On April 21, 2017, a panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that a civil investigative demand (“CID”) issued by the Consumer Financial Protection Bureau against the Accrediting Council for Independent Colleges and Schools (“ACICS”) was overly broad and unenforceable. The D.C. Circuit’s decision sets an important precedent for entities subject to Bureau investigations.
The CFPB issued the CID against the accrediting organization in August 2015, at a time of intense public scrutiny of for-profit colleges and ACICS’s accreditation of for-profit colleges that eventually resulted in the U.S. Department of Education withdrawing the organization’s status as a recognized accreditor. The CID’s stated purpose, set forth in its “Notification of Purpose,” was to investigate whether “any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges” in violation of “any” federal consumer financial protection law. At the time, commentators speculated as to whether the CFPB was exploring taking action against ACICS—which is not a consumer lender—directly or by arguing that the accreditor was an affiliate of or engaged in aiding and abetting a college or lender more clearly within the Bureau’s jurisdiction.
In 2016, a federal district court denied a petition by the Bureau to enforce the CID, finding that the CFPB lacked the statutory authority to issue the CID because it “target[ed] the accreditation process” despite the agency having a mandate from Congress that did not seek to “address, regulate, or even tangentially implicate the accrediting process of for-profit colleges.”
In its April 21 decision, the D.C. Circuit panel upheld the district court on the narrower grounds that the CID was impermissibly vague and provided insufficient notice under a statutory requirement that Bureau CIDs “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” The court found that the CID did not meet this standard because it provided “no description whatsoever of the conduct” under investigation and failed to explain the meaning of “the broad and non-specific term ‘unlawful acts and practices’” in the context of the particular investigation.
Notably, the panel’s opinion explicitly stated that invalidating the specific CID made it unnecessary for the panel to rule on whether Congress granted the Bureau the authority to take action against an accreditor. However, during the contentious oral argument for the case in February 2017, one of the panel’s judges directly asserted that the CFPB lacks the authority to take action against a non-lender accreditor like ACICS directly. In response, the CFPB took the position that even if ACICS is outside of the Bureau’s enforcement jurisdiction—preventing direct action against it—the CFPB still has the authority to demand information related to investigations of entities within the agency’s jurisdiction “from those who have it.”
A CFPB spokesperson declined to state whether the Bureau would appeal the decision, issue a narrower and more specific CID, or end its investigation.
This decision—the first of its kind relating to the CFPB—may lead other CID recipients to challenge the typically broad, open-ended Notifications of Purpose found in Bureau CIDs. Alternatively, the CFPB may revise its CID practices and become more specific in identifying the conduct and statutes relevant to its investigations.