Mulvaney-Led CFPB Actively Litigates in Court Regarding Overdraft Policy-Related Evidence

Many observers have reported on leadership changes at the Consumer Financial Protection Bureau (“CFPB”) and the potential shifts in policy priorities that may follow.

However, in the new year, among the most interesting actions taken by the CFPB is the in-court opposition to a credit union with respect to an issue related to an overdraft policy and Regulation E-related evidence.

Case Background: Transfer from federal court in D.C. to Michigan

Not to be confused with a separate lawsuit by a credit union (that challenges a recent appointment of the director of the CFPB), a different, notable lawsuit was filed shortly after Thanksgiving last year. In fact, this lawsuit sheds light on how the CFPB’s litigation docket may look in the future.

Twelve days after the White House announced that President Trump would designate Mick Mulvaney as the interim director of the CFPB, a Michigan state-chartered credit union, Advia Credit Union (“Advia”), filed a lawsuit in federal court in D.C. against the CFPB. In the suit, Advia sought a court order under Rule 45 of the Federal Rules of Civil Procedure to compel the CFPB to produce relevant documents and testimony that Advia requested to defend against a separate consumer class action.

Although the case was initiated in D.C., it was transferred to federal court in the Western District of Michigan earlier this month.

Timing of the Lawsuit and CFPB History

The case arises in a significant moment of CFPB history. Since the agency’s inception, as compared to lawsuits in which the CFPB was the plaintiff, the CFPB has had relatively fewer lawsuits as a defendant. This is one such rare suit. In addition, well-established regulations and case law precedents afford banking agencies with the right to shield agency information from public disclosure. Such protections arise out of – for example – FOIA exemptions, an agency’s Touhy regulations (or housekeeping regulations), the deliberative process privilege, or the bank examination privilege.

Against this backdrop, the present lawsuit seeks to reach into the CFPB and extract agency information for use in resolving a private dispute. Furthermore, as Mr. Mulvaney’s recent memo to CFPB staff reportedly suggests, the CFPB’s first seven years reveal a track record of imposing substantial requests for evidence, documents, and testimony on financial services firms. This lawsuit is similar but represents a reversal. It seeks to compel the CFPB’s compliance with a subpoena for documents and testimony. At a high level, the lawsuit flags an interesting question: to what extent is the CFPB subject to court orders requiring it to commit resources to prepare and submit document productions – an effort that the CFPB is accustomed to requiring from others. Finally, although a prior federal case in Atlanta also revealed the results of the CFPB’s unsuccessful efforts to resist the obligation to proffer a witness in a case to which the CFPB is a party, this case tests whether or not the CFPB will need to produce a witness in deposition as a third-party in a class action matter.

Claims in the Underlying Litigation

Advia’s lawsuit against the CFPB relates to the requirements under Regulation E (“Reg E”) and the Electronic Fund Transfer Act (“EFTA”). In the underlying class action, the putative class action plaintiffs had alleged that Advia failed to disclose its overdraft policies in compliance with Reg E. In response, Advia asserted that the overdraft disclosure that it provided to consumers was the same disclosure that the CFPB held out as an officially-promulgated form known as “Model Form A-9” under Reg E. Accordingly, Advia argued, Reg E’s safe harbor (which exempts companies from civil suits if they use an appropriate model disclosure or act in good faith in conformity with the rule) applied and the class action allegations lacked merit.

The Role of the CFPB in Defense of a Private Class Action

Advia contended that it had previously engaged in private discussions with the CFPB, in which the CFPB expressed its position on the Reg E issue. As a result, Advia argued, it was confident that the safe harbor applied. However, Advia asserted that despite prior CFPB discussions, the CFPB now “refuses to go on the record.” Advia explained that it needed evidence from the CFPB to “create a record to defend itself” in the class action, as the evidence in the CFPB’s possession would be dispositive of the class action claims.

The CFPB’s Decision Under Mulvaney

Here, the CFPB was poised to produce evidentiary material that could help the credit union defend itself in the class action matter.

The CFPB opted not to do so. Under Mulvaney’s leadership, rather than agreeing to produce the information, the CFPB actively opposed Advia in litigation and refused to comply with the subpoena. On January 5, 2018, the CFPB filed a brief in opposition to the motion to compel, arguing that: Advia’s subpoena imposed an undue burden on the CFPB, the burden was disproportionate to the needs of the underlying litigation, the information requested was covered by the deliberative process privilege, and the court should not compel the CFPB to “indulge [Advia’s] fishing expedition by expending substantial resources indexing all of the privileged documents” sought by the subpoena.

In its reply brief filed last Friday, Advia stated that the scope of the requests was tailored to “13 requests for which the CFPB likely has only a few responsive documents.” Advia also clarified that the undue burden concern expressed by the CFPB was misplaced because – in part – Advia only sought factual information that was already in the possession of the CFPB, including information on whether the CFPB has instructed credit unions to modify Model Form A-9.

The CFPB filed its opposition three days after the popular media reported on a progressive senator’s criticism of Mick Mulvaney’s approach to the CFPB. While the political developments concerning the CFPB are ongoing, the facts of the Advia case are telling. A Mulvaney-led litigation strategy – as demonstrated in the Advia matter – includes actively protecting the CFPB from offensive litigation and declining to assist certain institutions in defending disputes with consumer class action litigants.

Moving forward, as class action litigants continue to assert claims under regulations over which the CFPB retains jurisdiction, there may be future opportunities to pursue discovery and subpoenas to the CFPB to help defend class action claims.

J.H. Jennifer Lee

J.H. Jennifer Lee

Jenny represents large and regional banks, card issuers, mortgage bankers or mortgage insurance companies, online lenders, Fin Tech firms, private equity firms with consumer-facing specialty finance strategies, or any “covered person” delineated in the Bureau’s statute, title X of the Dodd-Frank Act. As a lawyer who worked inside the Consumer Financial Protection Bureau (Bureau) Office of Enforcement for several years beginning with the Bureau’s founding, Jenny possesses unique experience that she draws upon to provide clients with defense strategies for enforcement by or litigation with the Bureau....

You may also like...