Consumer Financial Protection Bureau v. ITT Educational Services, Inc.

Majority - Sarah Evans Barker

1. No, the Consumer Financial Protection Act (CFPA) is not unconstitutional due to restrictions on the President's removal power over the Bureau's Director or other structural features. The CFPA specifies that the President may remove the Director only for "inefficiency, neglect of duty, or malfeasance in office," which is the same "for cause" removal standard upheld by the Supreme Court in Humphrey's Executor v. United States (1935) for officers of "quasi-legislative and quasi-judicial" independent regulatory agencies. The court found that the Bureau, with its rulemaking, administrative adjudication, and enforcement powers, performs functions analogous to those of constitutional agencies like the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC). Unlike the structure deemed unconstitutional in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), the Bureau Director is directly responsible to the President, avoiding an impermissible "two layers of tenure protection." ITT's broader "mosaic" theory, arguing that the combination of various structural features (e.g., single director, funding structure, delegation powers) renders the Bureau unconstitutional, fails because the individual features are permissible, and ITT has not shown that their aggregation affirmatively violates constitutional principles or impedes the President's ability to perform his duties. 2. No, the CFPA's prohibitions against "unfair" and "abusive" acts or practices are not unconstitutionally vague. The court applied a lenient vagueness standard because the CFPA is an economic regulation imposing civil, not criminal, penalties and does not impact constitutionally protected rights like free speech. The term "unfair act or practice" directly borrows from Section 5 of the Federal Trade Commission Act (FTCA), which has a century of legislative and judicial guidance, including a three-part test codified in 15 U.S.C. § 45(n): 1) causes or is likely to cause substantial injury to consumers; 2) which is not reasonably avoidable by consumers; and 3) is not outweighed by countervailing benefits. This established meaning provides fair notice. While "abusive" is a novel term in this context, the CFPA itself provides a clear statutory definition in 12 U.S.C. § 5531(d), which includes acts that materially interfere with a consumer's understanding or take unreasonable advantage of a consumer's lack of understanding, inability to protect their interests, or reasonable reliance. This statutory elaboration, combined with similar uses in the Fair Debt Collection Practices Act (FDCPA) and Federal Telemarketing Sales Rule (FTSR), provides sufficient clarity to satisfy due process. 3. Yes, the Bureau's complaint adequately pleaded that ITT Educational Services, Inc. is a "covered person" by providing "financial advisory services" and a "service provider" to third-party lenders under the CFPA. The court interpreted "engages in" broadly to mean "occupy or involve oneself; take part; be active," not necessarily as a primary business. ITT's conduct of advising students on debt management, channeling them into private loan programs, and completing most of the paperwork for these loans constitutes "credit counseling" and "assisting a consumer with debt management," falling under "financial advisory services." Furthermore, ITT acted as a "service provider" to the third-party lenders by significantly operating and maintaining the SCUC loan program through activities such as developing underwriting criteria, paying credit union membership fees, and providing stop-loss guarantees for defaults. 4. Yes, the Bureau's claims for "unfair" and "abusive" acts or practices were sufficiently pleaded to withstand ITT's motion to dismiss. For "unfairness," the complaint adequately alleged "substantial injury" (e.g., thousands of dollars in high-interest, high-default private loans for 8,600 students), "not reasonably avoidable" injury (due to ITT's rushed process, lack of informed choice, "hand-holding," and leverage tactics like threatening to withhold transcripts), and that the harm was "not outweighed by countervailing benefits" (by forcing students into a stark choice between private loans and dropping out). For "abusiveness," the Bureau plausibly alleged that ITT took "unreasonable advantage" by converting "doubtful assets" (Temporary Credit) into immediate income for itself, leveraging students' "inability to protect their interests" (by creating precarious financial situations and using coercive tactics), and exploiting students' "reasonable reliance" on ITT staff to act in their best interests through misrepresentations about career prospects and the financial aid process. The court noted that inconsistent legal theories are permissible at the pleading stage and that the factual allegations were detailed enough to meet the Twombly/Iqbal plausibility standard. 5. No, the Bureau's claim under the Truth in Lending Act (TILA), Count Four, is barred by the applicable one-year statute of limitations. The court held that the one-year limitation period in 15 U.S.C. § 1640(e), which governs civil liability, applies to civil enforcement actions brought by government agencies, including the CFPB. It distinguished agency administrative enforcement powers under 15 U.S.C. § 1607 from civil lawsuits, noting that agency interpretations and Supreme Court precedent in Gabelli v. SEC (2013) support applying specific limitations periods to civil suits, even by government entities. As the complaint was filed well over one year after the alleged TILA violation, the claim is time-barred.