On June 21, 2018, the Honorable Loretta A. Preska, U.S. District Judge for the Southern District of New York, found that the structure of the Consumer Financial Protection Bureau (“CFPB”) is unconstitutional. Judge Preska dismissed the CFPB as a plaintiff from the subject litigation, after holding that the CFPB lacked the authority to bring claims against the defendants under the Consumer Finance Protection Act (“CFPA”). This decision directly contradicts the District of Columbia Circuit’s January 31, 2018 ruling in PHH Corp., et al v. Consumer Financial Protection Bureau, which upheld the structure of the CFPB and found that the Dodd-Frank Wall Street Reform and Consumer Protection Act – which shields the Director of the CFPB from removal without cause – is consistent with Article II of the Constitution.
In the litigation, the CFPB and the New York Attorney General brought claims against RD Legal Funding, LLC – a settlement advance firm accused of scamming consumers with high-cost loans – along with several other defendants. Judge Preska found that the CFPB lacked authority to bring claims under the CFPA, because the CFPB’s composition violates the Constitution’s separation of powers. Thus, Judge Preska terminated the CFPB from the action.
Judge Preska also found that the New York Attorney General had independent authority to pursue a claim under the CFPA, and therefore could continue in the litigation. In so doing, Judge Preska aligned her opinion with that of Judge Brett Kavanaugh, who issued a dissenting opinion in PHH, in which he concluded that the CFPB was unconstitutionally structured because “it is an independent agency that exercised substantial executive power and is headed by a single Director.”