Federal Judge Determines that the CFPB Is “Unconstitutionally Structured”

The U.S. District Court for the Southern District of New York (“S.D.N.Y.”) dismissed Consumer Financial Protection Bureau (“CFPB”) claims based on the determination that the CFPB “lacks the authority to bring [these] claims” because it is “unconstitutionally structured.”

In the Opinion and Order, the S.D.N.Y. disagreed with the en banc holding of the D.C. Court of Appeals (the “Court of Appeals”) in PHH Corp. v. CFPB, which upheld the CFPB’s constitutionality under Title X of the Dodd-Frank Act. Judges Brett Kavanaugh and Karen LeCraft Henderson issued dissenting opinions in PHH Corp., which the S.D.N.Y. partially adopted in its decision. The S.D.N.Y. affirmed that, as stated in Judge Kavanaugh’s Opinion, the CFPB “is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director.” Furthermore, the S.D.N.Y. adopted Judge Henderson’s dissenting opinion, which argued that the entirety of Title X of Dodd-Frank should be stricken.

The S.D.N.Y. also rejected the argument within the Notice of Ratification (filed on May 11, 2018) that Acting Director Mick Mulvaney’s ratification dismisses any grounds upon which the CFPB’s constitutionality can be questioned. The Notice of Ratification debated that, because President Trump could remove Mr. Mulvaney at will, there are no longer grounds for an argument that the CFPB violates the Constitution’s separation of powers. The S.D.N.Y. stated that the Notice of Ratification failed to “render[] Defendants’ constitutional arguments moot.”

Lofchie Comment: Given the divide between the courts as to the constitutionality of the CFPB, one might ordinarily expect the government to appeal this decision. However, many members of the administration are likely in agreement with the S.D.N.Y. determination that the CFPB is not constitutionally established. It is not certain how the government will react.

That said, there is no justification for giving a single person – the head of the CFPB – such a tremendous amount of power, without subjecting the individual to any checks, whether that be the Presidential power to dismiss the individual, Congressional power to limit the CFPB’s budget, or the power of other Commissioners to dissent to actions taken by the CFPB. Hopefully, the Court’s decision will motivate Congress to improve the structure of the CFPB and to dampen the remarkable and unseemly authority granted to the agency’s head.