In January, the D.C. Circuit upheld the Consumer Finance Protection’s independence. It was a major win for the beleaguered agency, which has been under attack non-stop since its creation in 2010. Unfortunately, a New York federal district court views the agency’s constitutionality differently.
Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, CFPB is an independent agency, meaning it is part of the executive branch but not under the president’s (or any cabinet secretary’s) control. Unlike other independent agencies headed by a commission, CFPB is headed by a single person who can only be removed by the president for cause—a notoriously difficult case to make. Its mission is to protect consumers from being exploited by the financial services industry. For that reason, it was one of Trump’s first targets.
In the instant case, CFPB had teamed up with the New York Attorney General to sue RD Funding, which preyed on NFL players with brain injuries and 9/11 responders who’d won settlements but not received them yet. The high interest loans they pushed on plaintiffs ended up costing them twice as much as they borrowed in some cases.
RD Legal fought the suit on the grounds that CFPB is unconstitutionally structured, thus doesn’t have the authority to sue. How is this a constitutional matter? A federal agency that exercises substantial executive power—put simply, infringes on presidential power—cannot be headed by a single director.
A George H. W. Bush appointee, Senior Judge Loretta A. Preska, agreed. She relies heavily on George W. Bush appointee Judge Brett Kavanaugh’s dissent in the most recent D.C. Circuit case, adopting parts of it. But she deviated on an important point.
Kavanaugh would just remedy the unconstitutionality by nixing the “for-cause” element. Preska goes farther, borrowing the bottom line from his colleague, Judge Karen Lecraft Henderson, another George H. W. Bush appointee. Rather than proposing a fix to the agency, they’d shutter it altogether by striking altogether the portion of the Dodd-Frank Act, Title X, that created the CFPB.
Will the CFPB shut down because Preska says so? No, in short. Her ruling isn’t even binding on other judges in the Southern District of New York, much less in the rest of the country. But it does ratchet up the odds of a Supreme Court showdown.