Splitting the Baby — CFPB Pursues Aggressive Statute of Limitations Argument but Effectively Concedes Limits to Its Authority

Last month, we wrote about how the Consumer Financial Protection Bureau’s (CFPB) administrative enforcement action against Integrity Advance might signal that the agency believes it can pursue claims of unfair and deceptive conduct without regard to either the statute of limitations or the effective date of the Dodd-Frank Act. In a brief made public yesterday, the CFPB revealed its hand when it filed its opposition to Integrity Advance’s motion to dismiss. In its brief, the CFPB indeed asserted that its administrative enforcement authority is not limited by any statute of limitations. But the CFPB did not seek to pursue its claims for conduct that occurred before the July 21, 2011 effective date of Dodd-Frank.

With respect to the statute of limitations, CFPB enforcement counsel argued, as expected, that CFPB Director Richard Cordray’s decision in the agency’s case against PHH “is binding in this forum [i.e., in administrative proceedings] and fatal to Respondents’ statute of limitations arguments.” In PHH, Director Cordray held that no statute of limitations applied to the agency’s claims under the Real Estate Settlement Procedures Act. In so holding, he also opined that “[t]he section of the [Dodd-Frank Act] that authorizes the Bureau to enforce laws through administrative proceedings does not contain a statute of limitations. See 12 U.S.C. § 5563.” Relying on that language and other caselaw, CFPB enforcement counsel has now taken the position that no statute of limitations applies to the CFPB’s administrative enforcement of the Dodd-Frank Act’s prohibitions on unfair, deceptive or abusive acts or practices (UDAAP).

The CFPB’s decision in PHH is currently on appeal to the D.C. Circuit, with oral argument scheduled for April 12, 2016. Unless PHH is reversed, it is almost certain that Director Cordray would ultimately side with enforcement counsel and conclude that no statute of limitations applies to UDAAP claims in the administrative forum (where the CFPB can obtain the very same remedies available to it in court). The D.C. Circuit’s ruling in PHH, therefore, to the extent that it addresses the statute of limitations issues in that case, could have far-reaching consequences for the scope of the CFPB’s administrative enforcement authority more generally.

The Integrity Advance case also presented the CFPB with an opportunity to argue that it has the authority to enforce the Dodd-Frank Act’s prohibition against allegedly unfair and deceptive conduct that occurred prior to July 21, 2011. That is the “transfer date” on which the CFPB gained its authorities and the date on which the Dodd-Frank Act’s UDAAP prohibitions became effective. While the CFPB has settled actions involving allegedly unfair or deceptive conduct that pre-dated the transfer date, it has not, to date, argued in court that it is authorized to enforce those prohibitions with respect to pre-transfer-date conduct without a defendant’s consent. If the agency were to make that argument, it would likely do so in the administrative forum, where the CFPB Director gets to make the initial decision, which is subject to court review only if the respondent appeals. And because the conduct at issue in Integrity Advance stopped in December 2012, this case seemed like a prime candidate for such an argument, if the agency were inclined to pursue it.

Apparently, it was not so inclined. While noting that it “disagrees with” Integrity Advance’s argument that the agency lacks authority to enforce the Dodd-Frank Act’s UDAAP prohibitions for conduct that occurred prior to the transfer date, enforcement counsel “clarifie[d]” that its unfairness and deception counts “are limited to deceptive or unfair acts and practices that occurred on or after July 21, 2011.” While notionally preserving the argument for another day, it is clear that the agency has decided not to take this aggressive view and instead to effectively concede that its UDAAP enforcement authority does not include pre-transfer-date conduct. If the agency is unwilling to make this argument in the Integrity Advance case — where the vast majority of the conduct at issue occurred prior to the transfer date and where the CFPB had the advantage of litigating in an administrative forum — it is unlikely to pursue this argument in other cases.

The CFPB’s unwillingness to pursue this theory in litigation suggests that respondents negotiating settlements with the agency should likewise insist that the settlement cover only conduct that occurred after July 21, 2011 (as many CFPB settlements have). From the agency’s perspective, it had no reason to expressly disclaim authority to pursue earlier conduct; it could instead readily avoid the issue as it did — by simply limiting its claims to post-transfer-date conduct. But the CFPB’s refusal to pursue the issue in a contested forum (even a friendly contested forum), suggests it recognizes the weakness of its arguments, and it should not seek to impose via settlement that which it could not legally obtain via litigation.