The Ninth Circuit Court of Appeals recently issued an Order vacating a nearly $8 million judgment won by the Consumer Financial Protection Bureau (CFPB) in its lawsuit against Nationwide Biweekly Administration, Inc. (Nationwide), an Ohio mortgage services company.  The Ninth Circuit remanded the case to the district court for further analysis based on recent rulings related to the constitutionality of the CFPB.

In 2017, a judgment was entered in favor of the CFPB by U.S. District Judge Richard Seeborg, upholding its claims of deceptive marketing and imposing a $7.9 million fine against Nationwide.  Nationwide (and its subsidiary Loan Payment Administration, LLC) have spent the last several years challenging the judgment.  One of the key issues in Nationwide’s appeal has been the CFPB’s authority to pursue its claims, including whether the CFPB is constitutionally funded, with Nationwide arguing that dismissal of the enforcement action is mandated by the CFPB’s unconstitutional funding as well as the U.S. Supreme Court’s opinion in Seila Law v. CFPB (discussed below).In an unpublished and unsigned decision, a three-judge Ninth Circuit panel declined to take a position on these issues, instead leaving them up to the district court to decide.  Specifically, the Ninth Circuit vacated and remanded the judgment to the district court to allow it to “reassess the case under the changed legal landscape since its initial order and opinion.”

Much of the legal landscape in this area of the law has changed significantly in the more than five years since Judge Seeborg ruled for the CFPB.  In 2020, the Supreme Court ruled in Seila Law v. CFPB that the CFPB’s director must be removable at will by the president, striking down a statutory tenure protection that dated back to the creation of the CFPB.  The Supreme Court held that this protection violated the Constitution’s separation of powers.  This decision has created struggles in courts over the validity of past CFPB actions, including lawsuits like the one that the CFPB brought against Nationwide.  In Collins v. Yellen, the Supreme Court created some standards for what challengers would need to show to justify voiding past CFPB actions based on Seila Law

The Ninth Circuit has now held that the survival of Nationwide’s lawsuit will “turn on case-specific factual and legal questions that should be resolved in the first instance by the district court.”  Further, the Court directed Judge Seeborg to “provide further consideration” to Nationwide’s argument that the CFPB’s independent funding authority is unconstitutional and requires dismissal of the suit.

Moreover, the Ninth Circuit, in its decision, noted a circuit split on the issue of CFPB’s funding mechanism, citing CFSA v. CFPB, where the Fifth Circuit held that the CFPB was unconstitutionally funded and invalidated the Payday Loan Rule.  Notably, the CFPB’s petition for cert to the Supreme Court is to be heard and considered at the February 17, 2023 conference. 

The Ninth Circuit’s order also invites the district court to reexamine whether Nationwide should be required to pay restitution in addition to the nearly $8 million fine.  The order references intervening restitution-related decisions including Liu v. U.S. Securities and Exchange Commission, in which the Supreme Court addressed the use of certain enforcement remedies.  Specifically, in response to the CFPB’s cross-appeal, urging the court to reverse the denial of mandatory restitution in the amount of almost $74 million, the panel remanded the matter to consider the effect, if any, of those previous decisions “and whether the CFPB waived its claim to legal restitution by characterizing it only as a form of equitable relief before the district court.”  Moreover, the Court held that the district court may consider other issues raised on appeal and the district court and the parties are “free to reframe the questions as they wish.”