Uncertainty Ahead for CFPB?

The U.S. District Court for the Southern District of New York has ruled that the Bureau of Consumer Financial Protection lacked the authority to bring an enforcement action against a New Jersey company “because its composition violates the Constitution’s separation of powers,” and as a result, terminated the Bureau as a party to the litigation. The case concerned allegations of violations of the Consumer Financial Protection Act (CFPA), in which a company that offers cash advances to consumers awaiting payouts from settlement agreements or judgments, was charged with engagement of deceptive and abusive acts or practices.

The Bureau claims the defendants were scamming retired NFL players suffering from brain injuries and September 11 First Responders anticipating large settlements by enrolling them in high-interest loans. The defendants argued that the Bureau is unconstitutionally structured and therefore lacks the authority to bring claims under the CFPA. The court agreed with the defendants’ argument and further held that the Dodd-Frank provision creating the Bureau should be eliminated.

This case followed in part with the dissents in PHH Corp. v. CFPB, citing that the Bureau is “unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director.” Recall in this case, the U.S. Court of Appeals for the D.C. Circuit held that the unilateral authority of the Bureau vested in a single person who is not subject to dismissal in the discretion of the President was not unconstitutional and the provision in the 2010 Dodd-Frank law, which limited removal of the director only “for cause,” was held as consistent with the President’s constitutional authority.

With the split in circuit court decisions on the constitutionality of the Bureau, it is likely the Supreme Court could weigh in and determine the future of the Bureau structure. In the meantime, Kathy Kraninger, associate director at the Office of Management and Budget has been nominated as the permanent Director of the Bureau. Acting Director Mick Mulvaney has been leading the Bureau since former Director Richard Cordray left and fighting claims for the position by Cordray’s appointed acting director, Leandra English, since that time. The litigation on that issue is still pending before the U.S. Court of Appeals for the D.C. Circuit after oral arguments where held in April. Kraninger must be confirmed by the full Senate, which may not occur until at least the fall.

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