A Fifth Circuit ruling that the Consumer Financial Protection Bureau’s funding structure is unconstitutional quickly turns into an enforcement headache for the agency.
At least two companies targeted by the CFPB’s enforcement actions have already flagged the decision to ask other courts to dismiss the actions on constitutional grounds. Others will use the U.S. Court of Appeals for the Fifth Circuit ruling in settlement negotiations and battles over civil investigative claims until ruling appeals are exhausted, lawyers say who represent the companies.
“Very few companies will settle with the CFPB, except for one small change,” said Alan Kaplinsky, senior counsel at Ballard Spahr LLP, which represents companies fighting the agency.
The CFPB has previously signaled that the Fifth Circuit ruling, which is not the first such legal threat the agency has faced, will not slow its efforts. Nevertheless, having to wrestle with the decision in enforcement action will cause delays and drain office resources.
The CFPB said in a statement Monday that it “will continue to fulfill its statutory mission to enforce federal law and protect Americans from predatory financial institutions.”
“Illegal practices are still illegal, and the CFPB will hold companies accountable when they break the law,” the agency said.
Online lender CashCall Inc., which has been locked in a legal battle with the CFPB since 2013 over a case alleging the company provided illegal payday loans through a tribal lender, has asked the court to US Appeal for Ninth Circuit Leave to Challenge the CFPB. ability to bring the case to a filing on October 21.
The Fifth Circuit’s decision shows “there is a substantial, non-frivolous issue of the most serious constitutional magnitude regarding the CFPB’s authority to take formal action, including its pursuit of this enforcement action against CashCall.” , the company said in the filing.
Ongoing investigations could be stalled by battles over document requests and civil subpoenas, potentially forcing the CFPB into court where it will have to overcome constitutional challenges to obtain documents, Kaplinsky said.
As per usual
The office led by its director, Rohit Chopra, is not expected to become less aggressive, despite the unfavorable ruling. Besides enforcement, the agency is moving forward on several high-profile rules, including one on sharing personal consumer data and collecting small business loan data.
“In fact, it may spur Director Chopra to act more quickly and to act on a wide range of issues sooner than expected,” Consumer Bankers Association President and CEO Lindsey Johnson said in a note. of October 21 to member firms obtained by Bloomberg Law.
The CFPB survived other major legal challenges before it opened in July 2011.
Opponents of the CFPB initially challenged the validity of the bureau’s actions following the vacation appointment of Richard Cordray, the agency’s first director, in January 2012. Once Cordray was officially confirmed, opponents of the agency have turned their attention to its single-director leadership structure, including removal for cause. protections.
This fight ultimately ended in the Supreme Court, which ruled that the CFPB’s leadership structure was unconstitutional, but denied the chance to eliminate the agency. Instead, the Supreme Court eliminated protections against the CFPB director’s removal for cause.
Those fights have also not stopped the agency’s law enforcement efforts, agency observers said.
“They have a lot of muscle memory about how to function in the midst of existential threats,” said Jenny Lee, partner at Reed Smith LLP and former CFPB attorney.
The bureau will have the added work of defending its funding structure in investigations and enforcement actions, said Jeff Ehrlich, former deputy director of enforcement for the CFPB. Some companies, however, may feel the risks of litigation are too great to sustain a fight, Ehrlich said.
“It can slow down the work of the office, as it did when the single director issue was in dispute in many cases,” Ehrlich, now a partner at McGuireWoods LLP. Early legal battles “didn’t stop us,” Ehrlich said.