CFPB Funding Decision Is Sour for Agency Enforcement Struggles (1)

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A Fifth Circuit ruling that the Consumer Financial Protection Bureau’s funding structure is unconstitutional is quickly becoming a headache for the agency.

At least two companies targeted by the CFPB’s enforcement actions have already pointed to the ruling to ask other courts to dismiss the actions on the grounds of unconstitutionality. Others will practice on the US Court of Appeals for the Fifth Circuit. decision in settlement negotiations and battles over civil investigative lawsuits until appeals of rulings are exhausted, attorneys representing the companies say.

“Very few companies will settle with the CFPB except for the dumb change,” said Alan Kaplinsky, senior counsel at Ballard Spahr LLP, which represents companies fighting the agency.

The CFPB has already signaled that the Fifth Circuit’s ruling, which is not the first such legal threat facing the agency, will not stop its efforts. Still, having to deal with failed enforcement actions will cause delays and stretch office resources.

The CFPB said in a statement Monday that it “will continue to carry out its statutory mission to enforce federal law and protect Americans from predatory financial institutions.”

“Illegal practices remain illegal, and the CFPB will hold companies accountable when they break the law,” the agency said.

transunion argued that a CFPB lawsuit alleging violations of a 2017 consent order on deceptive marketing and sales practices, as well as the consent order itself, should be dismissed based on the Fifth Circuit ruling, in district court. Chicago Federal of October 20. presentation.

Online lender CashCall Inc., which has been involved in a court fight with the CFPB since 2013 in a case alleging the company issued illegal payday loans through a tribal lender, has asked the Court of Appeals for permission. of the Ninth U.S. Circuit ability to bring the case on an October 21 presentation.

The Fifth Circuit’s ruling shows “that a substantial and non-frivolous issue of the gravest constitutional magnitude exists with respect to the CFPB’s authority to take official action, including the prosecution of this enforcement action against CashCall,” the company said in a statement. the presentation.

Pending investigations may be hampered by battles over document lawsuits and civil subpoenas, which could force the CFPB to go to court where they will have to overcome constitutional challenges to obtain the documents, Kaplinsky said.

As usual

The office under its director, Rohit Chopra, is not expected to become less aggressive, despite the adverse ruling. In addition to enforcement, the agency is advancing several high-profile rules, including one on the sharing of consumers’ personal data and the collection of data on small business loans.

“In fact, it may incentivize Director Chopra to move faster and take action on a wide range of issues sooner than anticipated,” Consumer Bankers Association President and CEO Lindsey Johnson said in an Oct. 21 note to member companies obtained by Bloomberg Law.

The CFPB has survived other major legal challenges since before it opened its doors in July 2011.

Opponents of the CFPB initially questioned the validity of the bureau’s actions following the recess appointment of Richard Cordray, the agency’s first director, in January 2012. Once Cordray was formally confirmed, opponents of the agency directed its attention to its single-director leadership structure, including removal for cause. protections

That fight ultimately ended up in the Supreme Court, which ruled that the CFPB’s leadership structure was unconstitutional, but rejected the opportunity to eliminate the agency. Instead, the Supreme Court struck down impeachment protections for the CFPB director.

Those fights didn’t stop law enforcement efforts either, agency monitors said.

“They have a lot of muscle memory for how to function in the midst of existential threats,” said Jenny Lee, a partner at Reed Smith LLP and a former CFPB enforcement attorney.

The bureau will have the added work of defending its funding structure in investigations and enforcement actions, said Jeff Ehrlich, former CFPB deputy director of enforcement. Some companies, however, may find the risks of litigation too great to mount a sustained fight, Ehrlich said.

“This can slow down the work of the office, as it did when litigating the sole director issue in many cases,” Ehrlich, now a partner at McGuireWoods LLP. Previous legal battles “didn’t stop us,” Ehrlich said.

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