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CFPB Structure Unconstitutional Claims Backed By Federal Judge

It has been reported that a federal judge (New York) has found the CFPB structure unconstitutional, explaining in her ruling on Thursday how she disagrees with the D.C. Circuit’s contrary holding from a few months back, and is not bound by that ruling.

Law 360 reports that U.S. District Judge Loretta A. Preska reached her finding as part of her decision to axe the CFPB from a suit it brought jointly last year with New York’s then-Attorney General Eric Schneiderman accusing RD Legal, a New Jersey-based settlement advance firm, of scamming 9/11 first responders and NFL retirees with high-cost loans.

Rejecting the D.C. Circuit majority’s January conclusion in PHH Corp. v. CFPB that the agency’s structure is constitutional, Judge Preska said she was siding with one of the circuit court judges who had dissented from that 6-3 ruling.

“Respectfully, the court disagrees with the holding of the en banc court and instead adopts Sections I-IV of Judge Brett Kavanaugh’s dissent (joined in by Senior Circuit Judge A. Raymond Randolph), where, based on considerations of history, liberty, and presidential authority, Judge Kavanaugh concluded that the CFPB ‘is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single director,’” Judge Preska wrote.

Judge Preska said that this means the agency must exit the suit, which asserts claims under the Consumer Financial Protection Act and New York state law.

“Because the CFPB’s structure is unconstitutional, it lacks the authority to bring claims under the CFPA and is hereby terminated as a party to this action,” the judge wrote.

The decision comes after RD Legal made a constitutional challenge to the CFPB’s structure a major prong of its bid to dismiss the suit, which was filed against RD Legal Funding LLC, its founder Roni Dersovitz and two related entities.

Although Judge Preska ended up ruling in RD Legal’s favor on this constitutionality issue, she declined to dismiss the suit altogether, finding that New York still has “independent authority to bring claims under the CFPA” and that its claims under both that law and state law passed muster.

“Accordingly, defendants’ motion to dismiss the complaint is denied,” the judge wrote.

On that note, Amy Spitalnick, press secretary for the New York attorney general’s office, said in a statement to Law360 that the state is pressing forward.

“We will continue to vigorously pursue our case against RD Legal for as many victims as possible,” Spitalnick said.

Still, counsel for RD Legal viewed Thursday’s outcome as a win.

“At the motion to dismiss phase, this is a significant victory for RD Legal to be able to limit the ability of the government to overreach here,” David Willingham of Boies Schiller Flexner LLPtold Law360.

Willingham also said in a separate statement that his side is “pleased that the 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.”

The CFPB declined to comment.

The CFPB is represented in-house by Benjamin Z. Konop and Hai Binh T. Nguyen.

The New York attorney general’s office is represented by Jane M. Azia and Melvin L. Goldberg.

RD Legal is represented by David Willingham, Michael Roth, Eric Pettit, Jeffrey Hammer and Kelly Perigoe of Boies Schiller Flexner LLP and Eric Kanefsky of Calcagni & Kanefsky LLP.

The case is Consumer Financial Protection Bureau et al. v. RD Legal Funding LLC et al., case number 1:17-cv-00890, in the U.S. District Court for the Southern District of New York.

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