Banking & Credit

Federal Judge Sides With Predatory Lender That Targeted 9/11 First Responders, Strikes Down CFPB

Judge’s Views are Extreme and Likely to be Overturned on Appeal

Washington, D.C. Contrary to precedent established by the D.C. Circuit and other jurisdictions, a senior status federal district court judge in New York City struck down the Consumer Financial Protection Bureau (CFPB) as unconstitutional today.

“While we respect Judge Preska’s authority, we strenuously disagree with the reasoning in her opinion,” said Christopher Peterson, Financial Services Director for the Consumer Federation of America. “This order is likely to be reversed on appeal because it cobbles together some of the most extreme views of the CFPB and also severability jurisprudence.”

Title X (ten) of the Dodd-Frank Act, also known as the Consumer Financial Protection Act, is the statute that created the CFPB and gives it the authority to act to protect consumers through enforcement cases, supervisory exams, and regulations. In today’s decision, Judge Loretta Preska held that Title X is unconstitutional “in its entirety.”

Today’s Decision Will Directly Harm 9/11 First Responders with Cancer and NFL Football Players with Brain Injuries

The decision arose in a joint law enforcement case by the CFPB and the New York Attorney General against a New Jersey-based lender named RD Legal.  The CFPB and the State of New York alleged that the company deceived 9/11 first responders with cancer and other illnesses as well as NFL football players with brain injuries out of millions of dollars. According to federal and state enforcement attorneys, RD Legal lured its customers into costly advances on settlement payouts with lies about the terms of their deals. Judge Preska’s decision today does nothing to reject the CFPB’s view that RD Legal deceived its customers.

Judge Preska’s Decision is Likely to be Reversed on Appeal

A solid, bipartisan majority of the appellate judges on the D.C. Circuit Court of Appeals have already rejected Judge Preska’s opinions. “Currently every other jurisdiction in the country has held that the structure of the CFPB is constitutional,” said Peterson. “Acting Director Mulvaney and the Attorney General of New York should immediately act to protect consumers by appealing this order to the Second Circuit Court of Appeals.”

Judge Preska’s decision follows on the heels of the CFPB’s litigation against the mortgage lender PHH. A subsequently reversed decision in that case had held that a provision of the Dodd-Frank Act which restricted the ability of the President to remove the CFPB director violated the constitution.

Even if one portion of the Dodd-Frank Act were unconstitutional, Judge Preska’s decision takes an unusually extreme response. Federal law states that if the courts hold that any provision of the Dodd-Frank Act is unconstitutional, “the remainder” of the Dodd-Frank Act “shall not be affected thereby.”

“Congress directed courts to sever out any unconstitutional provisions in the Dodd-Frank Act, while leaving the remainder of the statute intact. Instead of taking a measured approach, Judge Preska has decided to overturn the entire law establishing the Consumer Bureau,” explained Peterson. “Most appellate court judges are likely to take a much more cautious approach that defers to Congress by reversing this decision.”

“To agree with the decision to strike down all of Title X of the Dodd-Frank Act, you must believe that Congress would never have created the CFPB at all unless they could have a director that was unremovable except for cause,” explained Peterson. “Respectfully, Judge Preska’s decision frustrates the will of Congress which clearly intended to create a consumer protection agency even if the director of that agency was removable by the President without cause.”

“The greater risk to the CFPB is that the political opponents of consumer protection law will use this decision as an excuse to deny consumers the benefit of their legal rights.”

Contact: Christopher L. Peterson, 202-387-6121 x1020