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Ninth Circuit Rules CFPB’s Structure is Constitutional

A unanimous Ninth Circuit panel has ruled in CFPB v. Seila Law LLC that the CFPB’s single-director-removable-only-for-cause structure is constitutional.

Appellant Seila Law had asked the Ninth Circuit to overturn the district court’s refusal to set aside a Bureau civil investigative demand, arguing that the CID was invalid because the CFPB’s structure is unconstitutional.  In rejecting the constitutional challenge, the Ninth Circuit relied on U.S. Supreme Court precedent, which in the Ninth Circuit’s view, “indicate that the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed.”  According to the Ninth Circuit, “the Supreme Court is of course free to revisit those precedents, but we are not.”

The Ninth Circuit also relied on the D.C. Circuit’s en banc PHH decision which held that the CFPB’s structure is constitutional.  Neither PHH Corporation nor the CFPB filed a petition for certiorari asking the U.S. Supreme Court to review the D.C. Circuit’s en banc decision.  Since the Ninth and D.C. Circuits are the only circuits to have ruled on the CFPB’s constitutionality and both have held that the Bureau’s structure is constitutional, there is currently no split in the circuits that might encourage the Supreme Court to grant a petition for certiorari should one be filed by Seila Law.  (Before filing a petition a certiorari, Seila Law might seek a rehearing en banc by the Ninth Circuit.)

Two other cases involving a challenge to the CFPB’s constitutionality are currently pending in the circuit courts, either of which could create a circuit split.  On March 12, the Fifth Circuit heard oral argument in All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality.  The other case is RD Legal Funding, which is pending in the Second Circuit but in which briefing has not yet been completed.  Given the importance of the issue, it is possible the Supreme Court would grant certiorari if sought by Seila Law or a party in either of the two pending cases, even if no circuit split then exists.

In defending its constitutionality in these cases, the Bureau is at odds with the position of the Department of Justice.  In opposing the petition for certiorari filed by State National Bank of Big Spring (which the Supreme Court denied), DOJ argued that while it agreed with the bank that the CFPB’s structure is unconstitutional and the proper remedy would be to sever the Dodd-Frank Act’s for-cause removal provision, the case was a poor vehicle for deciding the constitutionality issue.

In addition to rejecting Seila Law’s constitutional challenge, the Ninth Circuit held that the CID did not violate the CFPA’s practice of law exclusion because it fell within the exception allowing the Bureau to exercise its authority as to an attorney where the attorney is otherwise subject to any of the enumerated consumer laws or transferred authorities.  The Ninth Circuit concluded that this exception allowed the CFPB to investigate whether Seila Law was violating the Telemarketing Sales Rule without regard to the general practice of law exclusion.  It also found that the CID contained sufficient information to put Seila Law on notice of the nature of the conduct the CFPB was investigating and was not so general as to raise vagueness or overbreadth concerns.

Copyright © by Ballard Spahr LLP


About this Author

Kaplinksy, partner, New York, finance

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.