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CFPB wields new SCOTUS ruling in enforcement cases

6 minute read

The Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C. REUTERS/Andrew Kelly

  • Regulator says court resolved lingering constitutional question
  • Defendants say cases against them still defective

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(Reuters) - Facing continued efforts to throw out its past enforcement actions on constitutional grounds, the Consumer Financial Protection Bureau is pinning its hopes on a recent U.S. Supreme Court decision on the scope of agency powers.

Since the Supreme Court decided Collins v. Yellen on June 23, the CFPB has cited it in several cases, including those against student loan servicer Navient Corp, litigation funder RD Legal Funding LLC and others.

The case, which addressed the constitutionality of the removal provision for the head of the Federal Housing Finance Agency (FHFA), speaks to issues the court left unresolved last year in Seila Law v. CFPB.

In Seila, the Supreme Court held that the president's inability to fire the CFPB director at will violated the Constitution's separation of powers.

The ruling focused on the structure of the CFPB and left the question of what should happen to past cases to the lower courts.

The Supreme Court offered a clue in Collins.

A majority of the court found that the unconstitutional removal provision protecting the FHFA director did not automatically make his actions unlawful.

Because there was "no constitutional defect" in the way the FHFA director was appointed, there was "no reason" to view his actions "as void," the court said.

Since Seila, defendants have argued that because of the constitutional flaw in the removal provision, Richard Cordray, the CFPB's first director, never had the authority to bring actions against them.

The CFPB says that argument doesn't hold water after Collins, which called a similar argument about FHFA "neither logical nor supported by precedent."

In late June, the CFPB cited the decision to defend its 2017 complaint accusing Navient, the largest student loan servicer in the U.S., of "systematically and illegally failing borrowers at every stage of repayment."

The CFPB told the 3rd U.S. Circuit Court of Appeals in late June that Collins showed the complaint "was valid when filed and remains valid."


Defendants see it differently.

Navient replied to the court that the CFPB has already conceded in cases against it and others that an at-will director had to ratify, or formally approve, cases the agency brought prior to Seila.

The agency can't now argue the actions always have been valid, Navient said in its filing.

On July 12, the 3rd Circuit declined to take up the appeal, allowing the case to go forward in Pennsylvania federal court.

A spokesperson for the CFPB declined to comment. An attorney for Navient, which denies the underlying allegations, did not reply to a request for comment.

Helgi Walker, a partner at Gibson, Dunn & Crutcher who represents All American Check Cashing Inc in a CFPB case, said Collins left "open questions" about retrospective relief in cases challenging unlawfully-protected officials.

The Collins decision envisioned a hypothetical where an agency's past actions could be undone if the president had threatened to fire its director but been blocked by an unconstitutional law.

All American cited that part of Collins to the 5th U.S. Circuit Court of Appeals in early July, urging the court to toss the CFPB's 2016 lawsuit alleging deceptive practices.

The payday lender and check casher said in a letter to the 5th Circuit, that the case was affected by then-President Donald Trump's inability to fire Cordray in 2017.

"The public record amply demonstrates that President Trump desired to remove Director Cordray but was impeded by the for-cause removal provision," All American said in its filing.

Former acting director Mick Mulvaney and former director Kathy Kraninger, both put in place by Trump, later ratified the action against All American.

But the company argues the ratifications came after the statute of limitations had run out on the CFPB's claims.

The 5th Circuit agreed last year to rehear the case en banc.

Christopher Willis, co-leader of Ballard Spahr's consumer financial services practice group has been watching the issue play out in various cases. He said that after Collins, "it looks like the writing is on the wall."

"The effort to set aside things because they occurred during that time period is not likely to succeed," he said.

Read more:

Biden ousts housing finance chief after U.S. Supreme Court ruling IN BRIEF: 5th Circuit rules for CFPB as SCOTUS weighs viability

Navient fights CFPB lawsuit over student loan servicing

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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