Consumer Financial Protection Bureau v. Nationwide Biweekly Administration

Background

The Consumer Financial Protection Bureau (CFPB) brought this civil enforcement action against Nationwide Biweekly Administration, Inc., its wholly owned subsidiary Loan Payment Administration (LPA), and Daniel Lipsky. The CFPB alleged that defendants misled consumers while marketing a financial-services product that purported to help them save money on mortgage interest. After a seven-day bench trial, the court entered findings of fact and conclusions of law and imposed a joint-and-several $7,930,000 civil penalty under 12 U.S.C. § 5565(c)(1). The court also entered a permanent injunction covering specified marketing practices.

The Ninth Circuit later vacated the district court’s order and remanded for reconsideration under intervening legal developments. On remand, the parties identified three issues, but defendants withdrew their challenge to the CFPB’s funding mechanism after the Supreme Court rejected that challenge in another case. The remaining issues were defendants’ challenge to the judgment based on the CFPB director’s unconstitutional removal protection, the CFPB’s request for restitution, and defendants’ motion concerning funds held in escrow.

Challenge Based on the CFPB Director’s Removal Protection

The Supreme Court held in Seila Law I that the statutory protection limiting the President’s ability to remove the CFPB director violated the Constitution. The Ninth Circuit directed this court to apply later decisions, including Seila Law II, CashCall, and Collins, and to decide whether defendants had shown harm resulting from the removal provision.

The court rejected defendants’ request for dismissal or another remedy. Defendants had raised the constitutional argument only in post-trial briefing, and the alleged harm had not been pleaded, developed through discovery, or supported by specific trial evidence. Defendants argued that a “culture of recklessness” at the CFPB showed harm, but the court found that argument insufficient and speculative. Defendants also did not argue that the President had wanted to remove a CFPB director but was unable to do so because of the removal provision. The court therefore concluded that defendants had not shown the actual or compensable harm required for relief.

Restitution

The CFPB sought $73,955,169 in restitution in addition to the civil penalty. The court concluded that the CFPB’s request was for legal restitution rather than equitable restitution because the CFPB was seeking money, not particular funds or property that could be traced to defendants’ possession. The court also concluded that the CFPB had not waived its claim by previously describing restitution as equitable relief.

The court applied the Ninth Circuit’s two-step framework for restitution. First, the CFPB had to show that the requested amount reasonably approximated defendants’ unjust gains. If it made that showing, defendants would bear the burden of showing that the amount overstated those gains. The court explained that restitution could not be denied merely because some consumers received benefits from defendants’ services, but defendants had not offered evidence quantifying those benefits.

The court nevertheless held that the CFPB had not met its own first-step burden. The CFPB sought the setup fees paid by all customers during the relevant period, less refunds. But the court had previously found that only some of defendants’ representations were likely to mislead reasonable consumers, while other representations were largely literally truthful and consistent with interest calculations used in Truth in Lending Act disclosures. The CFPB had not shown that all or virtually all customers were misled and had not proposed a method for tying restitution to the number of customers who were actually misled. The court therefore found that the CFPB had failed to show that restitution was appropriate. The earlier findings supporting liability, the civil penalties, and the injunction remained supported.

Escrowed Funds

Defendants sought the return of approximately $410,000 paid to the CFPB under an agreement reached when defendants sold their former headquarters building. The money was placed in the CFPB’s Civil Penalty Fund and was to be held and returned if defendants prevailed on appeal and a final judgment made clear that the CFPB could not retain the funds as civil penalties.

The court held that the Ninth Circuit’s mandate did not itself require the funds to be returned. Even assuming the prior judgment had been vacated, the parties’ agreement governed when defendants might become entitled to the funds. The court assumed, without definitively deciding, that it had authority to address the dispute as related to enforcement of the judgment. It concluded that defendants had not prevailed on appeal and that no final judgment had been entered in their favor. The court also stated that defendants’ argument that retaining the funds was an unconstitutional taking bordered on frivolous. To the extent the motion was not moot, the court denied the motion for return of property.

Disposition

Subject to the supplemental and modified findings, Judge Richard Seeborg reaffirmed the prior order and opinion. The court ordered that a separate judgment in the same form as the prior judgment be entered, preserving the $7,930,000 civil penalty and permanent injunction. Restitution was not awarded, and defendants’ motion for return of the escrowed funds was denied to the extent it was not moot.