Federal Court Strikes CFPB's Investigation of For-Profit College Accreditor

Yesterday was a bad day for the CFPB.  The case is CFPB v. Accrediting Council for Independent Colleges and Schools (ACICS).   The CFPB issued a Civil Investigative Demand (CID) to ACICS in August.  After ACICS's lawyers objected, the CFPB sued ACICS in DC federal district court for enforcement of the CID.  ACICS responded that it would not comply with the CID on grounds that investigation of college accreditation processes is outside the scope of the CFPB's authority. The court agreed with ACICS.

A court's role in deciding whether to order compliance with an administrative CID is limited to determining whether the information requested in the CID is relevant to an investigation for "a lawfully authorized purpose."  The court must accord the agency that issued the CID with deference as to the scope of their authority and their estimation of the relevance of the information they request.

The court applied the provisions of the Dodd-Frank Act that set out the authority of the CFPB, inter alia, to take action "to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service."  The Act authorizes the CFPB to issue a CID to a person it believes possesses or controls information relevant to a violation of federal consumer financial laws. The CID must specify both the conduct the CFPB believes is a violation and the federal consumer financial law that conduct would violate.

In the CID it issued to ACICS, the CFPB identified the purpose of its investigation:  "to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges."(Emphasis added.)  ACICS argued that none of the federal consumer financial laws within the CFPB's authority address or implicate the process of accrediting for-profit colleges.  The CFPB argued that because it has statutory authority to investigate for-profit schools in relation to their lending and financial advisory services (activity covered by consumer financial laws), it also has authority to investigate whether an accreditor of a for-profit school engaged in any unlawful act relating to accreditation of such a school.

The court called the CFPB's assertion of authority "a bridge too far."  ACICS asserted that is not involved in the financial aid decisions of the schools it accredits. Although the CFPB may be entitled to investigate whether this assertion is true, the CFPB's stated purpose and the information it demanded was not limited to the narrow question of ascertaining the existence or scope of ACICS's role in accredited schools' financial aid decisions.  Rather, the CFPB's investigation of ACICS was directed to its accreditation process generally, a subject outside the CFPB's statutory enforcement authority.

Senator Elizabeth Warren (D) has publicly criticized ACICS for approving accreditation of several for-profit colleges, including Corinthian, which has since closed.  Senator Lamar Alexander (R) Chair of the Senate Comimttee on Health, Education,Labor, & Pensions wrote to CFPB director Richard Cordray reuqesting that the CFPB withdraw the CID and asserting that "[determining the role of accreditors for federal purposes is a congressional responsibility, not yours."  Of the 14 campuses formerly owned by Corinthian that were the subject of the CFPB investigation, many were purchased by Zenith Education Group, with the support of the Department of Education.