Legal Newsline

Friday, November 15, 2019

Virginia companies' lawsuit accuses CFPB of regulatory overreach

By Michael Carroll | Nov 17, 2017


WASHINGTON (Legal Newsline) – Two Virginia companies are suing the Consumer Financial Protection Bureau over its investigatory practices, alleging that the federal agency exceeded its authority and engaged in bullying tactics.

In a lawsuit filed Oct. 25 in the U.S. District Court for the District of Columbia, Nexus Services Inc. and Libre by Nexus Inc. challenged the constitutionality of the CFPB’s governing structure and allege a CFPB civil investigative demand (CID) for company documents is overly broad.

“An agency that has no accountability does not think twice about asserting its regulatory power,” Nexus CEO Mike Donovan told Legal Newsline.

The CFPB has also filed suit against the companies, contending that they failed to follow through on the civil investigative demand (CID) for information related to an agency inquiry. The agency is investigating the firms over bond transaction services and possibly deceptive or questionable practices to extend credit in violation of the Consumer Financial Protection Act.

Libre by Nexus Inc. provides services to immigrant populations, but the companies don’t lend credit or post bonds themselves, according to Donovan. Instead, when a person is being held in federal custody on immigration changes, the companies help to secure the person’s release using monitoring technology that relies on the Global Positioning System.

The security and monitoring services, which come with a monthly fee, allow detainees to be released to family members pending their legal hearings. The guarantee that the detainee will be monitored continually is used by immigrant families in lieu of collateral to secure a bond, making it easier for families with limited funds to secure a detainee’s release, Donovan said.

The companies services’ have saved taxpayers $650 million over the past three years that would have otherwise have been paid to keep immigrants locked up at detention centers, he said.

“The CFPB has used a number of inappropriate, nefarious tactics to obtain the information it sought in the Nexus CID by any means,” the Nexus Services lawsuit states.

The CFPB’s operating structure, with a single director who can only be fired for cause, is not constitutional, according to the lawsuit. In addition, the agency lacks the authority to investigate the issues outlined in the CID, since the CFPB focuses on financial services and bond-related services are left to the states to regulate as an insurance matter, according to the companies.

“They don’t have the right to do pretrial discovery of a limitless nature of a company that they don’t have authority over,” said Donovan, who added that there are no complaints about his companies on the CFPB website.

“Nexus has the desire to stand up and say we’re not going to let this happen to us,” he said. The firms have the integrity to protect their clients and not turn over confidential information, according to Donovan.

Coincidentally, the CFPB’s director, Richard Cordray, announced this week that he would resign as head of the agency, meaning President Donald Trump could name a replacement. Although it’s uncertain how the lawsuits will play out, Donovan said Cordray’s resignation could have a favorable effect.

“I think that there’s a lot of connectivity between Director Cordray and the trial-lawyer lobby,” he said.

Meanwhile, Nexus will file for a preliminary injunction against the CFPB this week, according to Donovan.

“We should be in court in the next two weeks,” he said.

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Organizations in this Story

Consumer Financial Protection BureauU.S. District Court for the District of Columbia