A New York federal judge recently held that New York's attorney general (NYAG) may not sue under the federal Consumer Financial Protection Act (CFPA) because the entire CFPA is unconstitutional. If that decision survives appeal and other courts follow suit, it would significantly impact state consumer finance enforcement.
Venable previously covered how the federal CFPA (Title X of the Dodd-Frank Act) expressly gives state enforcement and regulatory bodies broad authority to sue under the CFPA's 18 enumerated federal consumer laws (e.g., ECOA, FDCPA, FCRA, TILA, etc.) and the prohibition against unfair, deceptive, and abusive acts or practices (UDAAP); and how earlier this year the Bureau of Consumer Financial Protection's acting director called on states to take the lead in consumer finance enforcement. Indeed, states have already been bringing cases under the CFPA for quite some time.1
The reason state enforcement under the CFPA had not previously been impacted by litigation over the constitutionality of the Bureau's structure is that courts had held either (a) the Bureau is constitutionally structured, or (b) the Bureau's unconstitutional structure is curable by severing the for-cause removal provision from the statute and making the Bureau director removable by the president at will. Either way, the CFPA statute itself remained constitutionally valid, such that states could still sue under it.
Enter the recent rulings by Judge Loretta Preska, a George H.W. Bush appointee, in CFPB et al. v. RD Legal Funding, LLC, Case. No. 17-CV-890 (S.D.N.Y.). As Venable previously reported, Judge Preska adopted Section II of Judge Karen Henderson's dissent in PHH v. CFPB2 and held the entire CFPA unconstitutional because a statute's severability clause "does not give the court power to amend a statute" or "cut out the heart of a statute."3 On September 12 and 18, 2018, the court clarified that its holding required dismissal of all CFPA claims in the case, including those brought by the NYAG.
So far, the Bureau has already filed a notice of appeal to the Second Circuit Court of Appeals. In the pending Fifth Circuit case of CFPB v. All American Check Cashing, Inc., the defendants have asserted the entire CFPA is unconstitutional and cited Judge Preska.4 And there are multiple appeals pending before the Ninth Circuit in which defendants argue the entire CFPA is unconstitutional.5
If one or more of these circuits conclude the CFPA is unconstitutional, it would remove from the affected states a key tool in consumer finance enforcement. Furthermore, these appeals could create a circuit split with the D.C. Circuit, which upheld the Bureau's constitutionality in January 2018,6 thereby setting the stage for a potential appeal to the U.S. Supreme Court, which could definitively resolve the matter for all jurisdictions nationally.
Interestingly, if Judge Brett Kavanaugh is confirmed to the Supreme Court, that could ensure the CFPA remains constitutionally valid for states to sue under, because Kavanaugh's position in PHH Corp. was that the Bureau's structure is unconstitutional but curable by severing the for-cause removal provision.7 On the other hand, he could also be subject to recusal under 28 U.S.C. 455 because of his prior opinions on this issue.
Nevertheless, even if the Supreme Court were to stike down the entire CFPA, it would not spell the end of state consumer finance enforcement, because states can still bring enforcement actions under their own state laws. Indeed, in the wake of Judge Preska's rulings, the NYAG has already filed another consumer finance enforcement action against nine student loan debt relief companies for deceptive advertising, usurious loans, and more. Notably, the NYAG asserts 15 different claims based on various state and federal laws, but the CFPA is not one of them.