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  • DOJ says CFPB structure is unconstitutional, but urges Supreme Court to deny writ since case is a “poor vehicle”

    Courts

    On December 10, the DOJ filed a brief in response to a Texas bank and two associations’ (petitioners) petition for writ of certiorari with the U.S. Supreme Court, challenging the constitutionality of the CFPB’s structure, with the DOJ arguing that the Bureau’s structure infringes on the president’s responsibility to ensure that federal laws are faithfully executed, but urging the court to deny the writ as the case is a “poor vehicle” for the constitutionality consideration. Specifically, the DOJ argues that the decision would warrant review by the full court, which would be unlikely due to newly appointed Judge Kavanaugh’s involvement in the January 2018 D.C. Circuit en banc decision in PHH v. CFPB (covered by a Buckley Sandler Special Alert). Additionally, the DOJ acknowledges that the petitioners’ standing to sue “is sufficiently questionable to present a significant vehicle problem,” as the Texas bank is supervised by the OCC and the two associations are not regulated by the Bureau. On the merits, however, the DOJ agrees with the petitioners that statutory restriction on the president’s authority to remove the Bureau’s director violates the constitution. Citing to Judge Kavanaugh’s dissent opinion in the PHH en banc decision, the DOJ asserts that not only does the for-cause removal restrict the president’s powers to ensure the laws are faithfully executed, a single-director lacks the attributes of a multi-member commission that would warrant a for-cause removal provision. The DOJ concludes that the proper remedy would be to sever the for-cause provision while leaving the remaining applicable portions of the Dodd-Frank Act intact. Lastly, the DOJ notes that since it would not argue in favor of constitutionality, it recommends that if the Court were to grant certiorari, it should wait until the Bureau’s new director, Kathy Kraninger, has an opportunity to decide if the Bureau would defend the judgment before appointing an amicus curiae.  

    As previously covered by InfoBytes, the petitioners asked the Court (i) whether the CFPB as an independent agency headed by a single director that can only be removed from office for cause violates the Constitution’s separation of powers; (ii) whether a 1935 Supreme Court case upholding removal restrictions on members of the FTC should be overturned; and (iii) whether the CFPB’s “perpetual, on-demand funding streams” are permitted under the Appropriations Clause. The petition for writ resulted from a June decision by the D.C. Circuit upholding summary judgment against the petitioners, based on the D.C. Circuit en banc decision in PHH v. CFPB, which concluded the Bureau’s single-director structure is constitutional.

    Courts DOJ PHH v. CFPB U.S. Supreme Court Single-Director Structure CFPB

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  • CFPB files lawsuit against pension advance company citing alleged CFPA and TILA violations

    Courts

    On September 13, the CFPB filed a complaint against a pension advance company, its owner, and related entities (defendants) based upon alleged violations of the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA). In a complaint filed with the U.S. District Court for the Central District of California, the Bureau charged that the defendants engaged in deceptive practices in violation of the CFPA when they allegedly misrepresented to customers that “lump-sum” pension advances were not loans and carried no applicable interest rate, even though customers were required to pay back advances at amounts equivalent to a 183 percent interest rate and often incurred fees such as one-time $300 set up fees, monthly management fees, and 1.5 percent late fees. According to the Bureau, the defendants allowed customers to take out advance payments ranging from $100 to $60,000. The defendants then allegedly provided the income streams as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates. Moreover, the defendants allegedly failed to provide customers with TILA closed-end-credit disclosures. The complaint seeks civil penalties, monetary and injunctive relief.

    As previously covered in InfoBytes, the pension advance company initiated a suit against the CFPB in January 2017 after the Bureau declined to set aside or keep confidential a civil investigative demand served against the company. The suit challenged the Bureau’s constitutionality and argued that the company was likely to suffer irreparable harm from being identified as being under investigation. However, in a split decision, the D.C. Circuit Court ultimately denied the company’s bid for an emergency injunction, citing the now-vacated majority opinion in PHH v. CFPB.

    Courts CFPB Consumer Finance Interest Rate CFPA TILA PHH v. CFPB Single-Director Structure

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  • Court dismisses NYAG’s claims under CFPA after determining Title X is invalid

    Courts

    On September 12, the U.S. District Court for the Southern District of New York issued an order dismissing the New York Attorney General’s (NYAG) claims against a New Jersey-based finance company and its affiliates (defendants) under the Consumer Financial Protection Act (CFPA).  In doing so, the court reversed its June ruling that the NYAG could proceed with its CFPA claims despite the court’s conclusion that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional and therefore, the CFPB lacks authority to bring claims against the defendants, as previously covered by InfoBytes

    According to the new order, the remedy for Title X’s constitutional defect is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA.  The court concluded that it lacked jurisdiction over NYAG’s remaining state law claims and dismissed the NYAG’s action against the defendants in its entirety.

    The amended order is the culmination of a process that began with an August request by the CFPB for the court to enter a final judgment with respect to its dismissal of the CFPB’s claims, which would allow the Bureau to appeal to the U.S. Court of Appeals for the 2nd Circuit. (Previously covered by InfoBytes here.) After numerous letters were submitted by all the parties, the court granted the CFPB’s request for entry of final judgment and granted the defendant’s request to stay the NYAG claims during the pendency of the CFPB’s appeal. The NYAG subsequently responded with a letter requesting clarity on the court’s jurisdiction over the claims, which resulted in the new order dismissing the NYAG claims in their entirety.

    Courts CFPB Succession CFPA Dodd-Frank State Attorney General Single-Director Structure

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  • CFPB argues structure is constitutional under current precedent

    Courts

    On September 10, the CFPB rejected the arguments made by two Mississippi-based payday loan and check cashing companies (appellants) challenging the constitutionality of the CFPB’s single director structure. The challenge results from a May 2016 complaint filed by the CFPB against the appellants alleging violations of the Consumer Financial Protection Act (CFPA) for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings in March 2018, declining the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The following April, the 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question and subsequently, the appellants filed an unopposed petition requesting for initial hearing en banc, citing to a July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here).

    In its September response to the appellants’ arguments, which are similar to previous challenges to the Bureau’s structure—specifically that the Bureau is unconstitutional because the president can only remove the director for cause—the Bureau argues that the agency’s structure is consistent with precedent set by the U.S. Supreme Court, which has held that for-cause removal is not an unconstitutional restriction on the president’s authority. The brief also cited to the recent 5th Circuit decision holding the FHFA structure unconstitutional and noted that the court acknowledged the Bureau’s structure as different from FHFA in that it “allows the President more ‘direct[] control.’” The Bureau also argues that the appellants are not entitled to judgment on the pleadings because the Bureau’s complaint— which was filed under the previous Director, Richard Cordray— has been ratified by acting Director, Mick Mulvaney, who is currently removable at will under his Federal Vacancies Reform Act appointment and therefore, any potential constitutional defect in the filing is cured. Additionally, the Bureau argues that even if the single-director structure were deemed unconstitutional, the provision is severable from the rest of the CFPA based on an express severability clause in the Dodd-Frank Act.

    Courts Fifth Circuit Appellate Federal Issues CFPB CFPB Succession Dodd-Frank FHFA Single-Director Structure U.S. Supreme Court

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  • Texas bank petitions Supreme Court over CFPB constitutionality

    Courts

    On September 6, a Texas bank and two associations (petitioners) filed a petition for writ of certiorari with the U.S. Supreme Court challenging the constitutionality of the CFPB’s structure. Specifically, the petition asks the Court (i) whether the CFPB as an independent agency headed by a single director that can only be removed from office for cause violates the Constitution’s separation of powers; (ii) whether a 1935 Supreme Court case upholding removal restrictions on members of the FTC should be overturned; and (iii) weather the CFPB’s “perpetual, on-demand funding streams” are permitted under the Appropriations Clause. The petition results from a 2012 lawsuit challenging the constitutionality of several provisions of the Dodd-Frank Act, which resulted in the June decision by the D.C. Circuit to uphold summary judgment against the petitioners. That decision was based on the January 2018 D.C. Circuit en banc decision concluding the CFPB’s single-director structure is constitutional (covered by a Buckley Sandler Special Alert.

    Courts U.S. Supreme Court CFPB Writ of Certiorari Dodd-Frank Appellate Single-Director Structure

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  • 8th Circuit rules Fannie Mae, Freddie Mac net worth sweep payments acceptable under FHFA statutory authority

    Courts

    On August 23, the U.S. Court of Appeals for the 8th Circuit affirmed a lower court’s dismissal of claims brought by shareholders of Fannie Mae and Freddie Mac (GSEs) against the GSEs’ conservator, the Federal Housing Finance Agency (FHFA), alleging that FHFA exceeded its powers under the Housing and Economic Recovery Act (HERA) and “acted arbitrarily and capriciously” when it entered an agreement with the Treasury Department requiring the GSEs to pay their entire net worth, minus a small buffer, as dividends to the Treasury every quarter.  In so holding, the 8th Circuit joined the 5th, 6th, 7th, and D.C. Circuits, each of which has previously “rejected materially identical arguments” presented by other GSE shareholders. (See previous InfoBytes coverage on the 5th Circuit decision here.) The shareholders sought an injunction to set aside the so-called “net worth sweep,” asserting that “HERA’s limitation on judicial review does not apply when FHFA exceeds its statutory powers under the Act . . . [and] that the net worth sweep exceeds, and is antithetical to, FHFA’s statutory powers.” However, the appellate court agreed with the lower court and found, among other things, the net worth sweep payments to be acceptable because HERA “grant[s] FHFA broad discretion in its management and operation of Fannie and Freddie” and permits, but does not require, the agency “to preserve and conserve Fannie’s and Freddie’s assets and to return [them] to private operation.”  The court also noted that HERA “authorize[d] FHFA to act ‘in the best interests’ of either Fannie and Freddie or itself,” thus affording FHFA more discretion than common law conservators.   Finally, the appellate court held that HERA’s anti-injunction provision, which states that “no court may take any action to restrain or affect the exercise of powers or functions of the [FHFA] as a conservator or a receiver,” also precludes enjoining the Treasury Department from participating in the net worth sweep because doing so would “restrain or affect” FHFA.

    Courts Appellate Eighth Circuit GSE Fannie Mae Freddie Mac FHFA Single-Director Structure

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  • Court opens door for CFPB to appeal constitutionality determination to 2nd Circuit

    Courts

    On August 23, the U.S. District Court for the Southern District of New York granted the CFPB’s request for entry of final judgment with respect to the court’s June decision to terminate the CFPB as a party to an action. The court has previously concluded that the CFPB could not proceed with its claims under the Consumer Financial Protection Act (CFPA). The entry of final judgment will allow the CFPB to appeal the court’s constitutionality determination to the U.S. Court of Appeals for the 2nd Circuit. As previously covered by InfoBytes, the CFPB brought the action with the New York Attorney’s General office (NYAG) against a New Jersey-based finance company and its affiliates (defendants). Although the court dismissed the CFPB’s claims, it determined that the NYAG had plausibly alleged claims under New York law and the CFPA and had the independent authority to pursue those claims.

    The court also granted the defendants’ request to stay the NYAG case during the pendency of the CFPB’s appeal to the 2nd Circuit.

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

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  • Senate Banking Committee narrowly approves Kraninger to head CFPB

    Federal Issues

    On August 23, the Senate Banking Committee approved, in a 13-12 party-line vote, Kathy Kraninger to be the next Director of the CFPB, which carries a five-year term. Kraninger’s nomination next moves to the full Senate. Acting Director, Mick Mulvaney, will remain in his position for the foreseeable future, as the Federal Vacancies Reform Act allows him to continue in his acting capacity until the full Senate confirms or denies Kraninger’s nomination.

    In July, Kraninger testified before the Senate Banking Committee where she fielded questions covering a range of topics, including whether she would appeal a June ruling by a federal judge in New York asserting that the CFPB’s structure was unconstitutional. While Kraninger did not provide a substantive answer to that question, she did comment that, “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” See more detailed InfoBytes coverage on Kraninger’s July nomination hearing here.

    Federal Issues CFPB Succession CFPB U.S. Senate Senate Banking Committee Single-Director Structure

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  • Appellants petition 5th Circuit for en banc hearing of CFPB constitutionality challenge

    Courts

    On August 13, two Mississippi-based payday loan and check cashing companies (appellants) filed an unopposed petition for initial hearing en banc with the U.S. Court of Appeals for the 5th Circuit regarding a challenge to the constitutionality of the CFPB’s single director structure. In April, the 5th Circuit agreed to hear the appellant’s interlocutory appeal, and now the appellants request the appeals court move straight to an en banc panel, stating “if [the] appeal is heard under the normal panel process, [the] Court will likely be asked to rehear that panel’s decision en banc, as occurred in the D.C. Circuit’s PHH case.” (covered by a Buckley Sandler Special Alert here.) The appellants cite to the July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here) and note that a petition for rehearing en banc has already been filed in that case. The appellants suggest coordination in scheduling the potential en banc arguments should the court accept both petitions, arguing that the decision would “guarantee that the Fifth Circuit speaks with one voice regarding the constitutionality of these agencies’ structures.”

    Courts Fifth Circuit Appellate Federal Issues CFPB PHH v. CFPB CFPB Succession Dodd-Frank FHFA Single-Director Structure

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  • CFPB urges court for final judgment in order to appeal constitutionality determination

    Courts

    On August 10, the CFPB submitted a request to the U.S. District Court for the Southern District of New York for a pre-motion conference to discuss approval to file a motion requesting entry of final judgment with respect to the court’s June decision, which would allow the Bureau to appeal that decision. As previously covered by InfoBytes, the court had terminated the CFPB as a party to an action with the New York Attorney General’s office (NYAG) against a New Jersey-based finance company and its affiliates (defendants), concluding that the CFPB’s organizational structure is unconstitutional and therefore, the agency lacks authority to bring claims under the Consumer Financial Protection Act (CFPA). The court determined that the NYAG, however, had plausibly alleged claims under the CFPA and New York law and had the independent authority to pursue those claims.

    In its letter, the CFPB argues that the conditions of Rule 54(b) are met because (i) there are multiple parties still involved in the litigation; (ii) the court’s decision as to the Bureau’s claims is final; and (iii) there is no just reason for delay. Moreover, the CFPB argues that allowing the NYAG to proceed with claims under the CFPA without the Bureau’s “statutorily-assigned right to participate in CFPA claims brought by state regulators” would result in hardship or injustice that could be alleviated by an immediate appeal. Additionally, the CFPB asserts that the issues to be appealed—the constitutionality of the Bureau’s structure and whether the for-cause removal provision is severable from the rest of the CFPA—are separable from the issues that remain to be decided between the NYAG and the defendants.

    In response to the Bureau’s letter, the NYAG argued that, regardless of the court’s decision under Rule 54(b), the court should not stay the case and should resolve all of its claims. The defendants responded that they do not oppose the Bureau’s Rule 54(b) request but believe NYAG’s claims should be stayed during the pendency of the Bureau’s appeal, arguing that the Bureau implied this in their request. The Bureau subsequently denied any implication that the NYAG’s claims should be stayed.   

    Courts PHH v. CFPB CFPB CFPB Succession Consumer Finance State Attorney General Single-Director Structure

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