Consumer Finance Insights
August 10, 2017

District Court Rejects Servicer’s Argument that CFPB is Unconstitutional

​On August 4, 2017, the United States District Court for the Middle District of Pennsylvania denied a student loan servicer’s motion to dismiss claims brought against it by the Consumer Financial Protection Bureau (CFPB), rejecting the servicer’s argument that the claims fail because the CFPB is unconstitutional.

In January 2017, the Bureau filed an eleven-count complaint against the servicer, alleging that the servicer violated federal statutes, including the Consumer Financial Protection Act, Fair Debt Collection Practices Act, and Fair Credit Reporting Act, by steering borrowers into more expensive repayment plans.

The servicer argued that the complaint should be dismissed because, among other reasons, the structure of the CFPB is unconstitutional and therefore the CFPB’s director lacked authority to authorize suit against the servicer.  The servicer argued that the CFPB’s structure is unconstitutional because it is headed by a single director; the director is removable only for cause; and the agency is funded outside the normal appropriations process.  In so arguing, the servicer relied on the District Court for the District of Columbia’s decision in PHH v. CFPB, which found that it was unconstitutional for the Bureau to be headed by a single director who was only removable for cause.  The Court of Appeals for the District of Columbia subsequently granted a rehearing en banc and the PHH opinion was vacated; the Court of Appeals has not yet issued its opinion.

The court rejected these arguments, holding that the CFPB’s structure is constitutional.  The court reasoned that the for-cause removal provision is similar to provisions that other courts have upheld for other government agency heads.   The court noted that this determination was in accord with other district courts who have recently considered, and rejected, the same arguments advanced by the servicer.  The court also noted that many other agencies are funded outside the normal appropriations process and are headed by a single individual.  Thus, the court held that the agency’s structure does not violate the constitution, and the case was permitted to proceed.

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