A California law firm on July 21 blasted a recent subpoena from the Consumer Financial Protection Bureau as “nothing more than an unwarranted and impermissible fishing expedition,” in a brief that also called for eliminating the agency on the grounds that its independent, single-director structure violates the Constitution.
Seila Law LLC raised those objections in response to the CFPB’s effort to force the firm to respond to an administrative subpoena—known as a civil investigative demand—seeking information about the marketing, advertising and sale of debt relief services. Among other defenses, Seila Law argued the CFPB’s subpoena is overly broad and violates the “practice of law exclusion” that puts the firm outside the agency’s jurisdiction.
The dispute marks the latest standoff between a law firm and the CFPB, which has targeted firms in recent years over their involvement in everything from debt collection to real estate closing services. A Kentucky firm this month beat CFPB allegations that it orchestrated an illegal kickback scheme, and in April, the CFPB sued an Ohio firm alleging it used overly aggressive debt collection tactics.
“The [civil investigative demand] is nothing more than a continuation of the fishing expedition the CFPB previously attempted, seeking information to which it was not entitled,” Seila Law’s defense team at Bienert, Miller & Katzman, in San Clemente, California, said in court papers.
Seila Law and the CFPB have a history of skirmishes.
In February 2016, the CFPB asked a judge in the U.S. District Court for the Central District of California to hold Seila Law in contempt for allegedly violating an injunction barring the debt relief provider Morgan Drexen from charging illegal upfront fees. Seila Law was not a party in the Morgan Drexen case, but the CFPB accused it of “acting in concert” with three other firms that were allegedly involved with the Morgan Drexen scheme and violating the injunction.
The CFPB sued those three firms—Howard Law PC, the Williamson Law Firm LLC and Williamson & Howard LLP—in January alleging that they ran the debt relief operation with Morgan Drexen, which shut down in 2015 following the agency’s lawsuit. The case is pending in the U.S. District Court for the Central District of California.
CFPB lawyers noted that Seila Law was formed in October 2015, “just weeks” after those three firms were held in contempt by Judge Josephine Staton. (The U.S. Court of Appeals for the Ninth Circuit overturned the contempt order last year.) Staton closed the case in February without ever holding Seila Law in contempt.
“Dissatisfied with the result, the CFPB continued its campaign against Seila Law,” the firm’s attorneys said in its brief July 21.
The brief describes the agency’s lawsuit over the subpoena as “the latest effort by the CFPB in its quixotic quest against Seila Law, which is now well into its second year.”
“The CFPB failed in its prior effort to have this court sanction and hold Seila Law in contempt for purported violation of a permanent injunction entered by this court” in the Morgan Drexen case, Seila Law’s attorneys said.
The CFPB recently has had a mixed record forcing companies to respond to subpoenas.
In April, a unanimous three-judge panel of the D.C. Circuit upheld a lower court that struck down a subpoena the CFPB had issued to the Accrediting Council for Independent Colleges and Schools, an organization cited over lax oversight of for-profit colleges. U.S. District Judge Richard Leon of the District of Columbia had said the bureau strayed outside its jurisdiction in issuing the subpoena.
“Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow [headlong] into fields not clearly ceded to them by Congress,” he wrote.
Last month, nearly a year after suing the financial services company J.G. Wentworth over its refusal to cooperate with an investigation, the CFPB withdrew its subpoena.
But the CFPB has also found success. In February, a federal district judge in Detroit ordered Harbour Portfolio Advisors—an investment firm that purchased foreclosed properties in bulk and resold them through high-interest installment contracts known as “contracts for deed”—to comply with a CFPB subpoena.