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Ninth Circuit Finds No Problem With The CFPB’s Single-Director Structure

Posted: May 20, 2019

In Consumer Financial Protection Bureau v. Seila Law LLC, 2019 WL 1985350 (9th Cir. May 6, 2019), the Ninth Circuit followed the earlier decision of the D.C. Circuit in PHH Corp. v. Consumer Financial Protection Bureau, 881 F.3d 75 (D.C. Cir. 2018) (en banc), in holding that the single-director structure of the Consumer Financial Protection Bureau (CFPB) is constitutional. The constitutional challenge was raised by a law firm, Seila Law LLC, that provided debt relief services to consumers. Seila Law received a civil investigative demand (CID) from the CFPB and it refused to comply with it. The CFPB then sued in district court to enforce compliance with the CID and the district court granted it that relief.

On appeal, Seila Law challenged the constitutionality of the CFPB’s single-director structure. This was the same challenge that had been addressed by the D.C. Circuit in the PHH case. The Ninth Circuit found “no need to re-plow the same ground here,” and agreed with the conclusion reached by the majority in PHH that the CFPB’s single-director structure was constitutional. 2019 WL 1985350 at *1.

The Ninth Circuit briefly recounted the reasoning of the majority in PHH, noting that the Supreme Court has ruled in two cases, Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and Morrison v. Olson, 487 U.S. 654 (1988), that the same for-cause removal provision that governs the Federal Trade Commission was constitutional, and that there was no reason why that precedent should not be applied to find that the CFPC’s structure was likewise constitutional. Id. at *2. The Ninth Circuit found that those cases were “controlling” because the “for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to insure that the laws are faithfully executed.” Id.

The Seila Law ruling is consistent with a large number of district court decisions that have dealt with arguments that the CFPB’s single-director structure is unconstitutional. At least ten district courts have concluded that the ruling reached by the majority in the PHH case was the correct result and that the CFPB can proceed to exercise its powers. See Consumer Financial Protection Bureau v. Think Finance, LLC, 2018 WL 3707911 (D. Mont. August 3, 2018) (collecting cases). 

However, one widely-noticed outlier decision has ruled the other way. In Consumer Financial Protection Bureau v. RD Legal Funding, LLC, 332 F. Supp. 3d 729 (S.D.N.Y. 2018), the court found that while the New York Attorney General could enforce the provisions of the Consumer Financial Protection Act (CFPA) in a joint prosecution against the defendant, the CFPB could not because the single-director structure of the CFPB was unconstitutional. After a very brief discussion of the constitutional question, the court stated that it disagreed with the majority in PHH and agreed with the dissent by Judge (now Justice) Kavanaugh, except that she found that his proposed remedy of severing the for-cause removal provision and substituting removal at will by the President was not the correct result. Id. 784. Instead, she agreed with the dissent by Judge Henderson that Title X of the Dodd-Frank Act, the CFPA, should be stricken in its entirety. Id

The RD Legal Funding court did not address in that ruling the conundrum created by the fact that if the CFPA were stricken in its entirety, there would be no basis for either the New York Attorney General or the CFPB to enforce its provisions. In a subsequent amended judgment, the court ruled that the New York Attorney General also could not enforce the CFPA, and dismissed the attorney general’s state law claims for lack of pendent jurisdiction. Order, Consumer Financial Protection Bureau v. RD Legal Funding, LLC, No. 1:17-cv-00890-LAP (S.D.N.Y. Sept. 19, 2018). Four appeals and cross-appeals are pending in the Second Circuit.