On April 21, the United States District Court for the District of Columbia ruled that due to a lack of authority under existing consumer protection laws, the Consumer Financial Protection Bureau (“CFPB”) cannot require a for-profit college accrediting group to comply with a civil investigative demand (“CID”) to determine the group’s method for accrediting schools.

In Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, Case No. 1:15-01838, the CFPB issued a broad CID to the Accrediting Council for Independent Colleges and Schools (“ACICS”) for purposes of “determin[ing] whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges.” The ACICS refused to comply with the CID, which sought oral testimony and interrogatory responses.

Before enforcing a CID, a court must consider (i) whether the agency has the authority to make the inquiry, (ii) whether the information sought is reasonably relevant, and (iii) whether the demand is too indefinite.[1] As noted in Accrediting Council, while agencies are generally accorded broad deference concerning the scope of their authority, if it is “clear that an agency either lacks the authority to investigate or is seeking information irrelevant to a lawful investigatory purpose, a court must set such inquiry aside.”

According to the court in Accrediting Council, the threshold issue was whether the CFPB had the statutory authority to issue the CID in question. The court ultimately ruled that the CFPB did not have the authority to investigate the accreditation process of for-profit schools.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the ability to issue CIDs to any person believed to be in possession of any material or information relevant to a violation of federal consumer financial laws.

In Accrediting Council, the CFPB argued that because it has the authority to investigate for-profit schools in relation to their lending and financial-advisory services, it also has the authority to review whether any entity has engaged in unlawful acts related to the accreditation process. In rejecting this “post-hoc justification,” the court found there was no “clear nexus between the consumer financial laws [the CFPB] is tasked with enforcing and its purported investigation into accreditation of for-profit schools.” The court also observed that ACICS is not involved in the financial aid decisions of the schools it accredits.

The court further noted that while “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 [sic] into fields not clearly ceded to them by Congress.”

We are continuing to monitor developments in this area.

[1] See United States v. Morton Salt Co., 338 U.S. 632, 652 (1950); see also CFTC v. Ekasala, 62 F. Supp. 3d 88, 93 (D.D.C. 2014).