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CFPB lacked authority to issue CID to college accrediting organization, D.C. federal district court rules

Posted in CFPB Enforcement

The D.C. federal district court has ruled that the CFPB exceeded its statutory authority when it issued a CID to the Accrediting Council for Independent Colleges and Schools (ACICS) in August 2015.

ACICS’s petition to modify or set aside the CID was denied by the CFPB on October 8, 2015, and the CFPB thereafter filed a petition in D.C. federal district court to enforce the CID.  The CID’s statement of purpose indicated that the purpose of the CFPB’s investigation was “to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges.”  The CFPB argued that because it has authority to investigate for-profit schools in relation to their lending and financial advisory services, it also has authority to investigate whether any entity has engaged in any unlawful acts relating to accrediting such schools.

According to the court, the CFPB’s justification was “a bridge too far.”  The court observed that ACICS had “repeatedly and accurately explained [that] the accreditation process simply has no connection to a school’s private student lending practices” and that ACICS was not involved in financial aid decisions, meaning that it played “no part in deciding whether to make or fund a student loan.”

In response to the CFPB’s claim that it was not obligated “to accept at face value” ACICS’s description of its interaction with the schools it accredits and had the right to independently determine the truth of that description, the court stated simply “Please.”   While noting the CFPB might be “entitled to learn whether ACICS is connected to potential violations of the consumer financial laws by schools its accredits,” the CID’s “statement of purpose and the CFPB’s actual requests belie any notion that its inquiry is limited in this way.  Indeed, the statement of purpose says nothing about an investigation into the lending or financial-advisory practices of for-profit schools.”

The court also observed that the information requested by the CFPB included a list of all schools accredited by ACICS and a list of individuals involved in the accreditation of certain schools.  The court stated that such requests “clearly reveal [the CFPB’s] investigation targets the accreditation process generally.  This the CFPB was never empowered to do.”

In a footnote, the court commented that even if the CFPB had provided an investigatory purpose within its authority, such as the lending practices of for-profit schools, information regarding the accreditation process could still “be beyond [the CFPB’s] reach as not reasonably relevant  to that purpose.”  The court pointed to ACICS’s explanation that the accreditation process did not touch a school’s lending or financial-advisory services.”

The court concluded its opinion denying the CFPB’s petition to enforce the CID with the following admonition: “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.”

We have previously commented on the CFPB’s aggressive approach to asserting its jurisdiction.  Last summer, Ballard Spahr attorneys conducted a webinar: “Pushing the Envelope: Are There Limits to the CFPB’s Jurisdiction?” in which we discussed the CFPB’s continuing “jurisdiction creep” and explored the limits of the CFPB’s jurisdiction.