In 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.
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:
- 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.”
- 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.”
- 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.”
- 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.
- 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.”
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.