U.S. District Judge Loretta Preska objected to the structure of the Consumer Financial Protection Bureau. Specifically, she ruled that the agency’s single director, who can only be removed by the president for-cause, was unconstitutional.
Early this year, the U.S. Court of Appeals for the District of Columbia Circuit ruled in the PHH case that aspect of the bureau’s structure was constitutional. Preska, a judge for the Southern District of New York, disagrees with the ruling, she said.
Preska’s ruling means that the CFPB may no longer participate in a lawsuit it brought against RD Legal Funding. The CFPB had accused the New Jersey-based company of scamming consumers who were awaiting payment from settlements in legal cases or from victim-compensation funds, including former NFL players and 9/11 first responders.
“Because the CFPB’s structure is unconstitutional, it lacks the authority to bring claims” against RD Legal, the ruling said. The New York attorney general, who was also a plaintiff, can move forward with the case, however.
Preska, who was appointed by George H.W. Bush, ruled that the entirety of Dodd-Frank’s Title X – which established the agency – should be stricken.
“We are pleased that Court correctly found that the CFPB is unconstitutional as structured, and this underscores that the CFPB never should have brought this action in the first place,” said David Willingham, the attorney representing RD Legal.
The relative independence of the CFPB has been a bone of contention among the agency’s critics since its founding. The bureau is run by a single director rather than a bipartisan committee or panel, nor may the President remove the director at-will. Additionally, funding for the CFPB comes from the Federal Reserve rather than Congress.
Since the rulings come from different districts, it isn’t clear what impact they will have in the ongoing debate over the bureau’s structure and mission. Acting Director Mick Mulvaney has made a number of changes at the bureau since his appointment last November. The moves, which most recently include disbanding a consumer advisory board and reorganizing bureau departments, have largely been applauded by Republicans and criticized by Democrats, including CFPB founder Sen. Elizabeth Warren (D-Mass.).
President Donald Trump nominated Kathy Kraninger, a staffer from the Office of Management and Budget, last week to permanently replace Mulvaney, who also leads the OMB in addition to his CFPB responsibilities.