The Court of Appeals for the Third Circuit yesterday affirmed that trusts are covered persons and subject to the provisions of the Consumer Financial Protection Act and that the Consumer Financial Protection Bureau did not have to ratify this action before the statute of limitations expired in an interlocutory appeal.
The Background: Back in 2017, the CFPB initiated an enforcement action against 15 different trusts that hold portfolios of student loans. The parties reached a settlement, but the judge refused to agree to the terms that had been established. That led the CFPB to file this appeal.
- In its lawsuit against the trusts, the CFPB alleged that debt collection rules had been violated by companies hired by the trusts to service and collect on the underlying student loans. The trusts argued they were exempt from complying with the Consumer Financial Protection Act because they did not meet the statute’s definition of a “covered person” that was subject to the law’s provisions.
- The CFPB alleged that the trusts and the companies collecting on the debts did not have proper documentation to file collection lawsuits against individuals or filed collection lawsuits after the statute of limitations had expired. The groups were accused of engaging in unfair and deceptive practices under the CFPA.
- The case is still pending in the District Court for the District of Delaware after the judge denied a motion from the judge to dismiss the suit back in 2021.
- The appeal pitted industry groups, including those representing securities investors, against consumer groups and states’ Attorneys General.
The Ruling: Under the CFPA, a covered person is any entity that engages in offering or providing a consumer financial product or service. The case boiled down to whether a person engages in an activity if he contracts with a third party to do that activity on his behalf? The court’s answer was, “Yes.”
- Trusts are explicitly mentioned in the CFPA under the definition of a “person” the Appeals Court noted, calling its decision an “inevitable conclusion.”
- “The Trust Agreement’s purpose indicates that the Trusts engage in both student loan servicing and debt collection,” the Appeals Court wrote. “As such, the Trusts fall within the purview of the CFPA because they ‘engage’ in a known ‘consumer financial product or service’ and are necessarily subject to the CFPB’s enforcement authority.”
