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CFPB Changes Its Policy on Civil Investigative Demands and Will Now Provide Specific Basis for Its Investigations

On April 23, 2019, the CFPB announced changes to its policy regarding Civil Investigative Demands (“CIDs”) to ensure they provide more information about the potentially wrongful conduct under investigation.

According to the announcement, CIDs will now provide more information about the potentially applicable provisions of law that may have been violated and will also specify the business activities subject to the CFPB’s authority. In investigations where determining the extent of the CFPB’s authority over the relevant activity is one of the significant purposes of the investigation, the CFPB may specifically include that issue in the CID in the interests of further transparency.

This change in policy was brought by the recent Fifth Circuit decision in CFPB v. The Source for Public Data, L.P., and the D.C. Circuit’s decision in CFPB v. Accrediting Council for Independent Colleges and Schools (“ACICS Case”). Under the Consumer Financial Protection Act of 2010 (“Act”), the CFPB is authorized to issue investigational subpoenas known as CIDs when looking into potential violations of law with respect to entities under its supervision. The Act provides that each CID “shall state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” 12 USC § 5562(c)(2). CIDs issued by the Bureau set out this information in a section known as the “notification of purpose.”

In both circuit court decisions referenced above, the circuit courts have held that the CFPB’s CIDs failed to comply with the “notification of purpose” requirement, as it failed to adequately state the specific nature of the unlawful conduct under investigation or the applicable law. In both cases the circuit courts rejected the CFPB’s use of broad and non-specific claims of unlawful acts, broad references to statutes or the use of the catch-all phrase “violation of ‘any other federal consumer financial law.’” The circuit courts also determined that the use of such broad claims of unlawfulness, prevents the court from determining whether the conduct under investigation is within the CFPB’s authority to investigate in the first place and whether the scope of the CID is overbroad and unduly burdensome. In both cases, the circuit courts essentially struck down the CIDs.

This change was also brought as a result of comments received by the CFPB in response to its Request for Information about the CFPB’s CID practices, which was published after the D.C. Circuit decision in the ACICS Case.

If you have any questions regarding this change of policy, the CID process or responding to CID, please reach out to Solomon Maman.

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