On May 15, a New Jersey-based finance company and its affiliated parties filed a motion to dismiss allegations that it scammed first responders to the World Trade Center attack and NFL retirees with high-cost loans. As previously covered in InfoBytes, the CFPB and the New York Attorney General’s office (NYAG) claimed the defendants engaged in deceptive and abusive acts by misleading consumers into selling expensive advances on benefits to which they were entitled by mischaracterizing extensions of credit as assignments of future payment rights, thereby causing the consumers to repay far more than they received. The defendants’ motion to dismiss was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the defendants argue, the complaint issued against them is a “prime example of how the unchecked authority granted to the CFPB leads to administrative overreach that has a profound effect on the businesses and individuals the agency targets.”

In response to the claims that they mischaracterized credit, the defendants assert that the complaint is “based on the erroneous theory that—despite clear contractual terms and the weight of legal authority to the contrary—these transactions are not true sales, but instead are ‘extensions of credit’ under the Consumer Financial Protection Act [(CFPA)], and therefore the [defendants] deceived consumers by labeling the agreements as sales.” The CFPA defines an extension of “credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.” In this instance, the defendants contend, there is no debt, no repayment obligation, and no “right granted to defer payment of a debt” because the consumers are the sellers of the asset.

The defendants argue that (i)“the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency”; (ii) because these transactions do not fall into the CFPA’s definition of credit, the case lacks a federal cause of action; and (iii) “each cause of action in the [c]omplaint individually fails to state a claim for relief, including because the Government is flat out wrong in its contention that the underlying settlement proceeds are not assignable.”