On June 21, 2018, U.S. District Judge Loretta A. Preska (S.D.N.Y.) ruled that the structure of the Bureau of Consumer Financial Protection (the “Bureau”) was unconstitutional and, therefore, the Bureau lacked authority to bring claims under the Consumer Financial Protection Act (“CFPA”). The ruling rejected the D.C. Circuit’s en banc opinion in PHH that upheld the Bureau’s constitutionality. If the decision is appealed to the Second Circuit and affirmed in whole or in part on the constitutional issue, it could create a circuit split that paves the way for the Supreme Court to rule on the constitutionality of the Bureau.

In rejecting the PHH en banc opinion, Judge Preska adopted portions of Judge Kavanaugh’s dissent, which concluded that the Bureau “is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director,” and because the single director is protected by the CFPA’s for-cause removal provision. But Judge Preska’s ruling went further than this dissent—which would have invalidated only the for-cause removal provision in the CFPA—and held that, because the for-cause removal provision “is at the heart” of Title X of the Dodd-Frank Act, Title X should be struck in its entirety. In reaching this conclusion, Judge Preska adopted a portion of Judge Henderson’s dissent in PHH, which concluded that the presumption of severability was rebutted and did not apply. As a result of this reasoning, Judge Preska found that the Bureau “lack[ed] authority to bring this enforcement action because its composition violates the Constitution’s separation of powers,” and dismissed the Bureau from the action and the Bureau’s claims.

Although the Bureau is no longer a party to the lawsuit, the case will continue. The Bureau had joined with the N.Y. attorney general to bring this action for alleged scams by RD Legal and related entities that targeted NFL concussion victims and 9/11 first responders. Judge Preska denied the defendants’ motion to dismiss on the grounds that the N.Y. attorney general had independent authority to bring claims under the CFPA and New York law.