CFPB Structure Is Unconstitutional, U.S. District Court Rules

A U.S. District Court judge for the Southern District of New York ruled Thursday that the Consumer Financial Protection Bureau’s (CFPB) structure is unconstitutional. The ruling contradicts a previous ruling by the D.C. Circuit Court of Appeals in an unrelated case.

Specifically, the judge noted that the existence of 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, 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.

A ruling earlier this year by the D.C. Circuit Court of Appeals found that the limitation on the president’s power to remove the director is consistent with Supreme Court rulings on other federal agencies, including the Federal Trade Commission (FTC) and the Securities Exchange Commission.