Financial Services Firm Sues CFPB

An unnamed financial services company is suing the Consumer Financial Protection Bureau (CFPB) in the U.S. District Court for the District of Columbia over the CFPB’s exercise of power and the plaintiff’s contention that it is unchecked.

The unnamed company seeks in John Doe Company v. Consumer Financial Protection Bureau (Case 1:17-cv-00049-RC, Jan. 10, 2017) to stop the CFPB from pursuing action against it unless and until the CFPB is subject to the checks and balances the separation of powers under the Constitution requires.

The company buys and sells the right to income streams from individuals who are entitled to receive periodic payments from a pension or similar source and wish to sell a portion of that stream derived from those payments. The CFPB has warned that such pension advances can “eat into” retirement income. The company does not offer or provide credit or financial advisory services, nor the assignment of pensions or pension payments.

An Oct. 11, 2016 ruling, PHH Corp. v. CFPB, 839 F.3d 1, 36 (D.C. Cir. 2016), Court of Appeals for the District of Columbia Circuit, is central to the company’s suit. The court held that the CFPB “is unconstitutionally structured because it is an independent agency headed by a single director.” The court ordered that the provisions of the law governing the CFPB be changed to state that the president may remove its director “at will at any time.”

The company notes that the CFPB itself acknowledges that it has not obeyed the PHH Corp. ruling.

The CFPB on Nov. 18, 2016 petitioned for a rehearing en banc. Five days later the CFPB served a civil investigative demand (CID) on the plaintiff. The company filed a petition to set aside or modify the CID since, it argued, the CFPB was unconstitutionally structured when it issued it. The company also requested that the suit be treated as confidential.

The CFPB denied both requests. The company looks to the court for relief and argues that it will suffer irreparable harm if the CFPB takes action against it. The company further argues that it complies with applicable law and not subject to CFPB jurisdiction. The Constitution requires that the CFPB take no further action against the company, the suit states, until the CFPB addresses the issue that the D.C. Circuit court identified.

The company argues that the CFPB “exercises unreviewable discretion on matters of constitutional import” and that the CFPB’s decision regarding whether or not to take action against the company affects its liberty. In addition, the company says that if its employees and contractors knew about that the CFPB investigation, it would lose employees and service providers it requires in order to perform its business functions, and therefore the CFPB imperils its “very existence.”

The company asks the district court to:

  • declare the CFPB’s current structure unconstitutional;
  • enjoin the CFPB from taking any further action against it, including publication of the company’s petition to set aside or modify the CID or initiation of an enforcement action against it;
  • vacate the CID and the CFPB Director’s Decision and Order on Plaintiff’s Petition;
  • award the company costs and attorneys’ fees pursuant to any applicable statute or authority; and
  • award any other relief the court may deem just and appropriate.

“The Director’s determination that good cause exists to publicly disclose Plaintiff’s Petition, the CID, and the Director’s Decision and Order is therefore arbitrary, capricious, and contrary to law,” argues the company. “As a result,” it says, “the Court should vacate the Bureau’s decision to disclose such documents and enjoin their publication.”

On Feb. 17, U.S. District Judge Rudolph Contreras issued a ruling denying the company’s motion for a temporary restraining order and its motion for a preliminary injunction. However, Contreras granted, in part, the motion for an injunction pending an opportunity to petition the court of appeals for a stay.

Accordingly, Contreras forbade the CFPB through March 3 from directly or indirectly publicly disclosing the identity of Plaintiff John Doe Company, by taking actions including the public filing of either the CID or the Director’s Decision and Order on Plaintiff’s Petition.

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