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Case number 16-5174, Consumer Financial Protection Bureau Appellant versus Accrediting Council for Independent Colleges and Schools.

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Mr. DeMille Wadman for the appellant, Ms.

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Baker for the appellate.

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Let's let the courtroom settle down first.

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All right, Mr. DeMille-Wagman.

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Good morning.

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May it please the court, Lawrence DeMille-Wagman for the Consumer Financial Protection Bureau.

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I'm reserving two minutes.

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The background of this case is quite simple.

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Nearly a year and a half ago, the Bureau served a civil investigative demand.

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That's the Bureau's investigative compulsory process on ACICS, the Accrediting Council for Independent Colleges and Schools.

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ACICS refused to comply.

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The district court would not enforce.

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That's the background.

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The law is straightforward.

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In the Morton Salt case in 1950,

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the Supreme Court held that agencies such as the Bureau have the power of original inquiry.

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This means that they do not have to link their investigative compulsory process.

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What does the statute say to the CID, Mr. Schiff?

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It doesn't have to be straightforward.

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The statute says a CID, quoting now, must, quoting now, state the nature of the conduct constituting the alleged violations

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under investigation and the provision of law applicable to such a violation.

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Yes, Your Honor.

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What did your CID state as the measure of the conduct constituting the alleged violation?

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It stated conduct in connection with the accrediting of for-profit colleges that may violate any of the laws enforced by the Bureau.

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That's very... Can you seriously contend that that's enough to comply with the statute?

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Absolutely, Your Honor.

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It's very similar.

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Congress went all the trouble of saying you had to state the conduct

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under investigation.

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All you say is, well, a convict could have to do with credit.

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That's as specific as you are.

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If Congress was to present a law applicable to such violations, if you get past the first one, how can you possibly say you stated the provision of law

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We've stated the provision of law, Your Honor.

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What provision of law did you state?

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We cited the Consumer Financial Protection Act and the other laws enforced by the Bureau.

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And what part of the Consumer Financial Protection Act were you referring to?

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The portions of the Consumer Financial Protection Act that apply are the provisions that prohibit unfair, deceptive, or abusive acts or practices.

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Unfair, abusive, or protected?

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Act for practices in connection with what?

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In connection with what?

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In connection with the accrediting of for-profit colleges.

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Your statute says that?

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No, Your Honor.

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No, it doesn't.

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That's your problem.

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Our statute prohibits... I'm asking you what provision of law you stated in your CID was violated by anything in connection with the credit controller.

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the provisions of the Consumer Financial Protection Act that prohibit unfair, deceptive, or abusive acts or practices.

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Your Honor, the... Does that phrase anywhere refer to a credit and call abuse in the act?

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No, Your Honor.

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No, it doesn't.

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No, of course it doesn't, Your Honor.

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It's not... Can you get a perfect straight face and say that you're complied with the act?

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We are in compliance with the act, Your Honor, because our act allows us to enforce it against covered persons.

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Anyone who's involved in providing consumer financial products or services is a covered person.

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Does this, uh, the Credit Union Council for Independent Colleges, do they provide credit?

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Uh, Your Honor, the, the, the, uh, the, the Bureau's... Can you tell me again what the covered person is in the act?

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It's anyone who provides consumer financial products or services.

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No, Your Honor.

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It may or it may not, Your Honor.

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No, Your Honor.

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What I'm saying no to is that our statute does not require us to serve our civil investigative demands only on those who may ultimately become the target of a law enforcement action by the Bureau.

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You relied on the covered persons

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section just a moment ago.

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Then you admitted the covered person section doesn't include me.

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I'm looking to the portions of our act that allow us to serve CIDs on any person who may have information relevant to a violation of any of the laws enforced by the Bureau.

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And what violation did you set forth in your CID?

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We set forth, we don't have to itemize a specific violation of the act.

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That's what the Supreme Court held in the Morton-Solt case.

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to tell people what the violation is.

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Conduct in connection with the accreditation of for-profit colleges.

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Does this statute give you the say I need to ever say anything about conduct in connection with accrediting colleges?

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No, Your Honor.

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It doesn't say anything about conduct in connection with the accrediting of for-profit colleges.

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It says something about unfair, deceptive, or abusive acts or practices.

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Read that whole sentence.

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It has that phrase in it for me.

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I don't have the sentence here in front of me, Your Honor.

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I wouldn't be here if I were you in making that argument.

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No, Your Honor.

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The sentence here is virtually identical to a similar sentence in the Federal Trade Commission Act.

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That's where this provision was adapted from.

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In the invention submission case, this court noted that investigational resolutions, the scope of the investigation can be very broadly set out.

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In that case, it just said,

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unfair or deceptive acts or practices in connection with the promotion of inventions.

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Here we're saying unfair, deceptive acts or practices in connection with the accreditation of for-profit colleges.

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If you had jurisdiction over the accreditation of for-profit colleges, that might be a good party.

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But since we're talking about unfair consumer practices and credit,

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It's not within your right.

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Your Honor, we can investigate anyone who has information regarding conduct that's wrong.

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Let's suppose... Did you say anything in the CID about them having to do with consumer fraud?

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Do we say anything about them having to do with consumer?

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Financing fraud?

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No, Your Honor, and we don't have to.

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No, Your Honor, we don't have to.

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What we have to do under our statute... The district court thought you had to, Jimmy.

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The district court was mistaken, Your Honor.

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Or you're mistaken.

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The district court was mistaken.

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Or you're mistaken.

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The district court applied the wrong test.

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Right now he's ahead.

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You and he are opposite, and right now the district court's ahead.

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The district court applied the wrong test, Your Honor.

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This court has repeatedly said that an agency can define the scope of its investigation quite broadly.

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The purpose of our CIDs is to get information from any person, even people who by statute we cannot enforce our law against.

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Section 1027 of the Consumer Financial Protection Act lists a bunch of entities who are exempt from the Bureau's authority.

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Section 1027N provides that nonetheless, the Bureau can issue its CIDs to those persons to obtain information from them relevant to violations.

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Here, Your Honor, we know the Bureau... You know, if you had said something in that CID about it being relative to a violation, you might be on pretty good

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I don't see anything in there.

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I've got the languages in front of me.

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Your Honor, we referred to conduct.

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We referred to violations of the law.

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Conduct in connection with the accreditation of for-profit colleges, violations of any of the laws enforced by the Bureau.

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Your Honor, why did Congress bother

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the violation if it was good enough to say any statute they violated.

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Because, your honor, Congress was well aware that the language it was adding to the Consumer Financial Protection Act was virtually identical to the language in the Federal Trade Commission Act.

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And it knew that numerous cases by this court and other courts permitted the agency to serve its civil investigative demands to cast the nature of the investigations quite broadly so that the agency could identify whether the law has been violated or reassure itself that the law has not been violated.

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Your Honor, the president of ACICS in his declaration in the joint appendix in this case

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page 83 of the Joint Appendix in his declaration, he stated that when ACICS conducts an evaluation of a for-profit college, it looks into every aspect of the business that the college engages in.

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And the Department of Education, when it issued its report of removing, lifting the, withdrawing the ACICS's recognition,

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It reached a finding at page nine of that report that ACICS as part of one accreditation had unmistakable evidence that a college was engaging, a for-profit college was engaging in fraud in connection with its consumer loan program and yet nonetheless ACICS renewed that school's accreditation.

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The Bureau has on several occasions in recent years

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sued for-profit colleges with respect that made loans to their students and made misrepresentations to their students.

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Both of those schools were accredited by ACICS, and they made misrepresentations regarding accreditation.

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So, Your Honor, the Bureau

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It has the authority under the statute to obtain information from those who have it regarding potential violations of the law.

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The for-profit colleges, many for-profit colleges are lenders, and they're well within the Bureau's jurisdiction.

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Your time is up, but before you sit down, wouldn't it have been an easy enough matter?

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We're talking about fair notice to someone who receives one of these CIDs.

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Wouldn't it have been an easy enough matter

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when you're under an obligation to identify the provision of law applicable to such violation that you could have added the definitions set out at great length in 5481 sub 14 and 15 dealing with

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federal consumer financial law and the definition of federal product, I'm sorry, financial products or services.

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That would have at least put them on notice of what you were looking at.

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Your Honor, what puts them on notice of what we're after is what they need to know is what information they have to provide us.

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And that information they get from looking at the specifications of the CID.

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There are three specifications in the CID.

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They all deal with conduct and those, the CID is the

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5531 simply says prohibiting unfair, deceptive or abusive acts or practices, which tells them nothing about what specifically you're looking for.

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At 5536,

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talks about prohibited acts in the most generic terms.

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I mean, why couldn't you just simply add the definition of financial product or service?

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That's what you're after.

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Because, Your Honor, this Court has repeatedly held that the agency can define its investigation quite broadly.

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And I would again draw the... You never said you had to.

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but we have the authority to get out of it all here is your big problem yes we want your honor we defined it out excuse me i get to interrupt you i'm wearing a black robe you're not wearing a black robe you don't get to interrupt me pardon me zed shinderson asked me why you didn't just add some more language to the CID instead of appealing this thing i've been wondering about that ever since i looked at this case i don't know why we're here because your honor

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Our statute allows us, if you're right, if you're right, so what?

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Why didn't you just go back and amend it in a way that might have been acceptable to the district?

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in spite of bringing an appeal?

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Well, in fact, it wouldn't have helped the district court, because the district court said in, I believe it's in footnote four of the district court's opinion, that's a joint appendix, page 13, the court said that even if we had recast the notification of the, our notification of purposes in the CID, it might not have been relevant.

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It might not have found it relevant.

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OK.

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All right.

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Your time's up.

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Ms.

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Baker.

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Good morning, Your Honors.

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My name is Allison Baker.

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I represent the Accrediting Council for Independent Colleges and Schools and

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Morton's salt, in fact, the first prong of Morton's salt, as Your Honors know, enables the court to review a civil investigative demand to ensure that it conforms to the authority of the agency issuing it.

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And that's axiomatic.

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That's United States Supreme Court authority.

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Now, the CFPB has made a fair amount about the Federal Trade Commission.

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And to this end, in its brief and just now during oral argument,

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cites a great deal of those cases, and specifically cites FTC versus invention submission.

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And I note that there are numerous differences between the FTC precedent in this circuit and this particular issue, and more specifically, the Consumer Financial Protection Act.

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First of all, the Federal Trade Commission Section 5 is significantly broader in scope and in terms of the subject matter than the Consumer Financial Protection Act.

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Section 5, as your honors know, specifically states, addresses unfair or deceptive acts or practices in or affecting commerce.

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And that is mission critical here, because the civil investigative demand that was previously issued to ACICS, the stated purpose of that civil investigative demand concerns

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in connection with the accrediting of for-profit colleges.

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And in connection with the accrediting of for-profit colleges doesn't touch any consumer financial law that the CFPB enforces.

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The CFPB enforces, as your honors know, 18 enumerated consumer finance laws.

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But counsel, during, you know, from reading the transcript of the oral argument in the proceedings below, it's pretty clear what the CFPB is investigating here.

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It's investigating what Council just mentioned in his presentation, which was students, consumers being misled by for-profit colleges, and potentially this client having information relevant to that.

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Are you saying that the CFPA doesn't touch that?

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Your Honor, I believe that if you look at the face of the CID statement of purpose and then also... Answer my question.

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Are you saying that the statute, that that's outside the jurisdiction of the statute?

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The Consumer Financial Protection Act touches the offering or provision of a consumer financial product or service.

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So to the extent one could argue that the hypothesis that you just posited is within that, then it would be within the scope of the statute.

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Isn't the standard that we have at this point whether it's patently outside the scope of the statute?

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It is patently outside the scope of the statute.

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That is the standard, Your Honor, under Ken Roberts, of course.

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Then isn't the last answer that you gave me in this case, as far as that prong of the standard goes?

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No, it does not, Your Honor, because in connection with the accrediting of for-profit colleges does not touch the hypothetical that Your Honor posited earlier.

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In connection with accrediting of for-profit colleges, there isn't one consumer financial protection

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law that is enforced by the CFPB.

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So your argument is that if we take the strict construction of what was on the civil investigative demand and we kind of ignore any other discussion of what they're saying that they're investigating, then that's what we should do.

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That's how we should comport ourselves.

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Your Honor, that's what the CFPB says you should do.

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The CFPB's argument, as Your Honor knows, is that the district court wrongly decided this matter because the district court, and we happen to disagree with the CFPB's assertion of this as well, but what the CFPB says is that the district court didn't just look at the notification of purpose, that the district court impermissibly looked past the notification of purpose.

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And we would agree that under Ken Roberts, under Morton Salt, the very first stamp prong is, does this CID conform to the authority of the Consumer Financial Protection Barrel?

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In other words, are there laws that the CFPB enforces that touch any conduct that could arise within the scope of that notification?

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That's the first prong.

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The answer is no.

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And what the district court in this matter did is first, he said at first blush,

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This is outside the authority of the agency, and neither party disagrees that there's no law here.

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Both parties agreed with that.

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The CFPB, during oral argument in district court, pointed to not even one law that could touch accreditation.

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Moreover, if you go and you look at the specs of the civil investigative demand, which I have in front of me, that... Well, that's all of this.

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I guess maybe I'm not making myself clear.

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All of that assumes that we take a very narrow view of what they mean when they say in connection with accreditation.

[00:19:29] Speaker 01:
Well, even if you take a relatively broader view of in connection with accreditation, there isn't any legal support for the argument that in connection with expands the CFPB's jurisdiction past information that could be relevant to a violation of a consumer financial law.

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But I mean, they've told you what the violation is that they're investigating potentially.

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and accreditation is relevant to that in connection with the accrediting of for-profit colleges is what they're investigating they're not investigating for-profit schools if they were investigating for-profit schools their notification of purpose in the civil investigative demand would have been stated differently

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So the section 1052 of the Consumer Financial Protection Act has very few requirements for the issuance of a CID.

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But one of those requirements is that you have to state what the purpose of the investigation is.

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The purpose of this investigation is not to look at for-profit colleges.

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It's to look at conduct arising in connection with the accrediting of for-profit colleges.

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That's very different, actually.

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And the accrediting of for-profit colleges, there's nothing there that touches any of those laws.

[00:20:44] Speaker 05:
So the problem here is semantics in the purpose, in the statement of purpose.

[00:20:51] Speaker 01:
Well, I would respectfully disagree that they're semantics.

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They're statutorily required.

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And the purpose of that provision notification of purpose is to give a party notice of why it's receiving a civil investigative demand.

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And this may give notice, but it doesn't give notice of conduct that touches anything the CFPB has the authority to enforce.

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That's the issue.

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We just discussed FTC versus invention submission.

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And like other cases in this circuit that talk about the Federal Trade Commission, and that is the precedent on which the CFPB relies here, there are two market differences.

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The first, of course, being the jurisdiction of the Federal Trade Commission, which I just described before.

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And the other difference is that every single one of the cases on which the CFPB relies has a civil investigative demand that is markedly, markedly much more precise and specific than the one in this matter.

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And I just want to focus, Your Honors, for example, on FTC versus Invention Submission Court.

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The purpose of that CID there, and that was promulgated pursuant to Section 5 of the Federal Trade Commission Act, but the purpose there was to determine whether invention submission corporation may be engaged in unfair deceptive acts or practices, including but not limited to

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false or misleading representations made in connection with the advertising offering for sale and sale of its services relating to the promotion of inventions or ideas and to determine whether commission action to obtain redress of injury to consumers or others would be in the public interest.

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That's markedly more explicit than this.

[00:22:33] Speaker 05:
So if in this case the CID said that the purpose in its purpose state

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statement that this was in connection with an investigation of whether false statements regarding accreditation, proper accreditation of for-profit colleges.

[00:22:53] Speaker 05:
If it had said that, then it would have been fine.

[00:22:57] Speaker 01:
Well, Your Honor, I respectfully disagree.

[00:23:00] Speaker 01:
First of all, it doesn't say that.

[00:23:01] Speaker 01:
So this is, of course, a hypothetical.

[00:23:03] Speaker 01:
But the critical point missing from your hypothetical is it still does not connect to the offering or provision of a consumer financial product or service.

[00:23:11] Speaker 04:
Even in FTC cases, in Church and Dwight, we said that we would not allow the agency to interpret the scope.

[00:23:20] Speaker 04:
That's correct, your honor.

[00:23:32] Speaker 01:
That's correct.

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And Dwight and Church, as Your Honors know, is one of the cases on which they rely in this matter.

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And that would be a limiting principle for in connection with.

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Their use of the word in connection with tracks that language that Your Honors provided in Dwight and Church.

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In other words, you can't interpret in connection with to go outside the scope of what the Consumer Financial Protection Act actually touches.

[00:23:55] Speaker 05:
But I guess this all goes back to

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the point of, is it your contention that the Consumer Financial Protection Act doesn't touch the provision of loans by for-profit colleges and the conduct with respect thereto?

[00:24:21] Speaker 01:
Well, Your Honor, that's not what the statement of purpose of the civil investigative demand says here.

[00:24:26] Speaker 05:
Answer my question.

[00:24:26] Speaker 05:
I know it's not.

[00:24:27] Speaker 01:
I don't actually know enough about the role that for-profit colleges play in extending loans to students, but I will say this.

[00:24:35] Speaker 01:
The Consumer Financial Protection Act clearly touches the offering or provision of credit.

[00:24:40] Speaker 01:
And to the extent that you're engaged in offering or providing consumer credit, subject to certain exceptions under 1027 of the Consumer Financial Protection Act, there is an argument to be made that that is conduct that could be touched by one of the 19 consumer financial laws.

[00:24:56] Speaker 01:
So I do agree with that.

[00:24:58] Speaker 01:
But that's not the situation with this civil investigative demand, Your Honor.

[00:25:06] Speaker 03:
All right.

[00:25:06] Speaker 03:
I do have one question.

[00:25:07] Speaker 03:
Is it in the record?

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that part of your accreditation investigation includes the loans and student loans and so forth?

[00:25:19] Speaker 01:
So, Your Honor, what's in the record is the lower court, there were a couple of supplemental submissions that were made.

[00:25:27] Speaker 01:
In addition, there was oral argument, as Your Honor knows,

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And what was said during oral argument was very clear that ACICS does not engage in the offering or provision of consumer credit.

[00:25:38] Speaker 01:
It doesn't make a decision on whether a school has adequately or accurately made an underwriting decision correctly.

[00:25:47] Speaker 01:
It doesn't concern itself with whether a school is collecting debts correctly.

[00:25:51] Speaker 01:
It doesn't concern itself with the question of whether or not students who take out loans are having those loans

[00:25:58] Speaker 01:
and the status of collection of those loans properly reported to a credit reporting agency.

[00:26:03] Speaker 01:
So that would be the Fair Credit Reporting Act, the Truth in Lending Act, the Fair Debt Collection Practices Act.

[00:26:09] Speaker 01:
None of the conduct under those acts is anything in which ACICS engages.

[00:26:14] Speaker 01:
And yes, Your Honor, that is in the record.

[00:26:16] Speaker 01:
It's in the record both during oral argument and also in some of the supplemental pages that were filed with the district court after oral argument, but before Judge Leon issued his order.

[00:26:27] Speaker 03:
Okay.

[00:26:29] Speaker 01:
Thank you very much, Your Honors.

[00:26:30] Speaker 03:
Does the fellow have any more time left?

[00:26:35] Speaker 03:
All right, why don't you take one minute.

[00:26:40] Speaker 02:
Judge Henderson, just to answer your question a little bit, at footnote three of the district court's opinion, I believe that's a joint appendix, page 12, the court mentions ACICS's accrediting criteria.

[00:26:54] Speaker 02:
The accrediting criteria indicates that ACICS looks into the collection practices of the colleges,

[00:27:04] Speaker 02:
that it accredits.

[00:27:05] Speaker 02:
Now, it is true that at oral argument, ACICS said that even though it's accrediting criteria say that,

[00:27:15] Speaker 02:
ACICS said, in fact, they don't do it.

[00:27:18] Speaker 02:
And the district court reached that finding.

[00:27:20] Speaker 02:
He said, therefore, the ACICS doesn't do that because ACICS said so.

[00:27:25] Speaker 02:
But that's the purpose of the Bureau's investigation, to find out if ACICS does, in fact, look into that sort of conduct.

[00:27:35] Speaker 02:
We cite in our brief on page

[00:27:39] Speaker 02:
22 at footnote 9 of our principal brief, we cite to the GAO report, which sent undercover testers to for-profit colleges, and they found for-profit colleges making misrepresentations regarding their accreditation, including one college, one for-profit college, that falsely said that it had been accredited by the same entity that accredited Harvard University.

[00:28:01] Speaker 02:
How can the Bureau check out and determine if those statements are misrepresentations without seeking to investigate conduct in connection with accreditation from the accreditor itself?