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Consumer Financial Protection Bureau v. Harbour Portfolio Advisors, LLC

United States District Court, E.D. Michigan, Southern Division

February 15, 2017

CONSUMER FINANCIAL PROTECTION BUREAU, Petitioner,
v.
HARBOUR PORTFOLIO ADVISORS, LLC; NATIONAL ASSET ADVISORS, LLC; and NATIONAL ASSET MORTGAGE, LLC; Respondents.

          OPINION AND ORDER GRANTING PETITION TO ENFORCE CIVIL INVESTIGATIVE DEMANDS [1]

          Nancy G. Edmunds United States District Judge

         On November 29, 2016, Petitioner Consumer Financial Protection Bureau (the "Bureau") petitioned this Court to enforce Civil Investigative Demands ("CIDs") that the Bureau issued to Respondents on September 8, 2016. (Id.) For the reasons that follow, the Bureau's petition is GRANTED.

         I. Background

         The Bureau is a federal agency that regulates the provision of consumer financial products and services. 12 U.S.C. § 5491(a). Its functions include investigating and enforcing violations of federal consumer financial laws. Id. § 5511. As part of an investigation, the Bureau may issue CIDs, a form of administrative subpoena that can direct recipients to produce documents, other materials, answers, or oral testimony. Id. § 5562(c). The Bureau is now before the Court because it issued CIDs to Respondents, and Respondents refused to comply. The Bureau seeks an order requiring compliance.

         The main issue here, according to Respondents, is whether the Bureau's investigative authority extends to Respondents' selling, marketing, and servicing of a financial product called an Agreement for Deed ("AFD"), also called a "contract for deed" or a "land installment contract." (Dkt. 13-1; Dkt. 1-6.) Respondents are involved with AFDs as follows: Respondent Harbour Portfolio Advisors, LLC ("Harbour") purchases foreclosed properties and resells them to consumers through AFDs. (Dkt. 13, at 1-2.) Respondent National Asset Advisors, LCC ("NAA") manages and markets, among other properties, residences that Harbour sells through AFDs. (Dkt. 14, at 4.) And Respondent National Asset Managers, LLC ("NAM") is a mortgage provider and collector of installment payments that services Harbour's AFDs. (Id. at 4-5.)

         An AFD itself is a written agreement to purchase residential property, whereby the seller agrees to deliver a deed to the purchaser upon full payment of the purchase price. (Dkt. 13-1, at 6.) Respondents have submitted two versions of the AFDs used by Harbour. (See Dkt. 13-1.) Respondents claim that Harbour began to "phase out" the first AFD in November 2014 and now uses the "revised" version. (Id. at 3.) The biggest difference between the two is that the first AFD includes an accompanying promissory note that contains an acceleration clause, while the revised AFD includes no such note. Otherwise, their terms are largely the same.

         In both the original AFD and the revised version, the purchase price is fixed and amortized over a number of years, with interest accruing on the outstanding balance at a fixed rate. (Id. at 6, 14.) The purchaser's obligations include a down payment, followed by monthly payments for the term of the AFD until the full purchase price is paid. (Id. at 6, 14.) Furthermore, the purchaser agrees to pay property taxes and keep the property insured throughout the AFD's duration. (Id. at 6, 15-16.) If the purchaser chooses to stop making payments or defaults on its obligations, then the seller may terminate the AFD and retain the previous payments in full satisfaction and liquidation of all damages. (Id. at 7, 14.) The seller remains the legal owner until the purchase price is paid. (Id. at 8, 16.)

         According to Respondents, neither version of the AFD involves a loan or debt, and the purchaser is never obligated to pay the full purchase price. However, as stated above, the first AFD is accompanied by a promissory note that includes an acceleration clause. (Id. at 10.) Such a clause causes the full price to become due and payable if the purchaser misses a payment and the seller chose to exercise the clause. (Id.) And while Harbour's Manager filed an affidavit stating that Harbour has never sought to exercise the acceleration clause (id. at 4), the Bureau has submitted evidence that suggests otherwise. (See Dkt. 16-2.) This evidence includes pleadings from a Florida lawsuit where Harbour alleges that it made a "loan, " describes its transaction documents as "Loan Documents, " asserts that a "Note was in default and accelerated, " and demands payment of unpaid principal, interest, and other fees. (Id. at 9-10.)

         The Bureau first heard testimony regarding Harbour's financial products and services in May 2016, when Harbour's Manager responded to a CID that is not at issue here. (Dkt. 1-2.) Four months later, the Bureau served Respondents with the CIDs currently before the Court. These CIDs bear the stated purpose of "determin[ing] whether investment firms or other unnamed persons have been or are engaging in unlawful acts or practices relating to the marketing, offering, servicing, or collection of loans for the purchase of residential properties, or similar products and services[.]" (Dkt. 1-7; Dkt. 1-8; Dkt. 1-9.)

         After Respondents received the CIDs, counsel for the Bureau communicated over telephone with counsel for each Respondent to discuss compliance. (Dkt. 1-3 at ¶¶ 9, 11.) All three Respondents indicated that they would not comply because they believed that the Bureau exceeded its authority in issuing the CIDs. (Id.) Each Respondent then filed a petition with the Bureau to set aside the CIDs. (Id. at ¶¶ 10, 12.) Around a month later, the Bureau's Director denied Respondents' petitions and ordered them to comply with the CIDs within 10 days. (Dkt. 1-8; Dkt. 1-9.) As of November 29, 2016, Respondents still had not complied, so the Bureau filed this petition seeking enforcement. On December 1, 2016, the Court ordered Respondents to show cause why the Court should not grant the petition. Both sides then submitted briefs, and the Court held a hearing on the matter. Now the Court is prepared to grant the Bureau's petition.

         II. Applicable Standard

         While a district court "is not a 'rubber stamp' for agency demands for the production of information, " its role in deciding whether to enforce CIDs is limited. United States v. Markwood, 48 F.3d 969, 979 (6th Cir. 1995) (applying the test for enforcing administrative subpoenas to CIDs because a CID is "at its essence, a subpoena issued by an administrative agency"). In the Sixth Circuit, a CID is "properly enforced" so long as (1) it satisfies the terms of its authorizing statute; (2) the materials requested are relevant to the agency's investigation; (3) the information sought is not already in the agency's possession; and (4) enforcing the subpoena will not constitute an abuse of the court's process. Doe v. United States, 253 F.3d 256, 265 (6th Cir. 2001).

         III. Analysis

         Respondents oppose enforcement of the CIDs on three grounds. First, Respondents argue that the Bureau exceeded its statutory authority in issuing the CIDs. Second, Respondents argue that they did not receive fair notice that AFDs are covered by federal consumer financial laws. Third, Harbour individually argues that, if the Bureau does have the authority to issue the CIDs, the CID issued to Harbour should be modified because it is unduly ...


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