Court rules feds overstepped limits in action against for-profit colleges

The court ruled the CFPB lacked authority to investigate any laws governing the accrediting process of private colleges.
The court ruled the CFPB lacked authority to investigate any laws governing the accrediting process of private colleges. | File photo

A recent ruling in a D.C. federal court marks the first time the Consumer Financial Protection Bureau’s (CFPB) authority has been reined in by a court, a win for for-profit colleges and universities around the country.

On April 21, District Judge Richard Leon blocked an attempt by the CFPB to investigate the Accrediting Council for Independent Colleges and Schools (ACICS), ruling that CFPB overstepped its constitutional authority by issuing a Civil Investigation Demand (CID) to the accreditor.

The Court found that CFPB had no authority to issue a CID in an investigation targeting business practices that had nothing to do with a consumer financial product or service, making it the first time a court has limited the CFPB’s authority.

“I think what is important is first of all the CFPB looks at its jurisdiction very broadly and they are not shy about issuing subpoenas to parties who may not have been involved in financial transactions similar to what happened to ACICS here,” Anthony DiResta, a partner at Holland & Knight and co-chair for the Consumer Protection Defense and Compliance Team, told the Higher Education Tribune. “And the CFPB is very interested in student loans and the servicing of student loans, and as far as I know, the CFPB has never been told by a court that, ‘You are going too far.’ And this is an instance where the CFPB was told by a district court in the District of Columbia that your subpoena to ACICS was just out of bounds.”

CFPB issued a CID to ACICS in 2015 to investigate whether ACICS was in violation of federal consumer protection laws in accrediting for-profit colleges. When ACICS refused to comply with the CID, CFPB filed a lawsuit in federal district court to have the CID enforced.

The court determined that while the CFPB had authority to investigate for-profit colleges’ lending practices, it lacked authority to investigate any laws governing the accrediting process of private colleges and denied CFPB’s petition.

DiResto said the law that created the CFPB -- the Dodd-Frank Act -- limits the CFPB’s jurisdiction to financial transactions that impact consumers.

“The way the subpoena was sent and the way the government was wanting to investigate ACICS had to deal exclusively with accrediting for-profit colleges and the district court said if that is what you are trying to investigate you are going beyond your authority at the CFPB,” he said. “I think the big takeaway is first of all that a court has reined in the CFPB’s reach to investigate the goings on in higher education."

DiResto added that it is important for a particular company or college to challenge jurisdictional reach of the government if it feels the government is overreaching.

“There is a whole body of laws and regulations that deal with higher education,” he said.

For-profit colleges have come under increased scrutiny by the government as various scams and deceptive practices have come to light in around the country.

DiResto said the recent ruling addresses a very important topic right now.

“Obviously you have a lot going on between the Department of Education and the CFPB on student loans and the servicing of those loans," he said. "So this is a very hot topic -- one of which proper need to pay attention to in our industry (is warranted).”

ACICS is the largest entity that certifies the academic credentials of for-profit, post-secondary schools.

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