New York Federal Judge Finds CFPB Unconstitutional

In June 2018, Senior United States District Judge Loretta Preska ruled that the independent structure of the Consumer of Financial Protection Bureau (CFPB), a government agency responsible for consumer protection in the financial sector, is unconstitutional. The CFPB’s structure has been the source of partisan debate[1] since its inception during the Obama administration. At issue is the fact that the bureau is overseen by a single director, not a multi-member committee, who can be removed by the president only for cause and not at will.

The Ruling

The ruling comes in response to lawsuits filed against several defendants who allegedly scammed injured NFL players and 9/11 emergency medical workers out of millions of dollars by falsely marketing up-front advances, by way of high-cost loans, for structured settlement payouts. The defendants sought dismissal of the claims arguing in part that the CFPB is “unconstitutionally structured” and thus “lacks the authority” to file suit.

In its opinion, Preska sided with the defendant’s argument regarding the CFPB, stating that “the CFPB’s structure is unconstitutional” which means “it lacks the authority to bring claims under the agency”. Accordingly, the court terminated the CFPB as a plaintiff in the litigation. However, Preska did find that the New York Attorney General still has “independent authority to bring claims in federal district court” which allowed the case to proceed.

Perhaps most noteworthy from the opinion, Preska recommended striking the provision of the Dodd-Frank law that created the CFPB “in its entirety.” However, Preska stopped short of disbanding the CFPB.

Concerns

Supporters of the CFPB worry that the recent ruling leaves consumers vulnerable and unprotected from financial scams. Opponents, however, fear the agency has too much unchecked power. House Financial Services Committee Chairman Jeb Hensarling applauded the decision in a press release stating that “by design, the bureau is arguably the most powerful and least accountable Washington bureaucracy in American history.”

This is likely not the last ruling on this issue and is only one component of the debate surrounding the agency.[2] It remains to be seen whether the U.S. Supreme Court will address – and resolve – the issue of the CFPB’s constitutionality.

[1] The debate over the CFBS’s constitutionality has ping-ponged over the years. Just several months prior, in January 2018, the U.S. Court of Appeals for the D.C. Circuit ruled that the leadership structure of the CFPB was constitutional, overturning an earlier ruling that held the opposite conclusion.

[2] Currently, the legitimacy of President Trump’s selection of Mick Mulvaney as the temporary direct of the CFPB is being challenged in court.