Federal Judge Rules CFPB’s Structure Unconstitutional

A federal judge today ruled that the Consumer Financial Protection Bureau’s structure — a single powerful director who cannot be removed at will by the president — is unconstitutional. In her decision, Judge Loretta Preska forbade the CFPB from pursuing its lawsuit — which it filed together with the state of New York — against New Jersey-based RD Legal Funding. The lawsuit alleged that the company misled customers into entering cash advance agreements that functioned as usurious loans that were void under state law. She added that the New York attorney general would be permitted to proceed with its lawsuit independently.

Judge Preska’s ruling contradicts a ruling earlier this year by the D.C. Circuit Court of Appeals, which found in a complex ruling that the limitation on the president’s power to remove is consistent with Supreme Court rulings on other federal agencies, including the Federal Trade Commission and the Securities Exchange Commission.

In a statement, ABA President and CEO Rob Nichols noted that the implications of today’s ruling remain unclear, but added that “ABA has long believed that the bureau should be more accountable to Congress and that a five-member, bipartisan commission–as originally envisioned in drafts of the Dodd-Frank Act– would balance the bureau’s needs for independence and accountability, while broadening perspectives on rulemaking and enforcement. Today’s ruling does not alter that view.”