CFPB Continues to Seek More than $43 Million Against Former Owner of Debt-Relief Company

In an enforcement action against a debt-relief company filed in the U.S. District Court for the Northern District of Illinois, the CFPB recently filed a memorandum contending that the Supreme Court’s decision in Liu v. SEC did not limit its request for restitution to the company’s net profits, and the Supreme Court’s decision in SEC v. Jarkesy did not suggest that the Bureau’s request for a civil money penalty would violate the Seventh Amendment right to a jury trial.

Although the company never appeared in the case because it dissolved before the suit was filed, the Bureau sought to hold the company’s former owner and operator liable for the ensuing default judgment.  Ultimately, the court held that the former owner could be held liable but requested further briefing on the Bureau’s request for over $2.1 million in restitution and over $41 million as a civil penalty.

The court was concerned about the implications of two Supreme Court decisions.  In Liu v. SEC, the Supreme Court held that the SEC could recover equitable disgorgement of only net profits because an equitable result would be to return any ill-gotten gain to the affected parties.  And in SEC v. Jarkesy, the Supreme Court held that the SEC could not pursue a civil money penalty through proceedings before an administrative law judge because that process violated the Seventh Amendment right to a jury trial.

According to the CFPB’s memorandum, neither of these holdings poses a hurdle to its requested relief.  Unlike in Liu where the SEC requested equitable disgorgement, the Bureau explained that it is seeking legal relief under the CFPA (a civil money penalty), which serves a different purpose.  Thus, the Bureau maintained that it could continue to seek restitution based on the total harm to consumers — rather than just the inequitably retained profits.

As to the jury trial concern, the Bureau explained that, in granting its motion for summary judgment, the court had concluded that no triable issues of fact remained with respect to the former owner’s liability.  Thus, the Bureau contended that no Seventh Amendment violation could exist because there would be nothing for a jury to decide.  In its view, all that remains in the case is for the court to determine the amount of the penalty.