CFPB's Organizational Structure Deemed Unconstitutional
THURSDAY - 21 JUNE 2018.
The U.S. District Court for the Southern District of New York ruled that the Consumer Financial Protection Bureau's (CFPB's) organizational structure is unconstitutional. Chief District Judge Loretta A. Preska held that the Bureau is disqualified from filing claims against RD Funding, a New Jersey law firm, which made high-cost loans to sympathetic persons, such as former NFL players with brain damage and 9/11 first responders.
Judge Preska ruled that because the Dodd-Frank Act only allows the President to remove the CFPB Director "for cause" (and, because the judiciary cannot change the Act), the Bureau's existence is an infringement on the U.S. executive power and, therefore, a violation of the Constitution.
Because (1) Judge Preska's decision is not binding, and (2) the U.S. Court of Appeals for the D.C. Circuit has upheld the CFPB's structure in two cases, the decision will likely have any significant impact.
Richard Gottlieb, a partner at Manatt, Phelps & Phillips, explained, "There likely will be little support of the case in other courts that have upheld the constitutionality of the CFPB at the appellate level."
Other lawyers argue that - at least in the southern district - the ruling could affect whether the CFPB's rules are deemed as valid, and this decision could affect pending enforcement actions.
RD Legal's lawyer, David Willingham said, "We are pleased that the court correctly found that the CFPB is unconstitutional as structured, and this underscores that the CFPB never should have brought this action in the first place."
Jeb hensarling, Chairman of the House Financial Services Committee Chairman, also supported the ruling because it "confirmed what House Republicans have said all along, that the bureau’s structure is unconstitutional... By design the bureau is arguably the most powerful and least accountable Washington bureaucracy in American history."