A federal judge has ruled that the CFPB has overstepped its authority in its attempts to investigate an organization that accredits for-profit colleges.
This is a first-of-its-kind decision. The CFPB has faced (and is facing) a variety of court challenges, but this marks the first time a judge has officially ruled the agency guilty of overstepping.
Judge Richard Leon of the U.S. District Court for the District of Columbia has ruled that the CFPB does not have the jurisdiction to proceed with an investigation of the Accrediting Council for Independent Colleges and Schools (ACICS), a nonprofit group that accredited hundreds of for-profit schools.
Many of those schools are now being investigated by the CFPB for potentially fraudulent lending practices.
Judge Leon wrote that the CFPB does have the authority to issue a so-called civil investigative demand seeking information from ACICS, since ACICS isn't a lender.
“Put simply, this post-hoc justification is a bridge too far!” Judge Leon wrote. “As ACICS has repeatedly and accurately explained, the accreditation process simply has no connection to a school’s private student lending practices.”
Leon further wrote that “new agencies, like the CFPB, will struggle to establish the exact parameters of their authority” but warned that they must be “prudent before choosing to plow headlong into fields not clearly ceded to them by Congress.”
A CFPB spokeswoman declined to comment.
“What makes this rebuke even more important is that it arises in a situation where courts almost invariably give federal agencies a lot of leeway — namely, issuing a civil investigative demand,” said Alan Kaplinsky, head of the consumer financial services group at the Ballard Spahr law firm.
The case stems from an investigation request the CFPB sent ACICS in August in regards to certain schools that the agency has accused of fraudulent or problematic lending practices. ACICS said no, noting that the Department of Education is its sole regulator and that the CFPB had no jurisdiction to investigate it.
The CFPB disagreed and filed a request for a court order that would allow the agency to proceed. Its argument rested on the idea that the CFPB needed to determine if the accreditation process and lending process are linked.
The judge offered a one-word reply to that:
Judge Leon further noted that the CFPB’s requests — which included a list of all the schools ACICS accredited since 2010 and a list of all individuals involved in accrediting 21 schools — “clearly reveal its investigation targets the accreditation process generally.”
“This the CFPB was never empowered to do,” he wrote. “And the fact that the CFPB is also investigating for-profit schools for suspected violations of the consumer financial laws in connection with their lending and financial advisory services does nothing to change this.”
Judge Leon is reportedly known for being colorful.