawsuits in both state and federal trial courts, and on appeal. Such litigation includes allegations brought under TILA, HOEPA, RESPA, FDCPA, TCPA, FCRA, and state consumer protection statutes, including in the defense of putative class actions. Jeff received his Juris Doctor from the University of Michigan Law School, and graduated magna cum laude with a Bachelor of Business Administration degree from Western Michigan University.

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