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RD Legal Funding Files Opening Brief in Second Circuit

RD Legal Funding has filed its opening brief in the Second Circuit, where the CFPB and New York Attorney General filed appeals from the district court’s decision and RD Legal Funding filed a cross-appeal.  The CFPB and the NYAG filed their opening briefs in March.

RD Legal Funding purchased at a discount, for immediate cash payments, benefits to which consumers were ultimately entitled under the NFL Concussion Litigation Settlement Agreement (the “NFLSA”) and the September 11th Victim Compensation Fund of 2001 (the “VCF”).  The CFPB and NYAG sued RD Legal Funding in federal district court, asserting claims under the CFPA and state law.  The CFPB appealed from Judge Preska’s June 21, 2018 decision, as amended by her September 12 order, in which she ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional, struck the CFPA (Title X of Dodd-Frank) in its entirety, and dismissed the CFPB from the case.  The NYAG appealed from Judge Preska’s dismissal on September 12, 2018 of all of the NYAG’s federal and state law claims, and her subsequent September 18 order amending the September 12 order to provide that the NYAG’s claims under Dodd-Frank Section 1042 were dismissed “with prejudice.”  (Section 1042 authorizes state attorneys general to initiate lawsuits based on UDAAP violations.)

Despite dismissing the NYAG’s federal and state claims, Judge Preska determined in her June 21 decision that the purchase agreements effected assignments of the benefits that, as to the NFLSA benefits, were void under the terms of the underlying settlement agreement and, as to the VCF benefits, were void under the federal Anti-Assignment Act.  After determining that the assignments were void, Judge Preska concluded that, as a result, the transactions were necessarily disguised usurious loans. (For the reasons discussed in our prior blog post, we believe the court’s conclusion is flawed.)  RD Legal Funding filed a cross-appeal from the district court’s conclusion that the transactions were disguised loans.

In its brief, RD Legal Funding argues that the district court correctly concluded that the CFPB’s structure is unconstitutional and cannot be cured by severing the for-cause removal provision from the CFPA.  It also argues that the district court correctly dismissed the NYAG’s state law claims for lack of subject matter jurisdiction.

RD Legal Funding makes the following additional arguments:

  • The Second Circuit does not need to reach the issue of the CFPB’s constitutionality because RD Legal Funding is not a “covered person” under the CFPA.  The transactions at issue are sales of assets rather than extensions of credit under the CFPA.  Thus, RD Legal Funding is not a person that offers or provides a consumer financial product or service.

  • The transactions at issue cannot be recharacterized as loans under New York law for various reasons, including that payment to RD Legal Funding is contingent on the distribution of the purchased receivables, with RD Legal Funding holding the entire risk that the purchased receivables will not materialize and having no recourse against the sellers of the receivables in that event.

  • The court’s conclusion that the transactions were loans because the assignments were void is contrary to law because a transaction cannot be both an assignment and a loan.

  • The complaint fails to state a claim for relief for reasons that include that many of the claims are based on the premise that the transactions are loans.

In May 2019, the Ninth Circuit ruled in Seila Law that the CFPB’s single-director-removable-only-for-cause structure is constitutional.  Last week, appellant Seila Law filed a motion to stay the Ninth Circuit’s mandate pending its filing a petition for a writ of certiorari with the U.S. Supreme Court.  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.

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About this Author

Barbara S. Mishkin, Ballard Spahr, Philadelphia, Deceptive Practices Lawyer, Fair Debt Collection Practices Act, Gramm Leach Bliley
Of Counsel

Barbara Mishkin focuses on consumer compliance and banking law. The federal laws with which Ms. Mishkin has dealt extensively include the Truth in Lending Act, Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, and Gramm-Leach-Bliley Act. She also has significant experience with state usury and lender licensing laws, as well as state laws prohibiting unfair and deceptive acts and practices.

American Bar Association, member, Consumer Financial Services Committee;...

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