Consumer Fin. Prot. Bureau v. Future Income Payments, LLC

• Decision Date: 17 May 2017
• Docket Number: CASE NO. 8:17-ev-00303-JLS-SS.
• Citation: Consumer Fin. Prot. Bureau v. Future Income Payments, LLC, 252 F.Supp.3d 961 (C.D. Cal. 2017)
• Parties: CONSUMER FINANCIAL PROTECTION BUREAU, Petitioner, v. FUTURE INCOME PAYMENTS, LLC, Respondent.
• Court: U.S. District Court — Central District of California

252 F.Supp.3d 961

CONSUMER FINANCIAL PROTECTION BUREAU, Petitioner,

v.FUTURE INCOME PAYMENTS, LLC, Respondent.

CASE NO. 8:17-ev-00303-JLS-SS.

United States District Court, C.D. California.

Signed May 17, 2017

Alanna Gayle Buchanan Carbis, San Francisco, CA, Kent A. Kawakami, AUSA–Office of US Attorney, Los Angeles, CA, Christopher J. Deal, Kristin L. Bateman, Leanne E. Hartmann, Washington, DC, for Petitioner.

Isabelle Louise Ord, Jesse Steinbach, DLA Piper LLP, Los Angeles, CA, Julia Marie Brighton, DLA Piper LLP, San Francisco, CA, Christopher Wayne Jones, Samuel B. Hartzell, Womble Carlyle Sandridge and Rice LLP, Raleigh, NC, for Respondent.

ORDER (1) GRANTING THE CONSUMER FINANCIAL PROTECTION BUREAU'S PETITION TO ENFORCE CIVIL INVESTIGATIVE DEMAND AND (2) DENYING FUTURE INCOME PAYMENTS' MOTION TO STAY CASE(Docs. 1, 27)

HON. JOSEPHINE L. STATON, UNITED STATES DISTRICT JUDGE

Before the Court is the Consumer Financial Protection Bureau's (CFPB)Petition to Enforce Civil Investigative Demand.(Pet., Doc. 1.)RespondentFuture Income Payments, LLC filed an Opposition (Opp'n, Doc. 26), and the CFPB replied (Reply, Doc. 28).Also before the Court is Future Income Payments' Motion to Stay Case.(Mot., Doc. 27;Opp'n, Doc. 39;Reply, Doc. 44.)For the following reasons, the Court GRANTS the CFPB's Petition and DENIES Future Income Payments' Motion to Stay Case.

I.BACKGROUND

In the past few years, the income stream market has come under sharp scrutiny for allegedly marketing loans at undisclosed, exorbitant interest rates to vulnerable populations, including veterans and the elderly.SeeJohn Doe Co. v. CFPB , 849 F.3d 1129, 1130(D.C. Cir.2017);U.S. Gov't Accountability Off., GAO–14–420, Pension Advance Transactions: Questionable Business Practices Identified (2014), http://www.gao.gov/assets/670/663800.pdf.Like several other purchasers and sellers of income streams, Future Income Payments has been the subject of investigations by state regulators in New York, California, Massachusetts, Iowa, Washington, and North Carolina.(SeeN.Y. Consent Order, Exh. 4, Doc. 29–4;C.A. Stip. Desist and Refrain Order, Exh. 5, Doc. 29–5;C.A. Desist and Refrain Order, Doc. 29–6;Mass. Press Release, Exh. 7, Doc. 29–7;Iowa Assurance of Voluntary Compliance, Exh. 8, Doc. 29–8;Wash. Consent Order, Exh. 9, Doc. 29–9;N.C. Settlement Agreement, Exh. 10, Doc. 29–10.)In February 2017, the City of Los Angeles filed suit against Future Income Payments, alleging that the company charges usurious, hidden interest rates as high as ninety-six percent, prohibits early termination of the loans (thereby ensuring that consumers cannot avoid the high interest rates), and employs abusive collection practices.(City of Los Angeles Compl.¶¶ 2–4, Exh. 11, Doc. 29–11.)

On November 23, 2016, the CFPB served this Civil Investigative Demand on Future Income Payments, demanding information related to the company's income-stream-advance transactions.(SeeCID at 2–5, Exh. A, Doc. 5.)The CFPB explained that the purpose of its investigation was:

to determine whether financial-services companies or other persons have engaged or are engaging in unlawful acts and practices in connection with offering or providing extensions of credit or financial advisory services related to transactions involving pensions, annuities, settlements, or other future-income streams in violation of §§ 1031and1036 of the Consumer Financial Protection Act of 2010,12 U.S.C. §§ 5531,5536, or any other Federal consumer-financial law.The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest.

(CIDat 1, Exh.A.) The CFPB's nine interrogatories, two requests for written reports, and ten requests for documents seek information regarding Future Income Payments' structure, investors, marketing, business relationships, bank accounts, collection efforts, financial records, involvement in other government investigations, and income-stream-advance transactions.(Seeid. at 2–5.)

Future Income Payments submitted a petition to set aside the CID on December 13, 2016, which the CFPB denied on January 5, 2017.(HartmannDecl. ¶¶ 5–6, Doc. 4.)Four days later, Future Income Payments filed suit in the United States District Court for the District of Columbia to enjoin the CFPB from taking any adverse action against it and to allow the company to proceed anonymously.(Id.¶ 10.)The district court denied Future Income Payments' request to prohibit the CFPB from taking any action against the company but enjoined the agency from naming it in any public filing until March 3, 2017.(Order, Exh. A, Doc. 4.)On March 3, the D.C. Circuit denied Future Income Payment's request for an emergency stay pending appeal.SeeJohn Doe Co. , 849 F.3d 1129.

The CFPB filed this Petition to Enforce the Civil Investigative Demand under seal on February 21, 2017.(Pet.)After the district court's injunction lapsed in John Doe Co. , the Court unsealed this action and issued a revised briefing schedule.(Order, Doc. 21.)

II.DISCUSSION

To determine whether to enforce an administrative subpoena, a court considers "[1] whether Congress has granted the authority to investigate; [2] whether procedural requirements have been followed; and [3] whether the evidence is relevant and material to the investigation."EEOC v. Children's Hosp. Med. Ctr. of N. Cal. , 719 F.2d 1426, 1428(9th Cir.1983)(en banc), overruled on other grounds as recognized inPrudential Ins. Co. v. Lai , 42 F.3d 1299, 1303(9th Cir.1994).If the agency has satisfied these prerequisites, "the subpoena should be enforced unless the party being investigated proves the inquiry is unreasonable because it is overbroad or unduly burdensome."Children's Hosp. Med. Ctr. of N. Cal. , 719 F.2d at 1428.A subpoenaed party is also free to raise any constitutional challenges to the CFPB's authority to issue a CID, which this Court reviews on a plenary basis.12 U.S.C. §§ 5562(e), (h)(1);John Doe Co. , 849 F.3d at 1131.

Future Income Payments contends that the CID should not be enforced because (1) the CFPB is structurally unconstitutional, (2) the CID seeks information outside of the CFPB's jurisdiction, and (3) the CID is overbroad.(See generally Opp'n.)Under the doctrine of constitutional avoidance, the Court first considers whether Future Income Payments' statutory arguments have merit before turning to its constitutional challenge.

A. CFPB's Jurisdiction

A party cannot defeat enforcement of an administrative subpoena by raising fact-bound challenges related to "coverage or compliance with the law."EEOC v. Karuk Tribe Hous. Auth. , 260 F.3d 1071, 1076(9th Cir.2001);see alsoEndicott Johnson Corp. v. Perkins , 317 U.S. 501, 508–09, 63 S.Ct. 339, 87 L.Ed. 424(1943).This Circuit has recognized a narrow exception to this rule for "jurisdictional" challenges, but even then a court's inquiry focuses solely on whether "there is some ‘plausible’ ground for jurisdiction."Karuk Tribe Hous. Auth. , 260 F.3d at 1077(citation omitted).In other words, as long as the agency's jurisdiction is not "plainly lacking,"a court should enforce an administrative subpoena, even if the respondent raises a reasonable argument that the subpoena is beyond an agency's statutory mandate.Id.;see alsoCFPB v. Great Plains Lending, LLC , 846 F.3d 1049, 1051, 1058(9th Cir.2017)(applying the "plainly lacking" standard to a CID issued by the CFPB).The "plainly lacking" standard is necessarily a low bar to avoid tasking courts and parties with resolving complex hypotheticals before an agency even decides whether to take an enforcement action.

Much of the Ninth Circuit's jurisprudence applying this "jurisdictional" exception involves Native American tribes' challenges to whether they should be considered "persons" under various statutes.See, e.g. , Great Plains Lending, LLC , 846 F.3d at 1053(whether a tribe is a "person" under the Consumer Financial Protection Act);NLRB v. Chapa De Indian Health Program, Inc. , 316 F.3d 995, 998(9th Cir.2003)(National Labor Relations Act);Karuk Tribe Hous. Auth. , 260 F.3d at 1077(Occupational Safety and Health Act).In Karuk Tribe Housing Authority , the Ninth Circuit concluded that a Native American tribe's challenge to the EEOC's authority was jurisdictional and the agency's authority was plainly lacking.Id. at 1077–78, 1083.

Karuk Tribe Housing Authority contrasted the tribe's argument that the Age Discrimination in Employment Act simply did not apply to tribal governments with other cases where "the subpoenaed parties could, under some set of facts , be found in violation of federal law ...."Id. at 1078(emphasis added).By contrast, in Children's Hospital Medical Center of Northern California , the Ninth Circuit sitting en banc held that a res judicata defense did not warrant denying enforcement of an administrative subpoena.719 F.2d at 1427–30.Although the subpoenaed party's res judicata argument raised "an important[ ] and ... difficult question ... worthy of serious consideration,"a party cannot avoid complying with an administrative subpoena based on "what normally would be a defense to an action by the agency."Id. at 1427.Even if the res judicata defense could be construed as jurisdictional, the en banccourt noted that the EEOC's jurisdiction was not "plainly lacking," considering how unsettled the law was regarding the preclusive effects of prior class actions on subsequent class claims.Id. at 1430.

Future Income Payments posits that the CFPB lacks jurisdiction because the company's future-income streams are not a consumer financial product or service.(Opp'nat 17–18.)Although couched as a challenge to the CFPB's jurisdiction, this argument really invites a fact-intensive inquiry into whether the company's products qualify as loans under the Truth in Lending Act.Because Future Income Payment's challenge concerns the "coverage" of the...