Federal Judge in NY Rules CFPB is Unconstitutional and Should be Eliminated

Last Thursday, senior U.S. District Judge Loretta A. Preska ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional and, as a result, the agency should be abolished.

“Because the CFPB’s structure is unconstitutional, it lacks authority to bring claims under the CFPA and is hereby terminated as a party to this action,” the ruling says. Specifically, Judge Preska found it unconstitutional that the agency was headed by a single director who served a five-year term and could be fired by the president only for cause. Preska also ruled that the section of Dodd-Frank that created the CFPB should be eliminated, saying “I would strike Title X in its entirety.”

In the CFPB lawsuit spurring the ruling, the agency and the Attorney General of New York claimed RD Legal Funding and related entities used deceptive tactics to scam borrowers. RD Legal Funding is alleged to have contacted victims after they had been awarded a settlement but before they had received it in full, tricking them into taking out high-interest loans while they waited for their money, according to the lawsuit. This resulted in some borrowers paying back more than twice as much as they borrowed.

The lawsuit was filed on February 7, 2017, when Richard Cordray was still serving as Director of the Agency.

“It is unconscionable that RD Legal scammed 9/11 heroes and NFL concussion victims out of millions of dollars,” Cordray said when the lawsuit was launched. “We allege that this company and its owner lined their pockets with funds intended to cover medical care and other critical expenses for people who are sick and sidelined. Our lawsuit seeks to end this illegal scheme and get money back to those entitled to receive it.”

Although the lawsuit strikes a blow against the CFPB, Preska determined that the New York Attorney General can continue to bring a claim, writing “the NYAG, however, has independent authority to bring claims under the CFPA. The Court concludes that NYAG has alleged plausibility claims under the CFPA and under New York law. Accordingly, Defendants’ motion to dismiss the Complaint is denied.”