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SDNY, Disagreeing With D.C. Circuit, Finds CFPB Structure Unconstitutional And Strikes Title X Of CFPA In Its Entirety

On June 21, 2018, Judge Preska of the Southern District of New York (“SDNY”) issued a decision finding that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  In doing so, the SDNY held that Title X of Dodd-Frank—the title that created the CFPB and established its regulatory, supervisory, and enforcement authority—should be stricken in its entirety.

The SDNY went further in finding that Mulvaney’s ratification of the CFPB’s decision to bring the lawsuit was inadequate to cure the constitutional deficiencies.  The decision was issued in response to the motion to dismiss filed by the defendants in the CFPB’s and New York Attorney General’s case against RD Legal Funding, LLC.

This decision is in direct conflict with the D.C. Circuit’s en banc decision in the PHH case, which held that the CFPB’s structure is constitutional.  Adopting portions of two dissenting opinions in the en banc decision, the SDNY found that, not only is the CFPB’s structure unconstitutional, but the proper remedy is to strike all of Title X rather than just its for-cause removal provision.

While the SDNY dismissed the CFPB from the RD Legal Funding case, it allowed the New York Attorney General’s claims to proceed.  Because part of the case remains active, the CFPB cannot appeal the decision unless the SDNY certifies that there is no reason to delay that appeal under Rule 54(b) of the Federal Rules of Civil Procedure.  Assuming such a certification by the SDNY, the CFPB could appeal to the Second Circuit.

Copyright © by Ballard Spahr LLPNational Law Review, Volume VIII, Number 172

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.

Flo, Washington DC, Ballard Spahr

A client-focused litigator and enforcement attorney, with extensive experience in the financial-services, technology, and real estate industries. Theodore R. ("Teddy") Flo represents lenders, technology companies, start-ups, corporate executives, and real estate service providers in local and national litigation, arbitration, and government investigations. While focused on investigations before the CFPB, he also represents clients before the SEC, DOJ, HUD, CFTC, and state regulators.

Teddy delivers practical cost-effective results for his clients through creative thinking and...