Federal Judge Rules Against Consumer Financial Bureau Structure

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A federal judge in New York ruled on Thursday that the structure of the U.S. Consumer Financial Protection Bureau is unconstitutional, forbidding the agency from suing a company that advances money to people awaiting settlement payouts.

The decision by U.S. District Judge Loretta Preska is at odds with a January ruling by the federal appeals court in Washington that upheld the CFPB’s structure.

Preska said the office of New York Attorney General Barbara Underwood, which joined the CFPB in suing New Jersey-based RD Legal Funding LLC, could continue pursuing the case.

The CFPB declined to comment on the ruling. The Attorney General’s office did not immediately respond to requests for comment.

The CFPB, created as part of the 2010 Dodd-Frank financial reform law in an effort to stamp out abusive lending, has been the subject of political battles since U.S. President Donald Trump took office. Under the leadership of Mick Mulvaney, appointed as the agency’s temporary head in November, the CFPB has shelved new regulations and dropped cases against payday lenders.

“We are pleased that court correctly found that the CFPB is unconstitutional as structured, and this underscores that the CFPB never should have brought this action in the first place,” said David Willingham, a lawyer for RD Legal Funding, in a statement.

Court Upholds Consumer Financial Bureau Structure Over Trump, Business Complaints

Preska said she agreed with a dissenting judge in the Washington case, who found it unconstitutional that the agency was headed by a single director who served a five-year term and could be fired by the president only for cause.

The White House announced earlier this month that Trump would appoint Kathy Kraninger, an Office of Management and Budget official, to succeed Mulvaney as head of the CFPB.

(Reporting by Brendan Pierson in New York Editing by Tom Brown)