New York Federal Court Rules That The Bureau of Consumer Financial Protection Is Unconstitutional, Continuing A High-Stakes Debate

Editor's note: While insideARM covered this development last Friday, Clark Hill did a nice job of describing the two other pending federal cases that challenge the constitutionality of the Bureau’s structure. The authors -- Joann Needleman, Jane C. Luxton, and Thomas A. Brooks -- have given permission to re-publish their article. 


In an ongoing, high-profile legal debate, court opinions on the constitutionality of the structure of the Bureau of Consumer Financial Protection (“Bureau”) – previously known as the Consumer Financial Protection Bureau (“CFPB”) – continue to apply different legal analyses, positioning the issue for a possible U.S. Supreme Court resolution.  On June 21, 2018, in CFPB and The People of the State of New York v. RD Legal Funding, et al., Judge Loretta Preska of the District Court for the Southern District of New York ruled the Bureau’s creation as an independent agency with a Director removable only for cause, and not at will like other Presidential appointees, violates constitutional considerations of “history, liberty, and presidential authority.”  Rejecting a contrary January 31, 2018 en banc opinion by the D.C. Circuit in PHH Corp. v. CFPB, 881 F.3d 75, as non-binding in her Circuit, Judge Preska relied on Judge Brett Kavanaugh’s dissent in PHH in holding that the Bureau’s structure “violates Article II of the Constitution.”  Going even further, Judge Preska held this constitutional infirmity requires invalidation of Title X of the Dodd-Frank Act in its entirety, refusing to follow Judge Kavanaugh’s proposed, more limited remedy of severing the parts of the law that limited the President’s ability to supervise, direct, and remove the Bureau Director at will.   

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