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Financial Services Law Insights and Observations

Court rules CFPB lacked authority to bring suit while its structure was unconstitutional

Courts CFPB Enforcement Seila Law Student Lending Debt Collection U.S. Supreme Court


On March 26, the U.S. District Court for the District of Delaware dismissed a 2017 lawsuit filed by the CFPB against a collection of Delaware statutory trusts and their debt collector, ruling that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. As previously covered by InfoBytes, the Bureau alleged the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations, which allowed them to obtain over $21.7 million in judgments against consumers and collect an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested. In 2020, the court denied a motion to approve the Bureau’s proposed consent judgment, allowing the case to proceed. The defendants filed a motion to dismiss, arguing that the Bureau lacked subject-matter jurisdiction because the defendants should not have been under the regulatory purview of the agency, and that former Director Kathy Kraninger’s ratification of the enforcement action, which followed the Supreme Court holding in Seila Law LLC v. CFPB that that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert), came after the three-year statute of limitations had expired. While the Bureau acknowledged that the ratification came more than three years after the discovery of the alleged violations, it argued that the statute of limitations should be ignored because the initial complaint had been timely filed and that the limitations period had been equitably tolled.

The court rejected the subject-matter jurisdiction argument because it held that the term “covered persons” as used in the Consumer Financial Protection Act, 12 U.S.C. § 5481(6), is not a jurisdictional requirement. However, the court then determined that the Bureau’s claims were barred by the statute of limitations. The Bureau filed the complaint while operating under a structure later found unconstitutional in Seila Law, and Director Kraninger’s subsequent ratification of the action came after the limitations period had expired. The court concluded that this made the complaint untimely. It also rejected the Bureau’s equitable tolling argument based on the Bureau’s failure to take actions to preserve its rights during the period when its constitutionality was in question. The court also noted that the Bureau “failed to pursue this very argument seriously in its brief,” which presented the equitable tolling argument in a “brief and conclusory” fashion.