The ABA Journal has begun accepting nominations for its ABA Journal Web 100.  The Web 100 honors blogs, law podcasts, and tweeters followed by lawyers.  It replaces the ABA’s Blawg 100 which was limited to the best legal blogs.  Our Consumer Finance Monitor was honored to be recognized by the Blawg 100 for five consecutive years and we would be grateful to be recognized by the Web 100 in 2018.

Our blog, among the first in the legal industry, was launched as the “CFPB Monitor” on July 21, 2011, the same day the CFPB was stood up, because we recognized right from the start that the CFPB was going to have an enormous impact on the consumer financial services industry and the lawyers who counsel members of that industry.  In February 2017, we renamed our blog the “Consumer Finance Monitor,” and expanded its coverage to include the many other federal agencies that regulate our industry as well as relevant state agency and attorney general developments.

We hope our readers not only find our blog to be a place where they can go to get up-to-the-minute reporting on important developments, but also a place where they can find informed analysis that helps them to understand the significance of those developments.

We also believe our blog has been a thought leader for our industry’s perspective on many key issues and has influenced the actions of lawmakers, most notably Congress’s use of the Congressional Review Act to overturn the CFPB’s arbitration rule and its auto finance guidance.  Here are links to some of our blogs on these issues as well as small-dollar lending and the ongoing battle over the CFPB’s constitutionality:

Director Cordray continues to doubt safety and soundness concerns are raised by the final arbitration rule

Treasury Department report eviscerates CFPB arbitration rule

Congress disapproves CFPB Bulletin concerning discretionary pricing by auto dealers

OCC small-dollar lending bulletin: one step forward but one step back?

Will the CFPB appeal Judge Preska’s ruling striking Title X?

If you enjoy following our blog and value the information it provides and its role in influencing the legal debate, we hope you will nominate us for the Web 100 by completing the ABA’s nomination form by Tuesday, August 7, 2018 at 11:59 p.m. CT.  (The ABA refers to nominations as “Web 100 Amici/Friend of the Web briefs.”)  The form will ask you to supply the Consumer Finance Monitor’s URL (which is: and a link to a recent blog post (you can use any of the posts above or another that you liked).

As always, we appreciate your support, and thank you for following Consumer Finance Monitor.



In response to the U.S. Supreme Court’s decision in Lucia v. SEC, President Trump has issued an executive order that changes the process used by federal agencies for administrative law judges (ALJs).

In Lucia, the Supreme Court ruled that administrative law judges (ALJs) used by the SEC are “Officers of the United States” under the Appointments Clause in Article II of the U.S. Constitution because they exercise “significant authority pursuant to the laws of the United States.”  Under the Appointments Clause, the power to appoint “Officers” is vested exclusively in the President, a court of law, or the head of a “Department.”

Currently, federal agencies hire ALJs through a competitive merit-selection process administered by the Office of Personnel Management (OPM).  The Executive Order removes ALJs from the “competitive service,” a federal worker classification that follows the OPM’s hiring rules, and places them into the “excepted service,” a category of federal workers who are subject to a different hiring process, by creating a new excepted service category specifically for ALJs.

Federal regulations provide that appointments of workers who are in the excepted service are to be made “in accordance with such regulations and practices as the head of the agency concerned finds necessary.”  The executive order amends such regulations to provide that for ALJs, such regulations and practices must include the requirement that an ALJ who is other than an incumbent ALJ must be licensed to practice law by a state, the District of Columbia, the Commonwealth of Puerto Rico, or any territorial court established under the U.S. Constitution.

Presumably, to address Lucia’s conclusion that ALJs must be appointed by an agency official who qualifies as the “head of a Department” for purposes of the Appointments Clause, the agency regulations for hiring ALJs issued pursuant to the executive order will provide that a final hiring decision must be made by the agency head rather than a subordinate official.  However, even if ALJs are only hired by agency heads, it is not certain that the heads of all agencies would qualify as the “head of a Department.”

As we have previously observed with regard to the CFPB, the Dodd-Frank Act provided that “[t]here is established in the Federal Reserve System, an independent bureau to be known as the “[BCFP].”  Under U.S. Supreme Court decisions that have addressed the meaning of the term “Department,” it is unclear whether an establishment’s status as an independent agency with a principal officer who is not subordinate to any other executive officer is sufficient to render it a “Department” or whether it must also be self-contained.  While compelling arguments can be made that that the CFPB’s status as an independent agency should be sufficient to render it a “Department,” Congress’ decision to house the CFPB in the Federal Reserve means that the CFPB’s status as a “Department” is not free from doubt.  Similarly, because the OCC is housed in the Treasury Department, there is a question whether the Comptroller would qualify as the “head of a Department.”


As we discuss below, President Trump’s nomination of D.C. Circuit Judge Brett Kavanaugh to serve as a Justice of the U.S. Supreme Court could have significant implications for all federal agencies should Judge Kavanaugh be confirmed.  However, in light of Judge Kavanaugh’s rulings in the PHH case, the implications for the CFPB could be even more consequential.

Judge Kavanaugh was a member of the 3-judge D.C. Circuit panel and the author of the panel’s decision in PHH which held that the CFPB’s single-director-removable-only-for-cause structure violates Article II of the U.S. Constitution.  He also took the same position in his dissent from the en banc majority decision in PHH which held that the structure is constitutional.  In both the panel decision and his dissent from the en banc decision, Judge Kavanaugh concluded that the proper remedy was to sever the for-cause removal provision from the Dodd-Frank Act and thereby allow the CFPB to continue to operate with a Director removable by the President at will (rather than strike Title X of Dodd-Frank in its entirety).

While there is no possibility of PHH reaching the Supreme Court (none of the parties sought certiorari and the CFPB dismissed its administrative proceeding against PHH), there are several other pending cases involving a challenge to the CFPB’s constitutionality that could reach the Supreme Court in the coming years.  Those cases include All American Check Cashing’s interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit of the district court’s ruling upholding the CFPB’s constitutionality which is currently being briefed and a possible appeal to the Second Circuit in the RD Legal Funding case of the district court’s ruling holding that the CFPB’s structure is unconstitutional.

Should Judge Kavanaugh have an opportunity to rule on the question of the CFPB’s constitutionality as a member of the Supreme Court, we would expect him to be a definite vote in favor of a decision that holds that the CFPB’s structure is unconstitutional and severs the for-cause removal provision instead of striking all of Title X.  (Of course, there is also the possibility that this question could become moot if Congress were to change the for-cause removal provision or change the CFPB’s leadership structure to a multi-member commission.)  For that reason, we would also expect Judge Kavanaugh to face a request for him to recuse himself from the litigants who are defending the CFPB’s constitutionality.

In making such a request, the litigants are likely to rely on 28 U.S.C. Section 455 which provides:

(a) Any justice, judge, or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b)  He shall also disqualify himself in the following circumstances:

[(1)-(2) omitted]

(3)   Where he has served in governmental employment and in such capacity participated as counsel, adviser or material witness concerning the proceeding or expressed an opinion concerning the merits of the particular case in controversy;

[(4)-(5) omitted].

The litigants seeking Judge Kavanaugh’s recusal might argue that based on his PHH opinions, he is a “justice” who “has served in governmental employment and in such capacity…expressed an opinion concerning the merits of the particular case in controversy.”

While the phrase “particular case in controversy” arguably is limited to the specific case in which the Justice previously issued an opinion (i.e. PHH), a broader reading is suggested by a memorandum written by Justice Scalia regarding his decision not to recuse himself from a case in which Vice President Cheney was a named party.  That case involved a claim that a government committee had not complied with the Federal Advisory Committee Act (FACA).  According to Justice Scalia, Vice President Cheney’s name appeared in the lawsuit “only because he was the head of [that] Government committee.”

In explaining his decision not to recuse himself, Justice Scalia indicated that his personal friendship with Vice President Cheney did not call his impartiality into question under Section 455(a).  He stated that “while friendship is a ground for recusal of a Justice where the personal fortune or the personal freedom of the friend is at issue, it has traditionally not been a ground for recusal where official action is at issue, no matter how important the official action was to the ambitions or the reputation of the Government officer.”

However, in a footnote, Justice Scalia noted that the public interest group that was seeking his recusal had cited to the Supreme Court’s decision in Public Citizen v. Department of Justice, 491 U. S. 440 (1989), as a prior case in which Justice Scalia had recused himself.  Justice Scalia commented that while that case also involved FACA, as Assistant Attorney General for the Office of Legal Counsel, he had provided an opinion “that addressed the precise question presented in Public Citizen: whether the American Bar Association’s Standing Committee on Federal Judiciary, which provided advice to the President concerning judicial nominees, could be regulated as an ‘advisory committee’ under FACA.”  Judge Scalia stated that he “concluded that [his] withdrawal from the case was required by 28 U. S. C. §455(b)(3), which mandates recusal where the judge ‘has served in governmental employment and in such capacity . . . expressed an opinion concerning the merits of the particular case in controversy.’”  He further stated that, in contrast, “I have never expressed an opinion concerning the merits of the present case.”

Even if the phrase “the merits of the particular case in controversy” is read broadly, it seems doubtful that Section 455 was intended to apply where the prior opinion in question is one that a Justice whose recusal is sought issued as an appellate judge.  A separate provision, 28 U.S.C. Section 47, bars a judge from hearing an appeal in a case only where he or she was the trial judge.  There is no similar express prohibition on a Supreme Court Justice hearing an appeal in a case where he or she was an appellate judge.  It also bears noting that the circumstances involved in Justice Scalia’s recusal from Public Citizen are distinguishable from those that would be presented by Judge Kavanaugh’s recusal in that Justice Scalia had previously expressed his views on FACA in his capacity as a government attorney and not as a judge.  In any event, there is no mechanism for enforcing a Supreme Court Justice’s compliance with 28 U. S. C. Section 455 and Supreme Court Justices do not feel bound by the restrictions that apply to other members of the federal judiciary.

Based on the panel decision in PHH, it appears that Judge Kavanaugh would likely take an unfavorable view of aggressive actions and positions of any federal agency that are not clearly consistent with the agency’s statutory authority.  In the panel decision, Judge Kavanaugh refused to give Chevron deference to the CFPB’s interpretation of RESPA, observing that the statutory language “specifically bars the aggressive interpretation of [RESPA’s referral fee prohibition] advanced by the CFPB in this case.”

The panel decision in PHH also found that the CFPB’s retroactive application of its RESPA interpretation violated the Due Process Clause.  This suggests that Judge Kavanaugh could be favorably disposed to other due process challenges to agency actions or positions.

Three more amicus briefs have been filed in support of All American Check Cashing and the other appellants in their interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit of the district court’s ruling upholding the CFPB’s constitutionality.

The amicus briefs were filed by the following amici:

  • Pacific Legal Foundation, which describes itself as “the most experienced public-interest legal organization defending the constitutional principle of separation of powers in the arena of administrative law.”
  • The Attorneys General of Texas, Arkansas, Georgia, Indiana, Kansas, Louisiana, Michigan, Nebraska, Oklahoma, South Carolina, Tennessee, Utah, and West Virginia, and the Governor of Maine.
  • U.S. Chamber of Commerce

An amicus brief in support of the appellants was previously filed by a group of six “separation of powers scholars.”


RD Legal Funding and the New York Attorney General have filed a joint submission with Judge Preska of the Southern District of New York regarding how they propose to proceed in the CFPB’s and NYAG’s lawsuit against RD Legal Funding.

On June 18, Judge Preska issued an order denying RD Legal Funding’s motion to dismiss the NYAG’s federal UDAAP claims under the CFPA and state law claims but terminating the CFPB’s participation in the case as a consequence of her determination that because the CFPB’s single-director-removable-only-for-cause structure is unconstitutional, the CFPB lacked authority to bring claims under the CFPA.  In Judge Preska’s view, the proper remedy was to strike the CFPA (Title X of Dodd-Frank) in its entirety rather than just sever the for-cause removal provision.  Her June 18 order also set yesterday as the deadline for counsel to advise the court how they intended to proceed.

The joint submission states that the CFPB has indicated to the parties that it has not yet made a decision as to how it will proceed.  Because the case remains active, the CFPB cannot appeal Judge Preska’s decision to the Second Circuit unless she finds that there is no reason to delay that appeal under Rule 54(b) of the Federal Rules of Civil Procedure.

In their joint submission, the NYAG and RD Legal Funding ask the court to set a scheduling conference in September 2018 and describe their positions as follows:

NYAG.  The NYAG indicates that it wants the case to proceed as quickly as possible and would oppose any request by RD Legal Funding for delay, including a request for interlocutory appeal and a stay of the proceeding.  In anticipation of a filing by RD Legal Funding raising jurisdictional issues, the NYAG indicates its belief “that the Court is clear as to jurisdiction in its [June 18 order].”  The NYAG cites Judge Preska’s statements in her June 18 order that the NYAG has “independent authority to bring claims in federal district court under the CFPA, without regard to the constitutionality of the CFPB’s structure” and that “federal question subject matter jurisdiction over the CFPA claims exists regardless of the constitutionality of the CFPB’s structure.”  Also cited is her determination that the court had supplemental jurisdiction over the NYAG’s state law claims because they “arise out of the same common nucleus of operative fact” as the CFPA claims.

RD Legal Funding.   RD Legal Funding contends that the June 18 order “struck each substantive provision of the [CFPA] that forms the basis of federal jurisdiction, which RD Legal will address in a separate filing.”  It also asks the court “to resolve the immediate ambiguity in the CFPB’s position and to prevent potential duplicative proceedings” by first making an express finding that there is “no just reason for delay” and entering judgment against the CFPB only under Rule 54(b) of the Federal Rules of Civil Procedure and then, should the CFPB seek immediate review of the June 18 order, certifying the June 18 order for interlocutory appeal and staying the proceeding during the pendency of the appeal.  RD Legal Funding indicates that should the CFPB not seek immediate review “and the Court permits the NYAG to proceed with claims under the stricken Title X,” it is prepared to litigate in the district court although it “do[es] not believe that would serve the interests of judicial economy.”

We find Judge Preska’s opinion to be self-contradictory.  On the one hand, she denied a motion to dismiss the claims brought by the NYAG against RD Legal Funding.  One of those claims is a federal UDAAP claim brought under Section 1042 of Dodd-Frank.  Section 1042(a) states, in relevant part:

“[T]he attorney general … of any state may bring a civil action in the name of such state in any district court of the United States in that state … to enforce provisions of this title …”

In asserting a federal UDAAP claim under Section 1042, the NYAG relied on Dodd-Frank Section 1031(a) which authorizes the CFPB to “take any actions authorized under Subtitle E [which describes the enforcement powers of the CFPB] to prevent a covered person … from committing and engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

On the other hand, toward the end of the opinion, Judge Preska dismissed the CFPB’s claims against RD Legal Funding and held that the entirety of Title X of Dodd-Frank is unconstitutional and should be stricken.  Title X, of course, includes Sections 1042 and 1031 of Dodd-Frank which are the sections relied upon by the NYAG.

Because of these contradictory rulings, Judge Preska will need to decide whether the NYAG’s claims remain alive.  We would expect Judge Preska to dismiss the NYAG’s Section 1042 claim since Section 1042 provides that a state attorney general opting to use Section 1042 must first consult with the CFPB about his or her intent to file a 1042 claim and that, while the CFPB may not preclude a state attorney general from filing such a lawsuit, the CFPB has the right to intervene in that lawsuit as a party.  This seems to demonstrate Congressional intent not to give a state attorney general the power to use Section 1042 if the CFPB lacks such power.

Judge Preska has already ruled that the CFPB lacks any power under Title X of Dodd-Frank because it was unconstitutionally structured.  If she dismisses the NYAG’s Section 1042 claim as we expect, the NYAG will need to determine whether it wants to appeal such ruling.  Because the NYAG’s state law claims remain viable, the NYAG could only appeal if Judge Preska gives the NYAG permission to file an interlocutory appeal and the Second Circuit agrees to hear the appeal.  If the NYAG decides not to appeal such a ruling, Judge Preska probably should dismiss the case in its entirety for lack of federal subject matter jurisdiction (unless the CFPB asks Judge Preska to enter a final judgment as to its claims so that the CFPB can appeal the constitutionality issue to the Second Circuit.)







CFPB Acting Director Mick Mulvaney announced yesterday that he has selected Brian Johnson, who currently serves as CFPB Principal Policy Director, to serve as Acting Deputy Director.  Before joining the CFPB, Mr. Johnson served as a House Financial Services Committee staff member.

Mr. Johnson’s selection as Acting Deputy Director follows the announcement by Leandra English this past Friday that, in light of President Trump’s nomination of Kathy Kraninger to serve as CFPB Director, she would resign as Deputy Director this week and drop her lawsuit challenging Mr. Mulvaney’s appointment as Acting Director.

The CFPB has issued a new report, “Data Point: Final Student Loan Payments and Broader Household Borrowing,” which looks at repayment patterns for student loans and how borrowers who have repaid their student loans subsequently use credit.  The CFPB’s analysis focuses on borrowers when they first pay off individual student loans.  The report uses data from the Bureau’s Consumer Credit Panel, a nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide credit reporting companies.

Key findings include the following:

  • Most borrowers paying off a student loan do so before the scheduled due date of the final payment, often with a single large final payment.  The median final payment made on a student loan is 55 times larger than the scheduled payment (implying a payoff at least 55 months ahead of schedule), with 94 percent of final payments exceeding the scheduled payment and only 6 percent of loans paid off with the final few payments equal to the scheduled payments.
  • Most borrowers paying off a student loan early also simultaneously reduce their credit card balances and make large payments on their other student loans.  These borrowers are also 31 percent more likely to take out their first mortgage loan in the year following the payoff.  While this evidence shows that early student loan payoffs coincide with increased home purchases, the simultaneous reduction in credit card and other student loan balances suggests that increased wealth or income may influence when borrowers pay off student loans, reduce credit card balances, and purchase homes.
  • Most borrowers who pay off a student loan by making all of the scheduled payments pay down other debts in the months following payoff rather than take on new debt.  Those borrowers with additional student loans put 24 percent and 16 percent of their newly-available funds toward, respectively, paying down their other student loans faster and reducing credit card balances.  Unlike borrowers paying off a student loan early, borrowers paying off on schedule are not more likely to take out a mortgage for the first time.

The CFPB observes that because the results discussed in the report show that repayment of one type of debt directly affects payments and borrowing on other kinds of debt, “policies and products that change repayment terms or balances for one credit product are likely to have spillover effects on  others, either enhancing the intended effects (e.g. payment relief, increased credit access) or leading to compensating shifts (e.g. reallocated payments or borrowing).”  As a result, the CFPB believes that analyzing borrower behavior across all liabilities can improve its understanding of the underlying mechanisms that influence behavior and allow it to more accurately predict the impact of new policies or products on consumers and the overall marketplace.

The CFPB also notes that while its analysis focuses on student loan borrowers who successfully pay off their loans, similar approaches could be applied to struggling student borrowers and might shed light on how borrowers use other credit products to cope with their student debt, how their access to other credit may be inhibited, and how available repayment plans and other programs change these outcomes.

All American Check Cashing and the other appellants have filed their principal brief in their interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit of the district court’s ruling upholding the CFPB’s constitutionality.

The appellants sought the interlocutory appeal after the district court denied their motion for judgment on the pleadings in a lawsuit filed by the CFPB that alleges the appellants engaged in abusive, deceptive, and unfair conduct in connection with making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks.  Citing the D.C. Circuit’s en banc PHH decision, the district court rejected the defendants’ argument that the CFPB is unconstitutional based on its single-director-removable-only-for-cause structure.  It also rejected the defendants’ argument that the CFPB’s UDAAP claims violated due process because the Consumer Financial Protection Act (CFPA) fails to give fair notice of the conduct it proscribes.  Although the appellants had asked the district court to certify for interlocutory review the question of the CFPB’s constitutionality and the question of whether the CFPB’s UDAAP claims violated due process, the district court only agreed to certify the constitutionality question.

In opposing the appellants’ petition to the Fifth Circuit asking it to grant interlocutory review, the CFPB did not directly address the merits of the appellants’ constitutional challenge and instead argued that the issue did not present a “controlling question of law” (one of the requirements for granting an interlocutory appeal in addition to a substantial ground for difference of opinion and that an immediate appeal may materially advance the termination of the case).  The CFPB claimed that  because Acting Director Mulvaney is removable at will by the President and had ratified the CFPB’s decision to bring the lawsuit, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured and the constitutionality of the for-cause removal provision was no longer relevant to the case.

In their principal brief to the Fifth Circuit, the appellants argue that “the CFPB is entirely lacking in any structural accountability to the President or Congress and thus to the people, and is therefore unconstitutional.”  They argue that the CFPB’s single-director-removable-only-for-cause structure, standing alone, violates Article II of the U.S. Constitution and the separation of powers and that the CFPB has other features “that render it even more clearly unconstitutional when combined with its single unaccountable Director.”  Such additional features include the CFPB’s insulation from the regular appropriations process.  The appellants argue that severance of the for-cause removal provision would be an inadequate remedy because it would “inflat[e] the President’s power at the expense of Congress and transform[] the CFPB into something Congress would never have created.”  Accordingly, the appellants contend that the correct remedy is to strike down the CFPA as a whole.

The appellants reject the CFPB’s argument that any constitutional deficiencies were cured by Acting Director Mulvaney’s ratification of the CFPB’s decision to bring the lawsuit against All American Check Cashing.  According to the appellants, structural constitutional violations cannot be cured through ratification and the doctrine of ratification does not apply because the CFPB “itself is and always has been unconstitutionally structured and therefore lacked the authority to initiate this action in the first place.” (emphasis in original).  They further contend that even if the ratification doctrine does apply, the CFPB cannot satisfy its requirements because, among other reasons, the 3-year statute of limitations for bringing CFPB enforcement actions would have run by the time of the alleged ratification.

In support of their argument that the proper remedy is to strike the CFPA rather than sever the for-cause removal provision, the appellants cite the decision issued last month by Judge Preska of the Southern District of New York in RD Legal Funding.  Judge Preska ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and struck Title X of Dodd-Frank in its entirety.  Judge Preska also rejected the CFPB’s argument that Acting Director Mulvaney’s ratification of the RD Legal Funding lawsuit cured any constitutional defects.  (Today is the deadline set by Judge Preska for when counsel must advise the court how they intend to proceed.  Accordingly, we should learn whether the CFPB intends to seek an immediate appeal of Judge Preska’s constitutionality ruling.)

An amicus brief in support of the appellants was filed by a group of six “separation of powers scholars.”  Amici describe themselves as “law professors who teach and write about executive power, administrative law, constitutional law, and the separation of powers.”  In their brief, amici point to constitutional text, structure, and history which they view as providing support for the appellants’ position that the CFPB’s for-cause removal structure is unconstitutional.

As we have previously observed, it is uncertain whether the CFPB will defend its constitutionality before the Fifth Circuit.  It is possible the CFPB will adopt the DOJ’s position in the rehearing en banc of the D.C. Circuit’s PHH decision and agree with the appellants that the CFPB’s for-cause removal structure is unconstitutional but argue that the proper remedy is to only strike the for-cause removal provision rather than the entire CFPA.  (The CFPB, which was then still under the leadership of former Director Cordray, defended its constitutionality.)  Indeed, in their opening brief, the appellants cite to the amicus brief filed by the DOJ in the rehearing en banc of the D.C. Circuit’s PHH decision in which the DOJ agreed with PHH’s position that the CFPB’s structure is unconstitutional.

On the other hand, the Notice of Ratification filed by the CFPB in RD Legal suggests that the CFPB might defend its constitutionality.  Under former Director Cordray’s leadership, the CFPB defended its constitutionality in opposing the defendants’ motion to dismiss.  In the Notice of Ratification, the CFPB asserted that Acting Director Mulvaney’s ” recent ratification has cured any such constitutional defect (even if one even existed—which it does not, as the Bureau explained in its opposition to Defendants’ motion to dismiss).” (emphasis added)



Leandra English, who was appointed CFPB Deputy Director by former Director Cordray before his November 2017 resignation, announced today that she will resign as Deputy Director early next week.  Ms. English indicated that her resignation was prompted by President Trump’s recent nomination of Kathy Kraninger to serve as CFPB Director.

Ms. English’s announcement was accompanied by a statement from her attorney indicating that he will be filing papers on Monday to terminate her lawsuit against President Trump and Acting Director Mulvaney which is now pending before the D.C. Circuit Court of Appeals.  The District Court had previously held that Mr. Mulvaney is the lawful Acting Director.

We have blogged twice (here and here) about the conclusion in RD Legal Funding that Title X of Dodd-Frank is unconstitutional because it provides that the sole director of the CFPB can be removed only for cause.  This post addresses the issue that took up 95 pages of the 101-page opinion—whether RD Legal Funding violated UDAAP and usury laws because purported asset purchases were in fact disguised loans.  Before enforcement authorities or plaintiffs’ attorneys get too excited that the court found against RD Legal Funding on this issue, the unusual facts of the case and the basis for the court’s opinion need to be examined.

RD Legal Funding purchased at a discount, for immediate cash payments, benefits to which consumers were ultimately entitled under the NFL Concussion Litigation Settlement Agreement (the “NFLSA”) and the September 11th Victim Compensation Fund of 2001 (the “VCF”).  In both situations, the court indicated, consistent with the complaint, that the consumer’s right to a benefit and the amount of the benefit had been determined.  The party responsible for payment (the NFL or the U.S. Government) was unquestionably willing and able to make the required payment.  The only question was when payment would be made.  Of course, this scenario differs greatly from the typical situation where a litigation funding company purchases an interest in a claim in ongoing personal injury or other litigation. Indeed, an industry trade group, siding with the CFPB and NY AG against RD Legal Funding, made exactly this point:

The pre-settlement legal funding transactions referenced in ALFA’s amicus curiae brief differ in a crucial respect. (See ALFA Br.)   In those transactions, the pre-settlement legal funding agreements are entered into before the claim is resolved.  The ALFA Member’s right to repayment is contingent on the consumer’s ultimate success on his or her claim. (ALFA Br. 5.)

Opinion at p. 53.

For some reason, the CFPB and NY AG did not argue, and the court did not determine, that the payment of settlement benefits and subsequent payment to RD Legal Funding were assured and, hence, the advances functioned the same as loans.  Accordingly, and because the decision was on a motion to dismiss, where all factual allegations are required to be accepted as true, the RD Legal Funding decision did not address whether benefit payments were certain.

Rather, the decision was based on the court’s determination that the purported benefit assignments in question were void.  In the case of the NFLSA benefits, the underlying settlement agreement expressly provided that any “assignment, or attempt to assign … any rights or claims relating to the subject matter of the Class Action Complaint will be void, invalid, and of no force and effect.” (Opinion at 20).  As to the VCF benefits, the court pointed to three requirements under the federal Anti-Assignment Act, 31 U.S.C. § 3727, for the assignment of claims against the United States.  It then observed that “neither party has argued that the RD Entities complied with the Anti-Assignment Act’s three requirements under Section 3727(b).” (Opinion at 41).  (The court did not address why the assignments to RD Legal Funding could not function as valid assignments of the proceeds of VCF benefits and why such assignments could not be enforced against the VCF beneficiaries.)

After concluding that the assignments before it were void, the court leaped to the conclusion that, as a result, the transactions were necessarily disguised loans.  The basis for this conclusion was never articulated by the court.  Just because the underlying transactions are problematic does not mean that they meet the New York definition of usurious loans.

Remarkably, the decision never addressed the New York (or any other) definition of the term “loan.” It ignored that, for over 150 years, New York courts have declared that “there can be no usury unless the principal sum advanced is repayable absolutely.” Pomeroy v. Ainsworth, 22 Barb. 118 (1856).  Even the NY AG has recognized this principle.  In a February 2005 press release regarding litigation financing reforms, the Attorney General stated:

The cash advances provided by these firms are not considered “loans” under New York State law because there is no absolute obligation by a consumer to repay them. The contracts provide that, in the event the consumer receives no recovery from his or her claim, the consumer owes no money to the cash advance firm.

Maybe in the instant case, if it had confronted the issue, the court would have concluded that the assignments provided the requisite certainty of payment.  In most other cases, however, this certainty will be lacking.

But even putting aside this glaring omission, it is clear that the decision applies to a narrow range of transactions, where the assignments of the underlying claims are void for some reason.  That is not the case when the anticipated proceeds of lawsuit claims are sold on a non-recourse basis.  See Williams v. Ingersoll, 89 N.Y. 508, 518-521 (1882). (binding authority in New York holding that the proceeds of personal injury claims may be assigned).  Critically, “[i]f the assignments are valid … the entire basis of the Government’s jurisdictional theory under the CFPA [that the transactions are loans’ would fall apart.”  (Opinion at 19).