On January 15, 2016, the Consumer Financial Protection Bureau (“CFPB”) Office of Enforcement (“Enforcement”) asserted that claims pursued in administrative enforcement actions are not subject to the three-year statute of limitations (“SOL”) set forth in the Consumer Financial Protection Act (“CFPA”), signaling that the agency is willing to target long-ago violations when seeking restitution and penalties. The CFPA – also known as Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act – is the statute that empowers the CFPB to administratively enforce the federal consumer financial laws.

The Integrity Advance enforcement proceeding involves conduct that allegedly stopped in December 2012. The CFPB alleged that a payday lender misled consumers by disclosing that loans could be repaid in a single payment when, in fact, the loans would roll over automatically because payments were applied to finance charges instead of to principal. The CFPB also alleged violations of the Electronic Fund Transfer Act, the Truth in Lending Act, and the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices (“UDAAP”) against the lender.

The CFPB put forth its statute of limitations argument in a brief opposing a motion to dismiss filed in its administrative proceeding against Integrity Advance, LLC.¹ In making this argument, the CFPB is breaking new legal ground. Previously, the agency had argued that the CFPA SOL does not apply to claims brought by the CFPB under its CFPA administrative action authority alleging violations of the Real Estate Settlement Procedures Act (“RESPA”). Now, it is extending that argument to claims alleging violations of the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices (“UDAAP”).

The CFPA contains a three-year statute of limitations on “actions” that begins to run upon discovery of a violation. The statute says:

Except as otherwise permitted by law or equity, no action may be brought under this title more than 3 years after the date of discovery of the violation to which an action relates.²

CFPB Argues that CFPA SOL Applies Only to Federal Court Actions The CFPB argues that this SOL “applies only to ‘action[s]’ brought by the Bureau” in federal court under section 1054 of the CFPA (12 U.S.C. 5564), which applies to litigation actions – and not to administrative enforcement actions, which are authorized by section 1053 of the CFPA (12 U.S.C. 5563).

As precedent, the Enforcement brief cites Director Cordray’s decision in the CFPB’s administrative action against PHH Corporation.³ In that case, Cordray – who hears appeals from the agency’s administrative proceeding – held that the CFPA’s statute of limitations did not apply to administrative RESPA actions brought by the CFPB because “the CFPA gives the Bureau a choice: it may enforce laws administratively or in court. The section of the CFPA that authorizes the Bureau to enforce laws through administrative proceedings does not contain a statute of limitations. See 12 U.S.C. § 5563.”⁴

Therefore, according to the Enforcement brief in Integrity Advance, “a statute of limitations expressly limited to ‘actions’ cannot be extended to a § 5563 administrative proceeding. Id. The Director’s holding in PHH was a straightforward application of Supreme Court precedent found in Burton. See 549 U.S. at 91 (holding that the term ‘action’ is ‘ordinarily used in connection with judicial, not administrative proceedings’).”⁵

It will be interesting to see if the Integrity Advance defendants file a Reply brief to respond to the CFPB’s arguments regarding the meaning of “action” and the two different sections of the statute. The Brief in Support of the Motion to Dismiss does not address these arguments, but we expect that a Reply brief is likely to argue that Congress did not intend to give the CFPB unlimited ability to reach back in time.

SOL Argument Exposes Companies to Potentially Vast Liability for UDAAP Violations The CFPB’s ability to impose penalties and restitution, combined with the breadth of its UDAAP enforcement authority, has given it a strong hand in enforcement proceedings. Assuming PHH is not reversed by the D.C. Circuit, the agency’s position on the SOL will allow it to target allegedly unlawful acts and practices that businesses may have assumed were beyond reach. This raises the stakes even higher for companies – or for business lines within companies – that have not yet faced a full-scope CFPB examination. In-house counsel should take a hard look at the policies, procedures, and practices, and they should consider conducting a mock CFPB exam to proactively identify any and eliminate potential UDAAP violations.

Silver Lining for Companies: CFPB Appears to Concede the 2011 Limit Notably, the Enforcement brief declined to address arguments that Integrity Advance was not subject to counts brought against it for actions occurring prior to July 21, 2011, the “designated transfer date” at which the CFPB assumed power to bring administrative enforcement proceedings. The CFPB noted that its UDAAP allegations were “limited to deceptive or unfair acts and practices that occurred on or after July 21, 2011,” and “[a]s such…retroactivity arguments need not be addressed.”⁶ To our knowledge, the CFPB has never sought relief in a contested proceeding – administrative or federal court – based on alleged UDAAP violations before the designated transfer date. (It has sought and received such relief through consent orders.) The CFPB’s decision to avoid litigating the question here suggests that it has conceded the argument that it can assert claims for UDAAP violations prior to July 21, 2011.

1. In the Matter of Integrity Advance, LLC, et al., File No. 2015-CFPB-0029, Bureau’s Opposition to Respondents’ Motion to Dismiss, Doc. 33 (“Integrity Advance”), (Jan. 15, 2016).
2. 12 U.S.C. § 5564(g)(2)(A). The CFPB’s brief includes an interesting argument in the alternative about the meaning of the “date of discovery”: “Respondents offer no reasons as to why the Bureau ‘knew or should have known’ that Carnes’s conduct was unlawful as of July 21, 2011 (the designated transfer date) or January 4, 2012 (the date of Director Cordray’s recess appointment). Indeed, Respondents’ argument that the Bureau knew or should have known that Carnes was violating the law before the Office of Enforcement issued its first civil investigative demand (CID) on January 7, 2013, requires the Bureau to “know” about Carnes’s unlawful conduct before it had conducted any investigation of Carnes. Respondents did not make their last production in response to the January 2013 CID until December 2013, and they never certified that their production was complete. Respondents did not provide their response under the Bureau’s Notice and Opportunity to Respond and Advise process until November 14, 2014. Thus, even if § 5564 applied, there is no argument that the Bureau knew or should have known of Carnes’s unlawful conduct as of November 18, 2012, the date three years prior to the filing of the Notice of Charges in this matter.” Integrity Advance at 12, n. 10.
3. We predicted when the Director’s decision came out that the lack of a statute of limitations would make the administrative proceeding more attractive to Enforcement. See http://www.reedsmith.com/Despite-1st-Administrative-Appeal-CFPB-Seeks-Out-Courts-06-24-2015/
4. In the Matter of PHH Corp., File No. 2014-CFPB-02, Decision of the Director, Doc. 226 at 10 (2015). PHH has appealed the decision to the D.C. Circuit, and oral argument is scheduled for April 12, 2016.
5. Integrity Advance at 16, citing BP America Production Co. v. Burton, 549 U.S. 84, 91 (2006).
6. Id. at 19.

Client Alert 2016-029