Court of appeals affirms decision limiting CFPB’s UDAAP authority

The Dodd-Frank Act vested the CFPB with extremely broad authority, particularly the power to regulate unfair, deceptive, or abusive acts or practices (UDAAP). The CFPB has wielded this power broadly and arguably strayed into areas beyond what Congress intended in passing Dodd-Frank. Although courts have allowed the CFPB broad discretion, a recent decision from the Court of Appeals for the DC Circuit suggests that the CFPB’s authority is not limitless. In CFPB v. Accrediting Council for Independent Colleges and Schools (ACICS), the DC court rejected the CFPB’s civil investigative demand (CID) for information relating to the accreditation of for-profit colleges, concluding that the CFPB failed to comply with statutory requirements in issuing the CID.

The ACICS is a non-profit association formed by for-profit colleges as an accrediting body . In connection with a broader investigation into for-profit colleges and their student-lending activity, the CFPB sent a CID to the ACICS seeking information related to alleged “unlawful acts and practices in connection with accrediting for-profit colleges.” The ACICS sought to have the CID set aside using the CFPB’s administrative process, but CFPB Director Richard Cordray rejected the ACICS’s challenges to the CID. The CFPB then sued the ACICS in federal court to enforce the CID. The district court rejected the CFPB’s lawsuit, finding that the CID exceeded the scope of the CFPB’s authority. The CFPB appealed to the DC Circuit.

On appeal, the DC Circuit noted that the CFPB’s power is broad, but agencies like the CFPB are “not afforded unfettered authority to cast about for potential wrongdoing. Accordingly, courts will not enforce a CID when the investigation’s subject matter is outside the agency’s jurisdiction.” The court of appeals noted that the district court had concluded that “the CFPB lacks authority to investigate the process for accrediting for-profit schools.” Rather than addressing the scope of the CFPB’s authority over college accreditation, the court of appeals held that the CID did not comply with the statutory requirements because it did not “state adequately the unlawful conduct under investigation.” Thus, the court of appeals did not directly address the broader issue of the scope of the CFPB’s authority, instead rejecting the CID as procedurally improper.

Although the ACICS did not directly address the CFPB’s authority to investigate for-profit colleges, the quoted language above shows that the court will limit the CFPB’s authority to that specifically set forth in Dodd-Frank. And while the CFPB’s UDAAP authority is undeniably broad, the district court’s earlier decision indicates that courts will not interpret UDAAP authority to extend without any outer limit. If, for example, the CFPB begins to stray into areas such as business lending and other banking activity outside of its consumer-focused purpose, banks may be able to challenge the CFPB’s power to regulate such subject matter.