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What Newest BCFP Constitutionality Ruling Means For Agency Going Forward

Another judge has come out and said she thinks the leadership structure of the Bureau of Consumer Financial Protection is unconstitutional. While not exactly a man-bites-dog kind of development, it could set the stage for the Supreme Court to ultimately be asked to weigh in and issue a final thumbs up or thumbs down to a single director running the agency.

Yesterday’s decision by Judge Loretta Preska from the Southern District of New York contradicts a ruling issued earlier this year by the full Court of Appeals for the District of Columbia, which said that the leadership structure was constitutional. The Appeals Court ruling, following an en banc hearing before all of the Court’s judges, overturned a three-judge panel ruling from the same court back in 2016 which made huge waves when it ruled the structure was unconstitutional.

While not likely to have much sway beyond the Southern District of New Work, which could use Judge Preska’s rulings to determine whether the BCFP’s rulings are applicable in that District, the split could ultimately mean a Supreme Court challenge to the resolve the issue is on the horizon, according to a published report. Judge Preska went as far as saying she would strike the section of the Dodd-Frank Wall Street Reform and Consumer Protection Act – the law that created the Bureau – altogether. That could theoretically lead to the abolishment of the Bureau, which goes significantly further than the original Appeals Court ruling which deemed the leadership structure to be unconstitutional, but only recommended changing the law to give the President the power to fire the director of the BCFP for any reason, instead of just being allowed to fire him or her for cause, as is currently written in the statute.

Judge Preska’s ruling was praised by Rep. Jeb Hensarling [R-Texas], the chairman of the House Financial Services Committee.

“Today is a good day for democracy, economic freedom, due process, and the Constitution,” Rep. Hensarling said in a statement. “The District Court for the Southern District of New York has confirmed what House Republicans have said all along, that the Bureau’s structure is unconstitutional.

“By design the Bureau is arguably the most powerful and least accountable Washington bureaucracy in American history—and under then-Director Richard Cordray, it showed. The Bureau infringed on the economic freedoms of consumers, limited their financial choices, increased their costs, and failed to hold managers accountable for widespread discrimination and abuse of its own employees.”

Everyone in the industry is attempting to determine what the ruling means for the BCFP moving forward.

In a statement, [American Bankers Association] President and CEO Rob Nichols noted that the implications of today’s ruling remain unclear, but added that “ABA has long believed that the bureau should be more accountable to Congress and that a five-member, bipartisan commission–as originally envisioned in drafts of the Dodd-Frank Act– would balance the bureau’s needs for independence and accountability, while broadening perspectives on rulemaking and enforcement. Today’s ruling does not alter that view.”

At least one lawyer expects other defendants to use the ruling as grounds for dismissal in cases filed against them by the BCFP. Wrote Richard Gottlieb, the co-chair of the Financial Services Group at Manatt Pehlps & Phillips:

“…look for other defendants outside the D.C. Circuit to cite this case as grounds for similar relief. Given the hostility of the current CFPB leadership to the Bureau’s significant enforcement powers, it is entirely possible that the Bureau will not seek an interlocutory appeal of this ruling.”

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