More Bad News for Proponents of the BCFP: It May be Unconstitutional

It’s been a tough year for proponents of the Bureau of Consumer Financial Protection (BCFP, formerly CFPB).

A judge in the Southern District of New York recently ruled that the structure of the BCFP is unconstitutional (CFPB v. RD Legal Funding, LLC). In 2017, the BCFP filed a lawsuit against RD Legal Funding, a company accused of scamming former NFL players and 9/11 first responders out of millions of dollars. While the immediate effects of the ruling appear limited, it means that the BCFP can’t be a party to the lawsuit.

The court concluded that the BCFP “is unconstitutionally structed because it is an independent agency that exercises substantial executive power and is headed by a single director.” The judge went on to say that she would “strike Title X in its entirety,” a decision that would completely nullify the legitimacy of the agency.

This court decision is contrary to a prior D.C. Court of Appeals ruling in PHH Corp. et al.  v. CFPB, which upheld the constitutionality of Title X of Dodd-Frank and the establishment of the BCFP as an “independent bureau” within the Federal Reserve System.

The independent structure of the BCFP has long been at the center of partisan debate. The agency is governed by a single director rather than a multi-member commission such as the FTC, and gets its funding directly from the Federal Reserve instead of congressional appropriations. Furthermore, the bureau’s director can be fired only for cause, by the president.

Supporters of the agency note that the heightened independence provided by its structure gives the agency freedom from political and financial pressures and allows it to carry out its duties without any strings attached. Republicans and business leaders however, see the BCFP as an unaccountable and rogue force that threatens the free market and democratic values.

Ultimately, this ruling means that the Supreme Court may be called on to decide the fate of the agency.

* Ali Najaf contributed to this post.