The Southern District of NY recently ruled on a case brought by the NY Attorney General and the CFPB against entities that make loans to plaintiffs based on the expected payout on settlements and judgments. Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, No. 17-CV-890 (LAP), 2018 WL 3094916 (S.D.N.Y. June 21, 2018). This case is notable because it finds that the CFPB, as structured, is an unconstitutional agency and the court refused to fix the problem, as the DC Circuit did in in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018). The action is based on the Unfair and Deceptive Acts And Practices (UDAAP) and similar NY unfair business practice laws. The facts of the lawsuit are related to loans made to a class of NFL concussion victims and 9/11 victims. The ruling was related to a preliminary motion to dismiss filed by the defendants.
The court ultimately denied a motion to dismiss filed by the defendants and let the case go forward. It took the court over 100 pages to explain its ruling. The last section of the ruling is the one we are focused on, as it specifically states the court’s disagreement with part of the holding in PHH Corp, 881 F.3d 75. In that case, the DC Circuit court found issue with the constitutionality of the CFPB’s structure. Specifically, it found that the director of a single director independent bureau within the Federal Reserve System could not be removed only for cause. In PHH Corp, the court remedied that constitutional defect by ruling that the CFPB could be constitutionally compliant if the director could be removed without cause.
The Southern District of NY court held that the PHH Corp. ruling was not binding on it and held that the court did not have the power to alter the structure of the CFPB to make it constitutionally compliant. Thus, it dismissed the CFPB as a plaintiff and let the action go forward with just the NY Attorney General as the plaintiff.
The court acknowledges the difference of opinion with other courts. This is also a district court decision, while the PHH Corp. decision is an en banc circuit court decision. The NY court is correct that the DC circuit decision isn’t binding on it. But, the DC Circuit is a higher court and has more persuasive authority on administrative law matters than a district court. It was also a very small part at the end of a 100+ page decision and had little effect on the case moving forward. The CFPB couldn’t be involved in the case any longer. But, the NY Attorney General has all of the same abilities to pursue the claims. And, the CFPB has slowed down its enforcement of actions like this one over the past year. So, it is entirely possible that the CFPB would have backed off of this case regardless of this ruling.
This was an interesting ruling, however, and it may set up a Supreme Court case to reconcile the different circuit and district court rulings on this issue. In May of 2018, PHH Corp. let a deadline to appeal the DC Circuit decision lapse. So, PHH Corp. is not appealing this issue. But, this and other cases are winding their way through the courts and we may soon hear from the Supreme Court on the constitutionality of the CFPB.