Recently, in a case between the CFPB and a student loan trust, the CFPB submitted a brief challenging the appellant’s efforts to reverse a U.S. Court of Appeals for the Third Circuit decision, which found that trusts are covered persons under the CFPA, and allowed a CFPB enforcement action against trusts to resume. As previously covered by InfoBytes, the 3rd Circuit remanded the case to a district court after evaluating two issues: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau.
The Bureau’s brief begins by examining a constitutional defect: If the statutory provision that restricted the President’s power to remove the CFPB Director requires the dismissal of a civil enforcement action that was initially filed while the removal provision was in effect. The appellants argued the enforcement action should be dismissed due to this defect. The CFPB’s brief, however, argued that a dismissal is unwarranted because the petitioners have not demonstrated any causal link between the removal provision and the enforcement action. The brief noted that the CFPB has continued the action under multiple directors who are fully removable by the President.
The brief then discussed whether the trusts, which contract with third parties to service student loans and arrange for third parties to file debt-collection suits in the trusts’ name, qualify as “covered persons” under Dodd-Frank Act. The petitioners contended they do not engage in offering or providing a consumer financial product or service because they contracted with third parties to litigate debt collection suits. The CFPB’s brief argued that the trusts are “covered persons” because they are involved in the business of collecting debt and servicing loans through third-party contracts — a necessary part of their operations.
Additionally, the brief addressed the ordinary meaning of “engage in” as interpreted by the Supreme Court in another relevant case, asserting that the trusts’ activities fall within this definition. The CFPB emphasized the trusts’ governing documents explicitly state their purpose to engage in acquiring, servicing and collecting student loans. The brief urged the Supreme Court to deny the petition for a writ of certiorari.
