“Nonbank” Lender Seeks Injunction Restraining CFPB Administrative Action

Electronic Fund Transfer ActOn May 9, 2016, Integrity Advance, LLC and its CEO James Carnes filed suit against the Consumer Financial Protection Bureau (“CFPB”) in United States District Court for the District of Columbia seeking to enjoin the CFPB from continuing to prosecute an administrative enforcement action under the Consumer Financial Protection Act (“CFPA”) in which the CFPB alleged unfair, deceptive or abusive lending practices.  The enforcement action (In the Matter of Integrity Advance, LLC and James R. Carnes, 2015-CFPB-0029 (filed Nov. 18, 2015)), alleges that Integrity Advance and Carnes violated the CFPA, the Truth in Lending Act (“TILA”) and the Electronic Fund Transfer Act (“EFTA”) by deceiving consumers about the true costs of short-term loans and unfairly withdrawing money from customer accounts.

Integrity and Carnes sought the injunction on grounds that they would be irreparably harmed if the administrative action were allowed to continue because the conduct complained of in the CFBP’s notice of claim all occurred prior to the date the CFPB was vested with authority to enforce the CFPA.  Specifically, their complaint for injunctive relief alleges that under the CFPA, “certain—but not all—pre-existing consumer financial protection authorities transferred to the Bureau from other prudential regulators on July 21, 2011,” and that this “transfer authority” was limited in scope to “all powers and duties that were vested in the federal banking regulators.”  (Compl. ¶ 5.)  Integrity alleged that it was not a bank, and therefore the July 2011 transfer of authority did not provide the CFPB with any authority to regulate its actions.

Rather, as Integrity alleged, authority to regulate nonbanks (the “newly-created authority”) under the CFPA could “only be assumed and exercised by the Bureau’s first lawfully-appointed Director.”  (Compl. ¶ 8.)  The Complaint alleges that on “January 4, 2012, during a Congressional recess, the President appointed the Bureau’s current and first-ever Director, Richard Cordray,” and that the “newly-created authority to take enforcement actions against nonbank ‘covered persons’ for violations of the Bureau’s UDAAP authority and other federal consumer financial laws” did not vest until July 16, 2013, when the Senate confirmed Mr. Cordray’s appointment.  (Id. ¶¶ 9-10.)  Integrity alleged in its Complaint that it was not engaged in any lending activity on or after July 16, 2013, and therefore the CFPB’s administrative action constitutes an attempt to retroactively exercise its enforcement powers.  Integrity alleged further that Director Cordray’s recess appointment as Director was unconstitutional because the Senate was not in recess, and that the United States Supreme Court had declared other recess appointments of members of the National Labor Relations Board that occurred the very same day to be unconstitutional for that reason.  See NLRB v. Noel Canning, 134 S. Ct. 2550, 2556-57, 2577-78 (2014).  On these grounds, Integrity sought an injunction barring any further activity in the administrative enforcement action because the CFPB’s retroactive application of the CFPA violated its rights to due process of law guaranteed by the Fifth Amendment to the United States Constitution.  (Compl. ¶ 67.)

After receiving the CFPB’s opposition to Integrity’s motion for temporary restraining order on May 10, the Court[1] denied Integrity’s motion that same day.  Days later, Integrity and Mr. Carnes voluntarily dismissed their complaint without prejudice.  The Court’s Order denying Integrity’s motion is a minute-entry and does not elucidate whether it denied the motion on merits-grounds or other grounds, i.e., whether it found that the CFPB was likely to prevail on the merits, or whether it lacked jurisdiction to enjoin the administrative proceedings and/or whether Integrity had failed to show irreparable harm deserving of temporary relief.

Indeed, in large part, the CFPB’s opposition to Integrity’s motion for temporary restraining order argued that the Court lacked jurisdiction[2] to entertain plaintiffs’ “claims seeking to collaterally attack an ongoing administrative enforcement proceeding,” (CFPB Opp., ECF No. 8 at 7), and that the plaintiffs would not suffer irreparable harm absent a TRO given that – after losing their arguments before the ALJ – they had the opportunity to make these same arguments on appeal to the Director or, if unsuccessful, on appeal to a United States Court of Appeals under CFPA § 1053, 12 U.S.C. § 5563(b)(3) & (4).  (Id. at 5, 14.)   As to the merits of the plaintiffs’ claims that the CFPB was retroactively applying its enforcement powers, the CFPB disagreed “with Plaintiffs’ contention that the agency’s authority over nonbanks took effect only once the Director received Senate confirmation” because the CFPA grants authority upon the “designated transfer date,” which the statute defines as July 21, 2011.[3]  (Id. at 9 n.4.)  The CFPB’s opposition ignored altogether, however, the plaintiffs’ claim that the Director’s appointment was unconstitutional, instead framing the plaintiffs’ argument as merely challenging the CFPB’s claims as retroactive because they challenge conduct that predated the Director’s appointment.

The Integrity case is one of many to raise serious constitutional questions regarding the CFPB and its sweeping authority, although, in this case, Integrity took those challenges even further than other enforcement targets have previously.[4]  While targets of CFPB enforcement actions routinely argue that the Bureau is seeking to retroactively apply the (still new) CFPA and its enforcement powers based on conduct that predated the Bureau’s transfer date of July 21, 2011, Integrity’s challenge goes even further by arguing that the Bureau was not authorized to pursue nonbanks for conduct that occurred two years after the transfer date (July 16, 2013) based on the Director’s confirmation date.  Although Integrity’s argument did not succeed at the TRO stage, it is noteworthy that the CFPB was silent in response to the allegation that its Director’s appointment was unconstitutional.  Regardless of which argument would ultimately have carried the day, the issue is now moot (at least for now) as a practical matter due to the plaintiff’s voluntary dismissal of the complaint.  The administrative case remains pending, with summary judgment briefing submitted May 10.


[1] United States District Court Judge Richard Leon presided.  Interestingly enough, Judge Leon recently issued an opinion in a different case involving the CFPB that narrowed the scope of the CFPB’s enforcement powers, ruling that the CFPB lacked authority to pursue claims against national for-profit college accreditors.  See CFPB v. Accrediting Council for Independent Colleges and Schools, No. 15-1838 (RJL) (Memorandum Opinion, Apr. 21, 2016).

[2] The CFPB referred to 12 U.S.C. § 5563(d)(2) which expressly provides that “no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order or to review, modify, suspend, terminate, or set aside any such notice or order” issued in a CFPB administrative proceeding.

[3] The CFPB argued that “the Ninth Circuit recently held that ‘the CFPB had authority to bring’ an enforcement action against a nonbank before the Director was confirmed by the Senate.”  (CFPB Opp. at 9 n.4 (quoting CFPB v. Gordon, __ F.3d __, 2016 WL 1459205, at *8 (9th Cir. Apr. 14, 2016)).

[4] See, for example, the Complaint filed in Intercept Corp. v. CFPB, No. 3:16-cv-00118–RRE-ARS, ECF No. 1 (E.D.N.D.,  May 19, 2016) (seeking declaratory judgment “challenging the structure and operation of the CFPB” as in “violation of the Constitution’s separation of powers”).

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....

Mike Stinson

Mike Stinson

Mike Stinson is an Associate in Dorsey & Whitney’s Minneapolis office. His practice includes the handling of white collar crime and civil fraud matters. Mike has helped large clients navigate government investigations, including inquiries from the Department of Justice, the Securities Exchange Commission, and the Federal Trade Commission.

Contact Details:
Tel: + 1 (612) 492 6624

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