Holding that the Consumer Financial Protection
Bureau’s structure is unconstitutional, the U.S. District Court for the Southern
District of New York found that the Bureau lacks the authority to bring claims
under the Consumer Financial Protection Act and, therefore, terminated it as a
party to a lawsuit against RD Legal Funding, alleged to have scammed former NFL
players and 9/11 medical workers into taking cash advances on payouts from
settlement agreements that functioned as usurious loans, void under New York
state law. However, according to the court, the New York Attorney General has
independent authority to bring claims under the CFPA. The Court concluded that
the "NYAG has alleged plausibly claims under the CFPA and under New York law,"
and it denied RD Legal Funding’s motion to dismiss the complaint (Consumer Financial Protection Bureau v. RD Legal Funding
LLC., June 21, 2018, Preska, L.).
Constitutionality. RD Legal Funding argued
that the CFPB is unconstitutionally structured and, therefore, lacks the
authority to bring claims under the CFPA. The court acknowledged the decision of
the U.S. Court of Appeals for the District of Columbia Circuit in PHH Corp.
v. CFPB, which
found that the CFPB’s single director structure was not unconstitutional, but
said, "Of course, that decision is not binding on this Court." Instead, the
court agreed with the dissenting opinion of Judge Kavanaugh that the CFPB "is
unconstitutionally structured because it is an independent agency that exercises
substantial executive power and is headed by a single Director."
However, the court went beyond Kavanaugh’s
opinion that the remedy would be to sever the "for-cause removal provision."
Instead, it agreed with Judge Henderson’s dissenting opinion that "A
severability clause ‘does not give the court power to amend’ a statute. Nor is
it a license to cut out the ‘heart’ of a statute. Because section 5491(c)(3)
[the for-cause removal provision] is at the heart of Title X [Dodd Frank], I
would strike Title X in its entirety."
Ratification. Another issue addressed by
the court was the CFPB’s Notice of Ratification, in which it attempted to ratify
its decision to file this enforcement decision prior to the appointment of the
CFPB’s Acting Director, Mick Mulvaney, asserting that, because the President may
remove Mulvaney at will, RD Legal Funding may not obtain dismissal on the
grounds that the instant action was initially filed by a Director at the CFPB
removable only for cause. However, the court dismissed that argument, agreeing
with RD Legal Funding that the CFPB’s Ratification does not address accurately
the constitutional issue raised in this case, which concerns the structure and
authority of the CFPB itself, not the authority of an agent to make decisions on
the CFPB’s behalf.
Hensarling statement. House Financial
Services Committee Chairman Jeb Hensarling (R-Texas) applauded the decision for confirming "what House Republicans
have said all along, that the Bureau’s structure is unconstitutional." He added
that the Financial CHOICE Act, passed by the House on June 8, 2017, fixes the
constitutional defects identified by the District Court by subjecting the Bureau
to the control of the people’s elected representatives.
ABA response. Responding to the ruling,
the America Bankers Association released a statement that it "has long believed that the Bureau should be
more accountable to Congress and that a five-member, bipartisan commission—as
originally envisioned in drafts of the Dodd-Frank Act—would balance the Bureau’s
needs for independence and accountability, while broadening perspectives on
rulemaking and enforcement."
Consumer groups expect reversal on appeal.
The Consumer Federal of America stated that the court’s "order is likely to be reversed on
appeal because it cobbles together some of the most extreme views of the CFPB
and also severability jurisprudence." According to the Center for Responsible Lending, "The impact
of the district court’s decision is unclear, but this extreme ruling disregards
the holding of the full D.C. Circuit Court of Appeals, which affirmed the
agency’s constitutionality."
Public Citizen also expects the decision to be overturned on appeal.
"Applying longstanding U.S. Supreme Court precedent, the en banc D.C. Circuit
Court of Appeals correctly ruled earlier this year that the CFPB’s structure is
constitutional. Congress created the CFPB to protect American consumers from big
banks and financial industry rip-offs, which is why the financial industry is
working so hard to destroy the agency."
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