LITIGATION ALERT: CFPB v. Great Plains Lending, et al – Case Summary & Implications
On January 20, 2017, the United States Court of Appeals for the Ninth Circuit issued its opinion in Consumer Financial Protection Bureau v. Great Plains Lending, LLC, et. al., Case No. 14-55900. This case directly addressed the question of whether Native American Tribes, and by extension their economic subunits or “arms of the tribe”, were subject to the Consumer Financial Protection Bureau’s civil investigative demands (“CIDs”) authority established under the Consumer Financial Protection Act (“CFPA”).
The Ninth Circuit found based on the analysis summarized below, that Tribes are subject to the Consumer Financial Protection Bureau’s (“CFPB”) authority to issue CIDs. The decision was not a surprising given the Ninth Circuit’s body of law application concerning “acts of general applicability” to Tribes. Nonetheless, it is worthwhile to examine the Court’s decision closely and to be clear as to its implications. You can find a link to the full decision here.
Case Background
The CFPB issued CIDs for three tribal lending enterprises (“TLEs”) formed by the Chippewa Cree, Tunica-Biloxi, and Otoe Missouria Tribes to determine potential violations under multiple federal laws for advertising, marketing, provision, and collection of small-dollar loan products.
The Tribes directed their TLEs not to comply with the CIDs. The Tribes’ position was, and continues to be, that the CFPB had no jurisdiction to issue the CIDs because the CFPA’s definition of “State” specifically includes Native American Tribes. The Tribes argued that since States are explicitly exempt from enforcement of the CFPA, it also does not apply to Tribes. Although not germane to the decision, the Court also mentioned that despite the Tribes’ stated position, they offered to cooperate with the CFPB as “co-regulators” of the TLEs. The CFPB declined that offer.
Following rejection of the Tribes’ petition in the CFPB’s agency appeal process, the CFPB brought suit in federal district court to enforce the CIDs. The district court ruled in the CFPB’s favor, finding that that the CFPA was a law of general applicability and Tribes and their TLEs were subject to the CFPB’s investigative demands. The Tribes appealed that decision to the Ninth Circuit Court of Appeals.
Appeal before the Ninth Circuit Court of Appeals
The sole question on appeal to the Ninth Circuit Court on Appeal was whether the CFPB plainly lacked jurisdiction to issue the CIDs.
The Tribes reiterated their arguments before the appellate court. However, the Ninth Circuit found that the CFPA is a law of general applicability, and that such laws apply to tribal entities unless Congress has explicitly provided otherwise or one of three existing exemptions is found. The Court further reasoned that since the CFPA’s definition of “person” did not explicitly exclude Tribes, that there was no intention by Congress to exclude Tribes from the CFPA application. Likewise, the Court found that none of the three exemptions applied; and thus Tribes were subject to the CFPB’s investigative demands.
The Ninth Circuit was also not persuaded by the Tribes’ argument applying a U.S. Supreme Court decision from 2000 that held “person” generally excludes sovereign entities. The Court determined that the inclusion of tribes in the definition of “state” did not necessarily demonstrate that Congress intended to exempt TLEs from the definition of “person” or the authority of the CFPB to investigate potential violations of federal law.
What does this ruling actually mean?
In sum, the Ninth Circuit found in a narrow ruling that Tribes are subject to the CFPB’s CID jurisdiction. However, while the actual holding of this case is specific to that issue, the opinion issued by the Court contains a significant amount of dicta that could easily be persuasive to other courts (and certainly the Ninth Circuit) to extend this logic in a subsequent case to hold that Tribes are in fact fully subject to the CFPA.
However, it is also important to note that the Ninth Circuit made no distinction between the Tribes and their TLEs as “arms of the tribe”; and thus there was no challenge or questioning of whether TLEs as an economic subunit of the Tribe was also entitled to sovereign immunity.
Is this case final?
This case is not yet final. The Tribes in this case still have the right to request an “En Banc” review of the decision before the Ninth Circuit Court of Appeals and/or appeal the decision to the United States Supreme Court; the processes for both will take a significant amount of time before fully concluded. NAFSA supports and encourages these Tribes to appeal the ruling in this case to the fullest extent possible.
What effect does this case have on Tribal lending operations
Assuming that this decision is not overturned on further appeal, the Ninth Circuit’s ruling should have a fairly limited impact on TLEs that are operating in compliance with applicable Federal lending laws and NAFSA best practices. TLEs that are operating in a compliant manner provide the CFPB no grounds for agency enforcement action or overbroad CID demands. Nonetheless, Tribes and TLEs should take all necessary actions to defend their tribal sovereignty when challenged no matter the forum, whether it be in the form of an agency action or in court.
TLEs that are not compliant with Federal lending laws and NAFSA best practices may become attractive targets of the CFPB and its effort to further test its authority. Once this case becomes final, it would not be surprising if the CFPB began efforts to leverage this ruling to find additional inroads to diminish Tribal sovereignty further. Non-compliant and/or “pay-day” lending Tribes would be low hanging fruit for the CFPB to target.
It is more important than ever to ensure that TLEs are operating in an fully compliant environment.
What effect does this case have on the relationship of TLEs and States?
Is is important to note that the ruling has no effect whatsoever on a Tribe or TLE’s sovereign immunity from state laws or jurisdiction. No matter what the ultimate outcome of this case, TLEs will remain free from any legal obligation to comply with state-based regulations.
What is NAFSA doing to help?
NAFSA is deploying a Congressional legislative agenda aimed at reigning in the CFPB’s overreach of power to ensure that the agency respects NAFSA members’ Tribal sovereignty. NAFSA will continue to monitor this situation and provide updates to members as this issue develops through the NAFSA Native Finance Newsletter and blog updates on the NAFSA website located at www.nativefinance.org/news.
What can I do to help?
NAFSA exists to advocate on behalf of any tribal nation, business or individual operating within the Native American Financial Services industry. If you are not already a member, join the effort by visiting www.nativefinance.org/join-nafsa/ or for more information please email: membership@nativefinance.org
