A New York federal judge on Thursday threw out a case brought by the Consumer Financial Protection Bureau (CFPB), ruling that the agency’s structure is unconstitutional.
Senior U.S. District Judge Loretta Preska ruled that the CFPB does not have standing to pursue cases because of its structure, contradicting a U.S. appeals court ruling from earlier this year, the Washington Post reports. That ruling by the U.S. Court of Appeals for the District of Columbia Circuit is not binding in New York, and Preska said she “respectfully” disagrees.
“Because the CFPB’s structure is unconstitutional, it lacks the authority to bring claims,” Preska’s ruling said.
The conflicting rulings make it more likely that the Supreme Court takes up a case on the constitutionality of the CFPB’s independent structure.
“It will make the issue more attractive for the Court,” said Allison Schoenthal, an attorney who represents banks before the CFPB and other regulators.
The CFPB was created by the 2010 Dodd-Frank financial reform law, and Preska said that whole section of the law is illegal.
“I would strike Title X in its entirety,” the ruling said.
The case in question was brought by the CFPB and New York’s attorney general against RD Legal Finding, accusing the group of scamming injured former NFL players and 9/11 first responders. The state’s attorney general can continue to pursue the claim, Preska ruled.
David Willingham of Boies Schiller Flexner, which represents RD Legal, affirmed the ruling.
“We are pleased that 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,” Willingham said.
The latest ruling comes as the agency has also faced other controversy related to its independence from oversight. It is run by a single director and is funded by the Federal Reserve instead of Congress. CFPB’s defenders claim those aspects are integral to its independence.
The agency’s critics consider it politically unaccountable thanks to its structure.
Meanwhile, the Trump administration is facing a court case over whether the president lawfully appointed current acting CFPB chief Mick Mulvaney. A judge allowed Mulvaney to continue, even as progressives such as Sen. Elizabeth Warren (D., Mass.) claim Dodd-Frank prevents the president from appointing a new director at his pleasure.
On Saturday, Trump nominated Kathleen Laura Kraninger to replace Mulvaney, who followed former director Richard Cordray. Cordray attempted to choose his chief of staff Leandra English to be his successor, but Trump chose Mulvaney, which led to a controversy over who was the lawful director.
U.S. district judge Timothy Kelly said the CFPB director would have “unchecked authority” if English were given control of the bureau, creating “insulation from direct presidential control.” English appealed, and it has not yet been ruled on by the D.C. circuit judges, the same court that ruled in favor of the bureau’s constitutionality.