The structure of the Consumer Financial Protection Bureau is unconstitutional, and therefore claims of federal law violations against a litigation funding company fail.
So ruled a U.S. District Court judge in a lawsuit brought by the CFPB and the New York Attorney General against a litigation funding company over, for one, the litigation funding company’s dealings with former National Football League players and, for another, the company’s transactions with individuals who suffered injuries as a result of the September 11, 2001 terrorist attacks or were hamred during removal of debris following those attacks.
The NFL players have been seeking to recover from the $1 billion N.F.L. concussion litigation settlement. While awaiting finalization of settlement decisions and payment of settlement proceeds, the ex-NFL players reportedly entered into litigation funding agreements with RD Legal Finance (RD), a litigation funding company that has said it offered cash advances to the ex-NFL players in exchange for a portion of the future settlement proceeds.
Likewise, some of the claimants seeking compensation from the September 11th Victim Compensation Fund had entered into agreements with RD while awaiting completion and payment under pending settlements.
The CFPB alleged that the transactions violation the Consumer Financial Protection Act, while the New York Attorney General alleged that these were not assignments but loans and therefore usurious.
RD moved to dismiss. In doing so, RD argued that the CFPB was unconstitutionally structured and so lacked authority to bring claims under the CFPA, that the court lacked federal jurisdiction because RD did not come within the scope of the CFPA, and that both the New York Attorney General and the CFPB failed to state a claim.
U.S. District Court Judge Loretta Preska ruled that the CFPB’s structure is unconstitutional and therefore lacked authority to bring claims under the CFPB, and she further ordered that the CFPB was terminated as a party to the lawsuit. She further ruled that the New York Attorney General has independent authority to bring claims under the CFPA, and that the New York Attorney General alleged plausible claims under both the CFPA and under New York law – and thus she denied RD’s motion to dismiss.
On the issue of the CFPB’s unconstitutionality, Judge Preska declined to follow a decision from earlier this year by the U.S. Court of Appeals for the District of Columbia Circuit. Judge Preska instead said the dissenting opinion in that case was persuasive. She ruled the CFPB’s structure was unconstitutional because its authority was inconsistent with the constitutional powers of the executive branch to ensure that U.S. laws be “faithfully executed.” She further said that the structure of the CFPB – involving a single director who can be removed by the president only under limited circumstances – was unconstitutional, and ruled that the provisions concerning the agency’s authority could not be severed from the rest of the statute.
The full opinion is available here: CFPB_v._RD_Legal_Funding_06.2018