Court of Appeals Confirms CFPB Has No Authority to Issue CIDs

Government enforcement actions, including the issuance of subpoenas and Civil Investigation Demands (CIDs), must be authorized by the laws that created the agency or invested it with such broad investigative powers. A relatively new agency like the Consumer Financial Protection Bureau (CFPB), which was established by the Dodd-Frank Act, will often see its enforcement powers challenged at the start, and the regulated community should be aware of these inherent limitations on the exercise of governmental authority.

On April 21, the U.S. Court of Appeals for the District of Columbia Circuit issued another ruling adverse to the CFPB. In CFPB v. the Accrediting Council for Independent Colleges and Schools, the Court of Appeals affirmed the District Court’s ruling that the CFPB has no authority to issue a CID to the Council seeking information held by the Council related to “unlawful acts and practices in connection with accrediting for-profit colleges.”

The Secretary of Education recognizes national accrediting services which set accreditation standards for for-profit colleges. Students attending accredited colleges are eligible to receive federal student loans and funding, and the CFPB is investigating the allegedly deceptive practices of some for-profit colleges. When the CID was received, the Council asked the CFPB to reconsider its issuance, but the CFPB refused and brought an enforcement action in federal court.

Reviewing the CFPB’s authority, the courts have held that the CFPB does not have the authority to conduct this kind of investigation of accrediting agencies. Moreover, the CID itself failed to adequately describe the unlawful conduct it was investigation or the applicable law.