CFPB Signals Renewed Enforcement of Tribal LendingIn recent years, the CFPB has sent different messages regarding its approach to regulating tribal lending. Under the bureau’s first director, Richard Cordray, the CFPB pursued an aggressive enforcement agenda that included tribal lending. After Acting Director Mulvaney took over, the CFPB’s 2018 five-year plan indicated that the CFPB had no intention of “pushing the envelope” by “trampling upon the liberties of our citizens, or interfering with sovereignty or autonomy of the states or Indian tribes.” Now, a recent decision by Director Kraninger signals a return to a more aggressive posture towards tribal lending related to enforcing federal consumer financial laws.

Background

On February 18, 2020, Director Kraninger issued an order denying the request of lending entities owned by the Habematolel Pomo of Upper Lake Indian Tribe to set aside certain CFPB civil investigative demands (CIDs). The CIDs in question were issued in October 2019 to Golden Valley Lending, Inc., Majestic Lake Financial, Inc., Mountain Summit Financial, Inc., Silver Cloud Financial, Inc., and Upper Lake Processing Services, Inc. (the “petitioners”), seeking information related to the petitioners’ alleged violation of the Consumer Financial Protection Act (CFPA) “by collecting amounts that consumers did not owe or by making false or misleading representations to consumers in the course of servicing loans and collecting debts.” The petitioners challenged the CIDs on five grounds – including sovereign immunity – which Director Kraninger rejected.

Prior to issuing the CIDs, the CFPB filed suit against all petitioners, except for Upper Lake Processing Services, Inc., in the U.S. District Court for Kansas. Like the CIDs, the CFPB alleged that the petitioners engaged in unfair, deceptive, and abusive acts prohibited by the CFPB.  Additionally, the CFPB alleged violations of the Truth in Lending Act by not disclosing the annual percentage rate on their loans. In January 2018, the CFPB voluntarily dismissed the action against the petitioners without prejudice. Accordingly, it is surprising to see this second move by the CFPB of a CID against the petitioners.

Denial to Set Aside the CIDs

Director Kraninger addressed each of the five arguments raised by the petitioners in the decision rejecting the request to set aside the CIDs:

  1. CFPB’s Lack of Authority to Investigate Tribe – According to Kraninger, the Ninth Circuit’s decision in CFPB v. Great Plains Lending “expressly rejected” all of the arguments raised by the petitioners as to the CFPB’s lack of investigative and enforcement authority. Specifically, as to sovereign immunity, the director concluded that “whether Congress has abrogated tribal immunity is irrelevant because Indian tribes do not enjoy sovereign immunity from suits brought by the federal government.”
  2. Protective Order Issued by Tribe Regulator – In reliance on a protective order issued by the Tribe’s Tribal Consumer Financial Services Regulatory Commissions, the petitioners argued that they are instructed “to file with the Commission—rather than with the CFPB—the information responsive to the CIDs.” Rejecting this argument, Kraninger concluded that “nothing in the CFPA requires the Bureau to coordinate with any state or tribe before issuing a CID or otherwise carrying out its authority and responsibility to investigate potential violations of federal consumer financial law.” Additionally, the director noted that “nothing in the CFPA (or any other law) permits any state or tribe to countermand the Bureau’s investigative demands.”
  3. The CIDs’ Purpose – The petitioners claimed that the CIDs lack a proper purpose because the CIDs “make an ‘end-run’ around the discovery process and the statute of limitations that would have applied” to the CFPB’s 2017 litigation. Kraninger claims that because the CFPB dismissed the 2017 action without prejudice, it is not precluded from refiling the action against the petitioners. Additionally, the director takes the position that the CFPB is permitted to request information outside the statute of limitations, “because such conduct can bear on conduct within the limitations period.”
  4. Overbroad and Unduly Burdensome – According to Kraninger, the petitioners failed to meaningfully engage in a meet-and-confer process required under the CFPB’s rules, and even if the petitioners had preserved this argument, the petitioners relied on “conclusory” arguments as to why the CIDs were overbroad and burdensome. The director, however, did not foreclose further discussion as to scope.
  5. Seila Law – Finally, Kraninger rejected a request for a stay based on Seila Law because “the administrative process set out in the Bureau’s statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the Bureau’s statute.”

Takeaway

The CFPB’s issuance and defense of the CIDs appears to signal a shift at the CFPB back towards a more aggressive enforcement approach to tribal lending. Indeed, while the pandemic crisis persists, CFPB’s enforcement activity in general has not shown signs of slowing. This is true even as the Seila Law constitutional challenge to the CFPB is pending. Tribal lending entities should be tuning up their compliance management programs for compliance with federal consumer lending laws, including audits, to ensure they are ready for federal regulatory review.

Print:
EmailTweetLikeLinkedIn
Photo of Brian R. Epling Brian R. Epling

Brian Epling assists financial services clients, including small dollar lenders, auto finance companies, and mortgage servicers, with navigating regulatory compliance and litigation issues.

On the regulatory compliance side, Brian has assisted financial services clients with policies and procedures to comply with state and…

Brian Epling assists financial services clients, including small dollar lenders, auto finance companies, and mortgage servicers, with navigating regulatory compliance and litigation issues.

On the regulatory compliance side, Brian has assisted financial services clients with policies and procedures to comply with state and federal law and investor requirements. With respect to litigation, practicing in both Tennessee and Kentucky, Brian has successfully argued dispositive motions and appeals involving alleged violations of the Truth in Lending Act, Real Estate Procedures Act, and Fair Debt Collection Practices Act. Additionally, he has represented auto finance companies in administrative matters against the state. View articles by Brian.

Photo of S. David Smith S. David Smith

David Smith’s practice is primarily focused on providing counsel to financial service companies across a number of states, representing lenders and servicers in the mortgage, auto finance, credit card, payday and auto title lending areas. His litigation experience is broad, having represented clients…

David Smith’s practice is primarily focused on providing counsel to financial service companies across a number of states, representing lenders and servicers in the mortgage, auto finance, credit card, payday and auto title lending areas. His litigation experience is broad, having represented clients in a wide variety of matters but with a particular focus in financial services, consumer finance, and real property litigation. David focuses his interest in privacy on consumer privacy and related litigation in the financial services industry.

Photo of Jennifer L. Galloway Jennifer L. Galloway

Jennifer Galloway’s practice is dedicated to helping financial services clients successfully navigate increasingly complex regulatory and business environments. She is co-chair of Bradley’s Small Dollar and Unsecured Consumer Lending team and focuses on consumer financial services laws and regulations affecting banks, non-depository banks…

Jennifer Galloway’s practice is dedicated to helping financial services clients successfully navigate increasingly complex regulatory and business environments. She is co-chair of Bradley’s Small Dollar and Unsecured Consumer Lending team and focuses on consumer financial services laws and regulations affecting banks, non-depository banks and other financial institutions. Jennifer provides skilled regulatory guidance and detailed knowledge of the laws impacting both traditional and innovative lenders in the consumer financial services market, with considerable experience in online consumer lending. Her compliance work includes assisting clients with developing, implementing and maintaining compliance management systems, performing internal compliance audits for clients, preparing clients for outside audits, as well as preparing related lending documents and disclosures. She also counsels financial services companies regarding CFPB preparedness, implementation and operational strategies for complying with the CFPB’s regulations, and assists in defending regulatory enforcement actions.

Photo of Michael Gordon Michael Gordon

Michael Gordon is an accomplished consumer finance lawyer with more than 20 years of experience as a law firm partner, senior federal regulator, and fintech general counsel. His practice includes consumer finance and fintech, banking and bank partnerships, consumer and commercial credit, payments…

Michael Gordon is an accomplished consumer finance lawyer with more than 20 years of experience as a law firm partner, senior federal regulator, and fintech general counsel. His practice includes consumer finance and fintech, banking and bank partnerships, consumer and commercial credit, payments, regulatory strategy, risk management and corporate governance matters for a range of clients. Michael is a practical, business-focused lawyer with wide-ranging experience in private practice, government, and as a client. He has established a reputation for helping financial institutions and service providers anticipate and respond to a complex and ever-changing regulatory environment. View articles by Mike.