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Financial Services Law Insights and Observations

CFPB and NYAG defend Bureau’s constitutionality in 2nd Circuit

Courts CFPB State Attorney General Second Circuit Single-Director Structure CFPA Appellate

Courts

On March 15, the CFPB and the New York Attorney General (NYAG) filed opening briefs in the U.S. Court of Appeals for the 2nd Circuit in their appeal of the Southern District of New York’s (i) June 2018 ruling that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional; and (ii) the September 2018 order dismissing the NYAG’s claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the NYAG filed a lawsuit in February 2017, alleging that a New Jersey-based finance company and its affiliates (defendants) engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. After the defendants moved to dismiss the actions, the district court allowed the NYAG’s claims to proceed under the CFPA, even though it had dismissed the Bureau’s claims, but then reversed course. Specifically, in September 2018, the court concluded that the remedy for Title X’s constitutional defect (referring to the Bureau’s single-director structure, with a for-cause removal provision) is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. (Covered by InfoBytes here.)

In its opening brief to the 2nd Circuit, the Bureau argues that the district court erred when it held that the for-cause removal provision of the single-director structure is unconstitutional. According to the Bureau, the single director “does not undermine the President’s oversight. If anything, the Bureau’s single-director structure enhances the President’s ‘ability to execute the laws…’” because the President can still remove the director for cause, which allows the director to be held responsible for her conduct. In the alternative, the CFPB argued that should the court find the for-cause removal provision unconstitutional, the proper remedy is to sever the provision from Title X in accordance with the statute’s severability clause and not hold the entire CFPA invalid.

In a separate brief, the NYAG makes similar constitutional and severability arguments as the Bureau, but also argues that even if the entirety of Title X were to be held invalid, the state law claims should survive under the federal Anti-Assignment Act.

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