Consumer Financial Protection Bureau building in Washington, D.C.
Consumer Financial Protection Bureau building in Washington, D.C. (Photo: Diego M. Radzinschi / NLJ)

A lawsuit in North Dakota federal district court could provide an early test of the reach of a federal appeals court decision that confronted what the judges called the “massive, unchecked power” of the Consumer Financial Protection Bureau.

In June, the CFPB sued payment processor Intercept Corp., alleging the company and two of its executives allowed clients to make unauthorized and illegal withdrawals from consumers’ accounts. The CFPB’s complaint in U.S. District Court for North Dakota alleged Intercept ignored red flags—such as warnings from banks and complaints from consumers—and “knew or consciously avoided knowing that many of the transactions initiated by those companies were fraudulent or illegal.”

Lawyers for Intercept seized on a Washington federal appeals court ruling last week that struck down as unconstitutional the structure of the CFPB. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled that too much power was vested in the CFPB’s director, Richard Cordray, whom Judge Brett Kavanaugh described as “the single most powerful official in the entire U.S. government, other than the president.”

The D.C. Circuit decision wiped out a $109 million fine against the mortgage loan provider PHH Corp. and cost Cordray some measure of job security. The appeals court said the president could remove the agency’s director at will rather than only “for cause.”

The appeals panel expressly declined to address whether its ruling would affect earlier CFPB enforcement actions. The court sent the PHH case back to the agency for further review.

Intercept’s defense team alerted the North Dakota court to the D.C. Circuit action in the hope the local judge finds it persuasive and dismisses the CFPB’s case. The ruling in Washington does not dictate the outcome in North Dakota.

The consumer bureau responded on Oct. 14, strongly signaling that the agency will challenge the D.C. Circuit ruling.

The panel’s decision “announced a new constitutional rule that agencies must be structured as multimember commissions if their heads are removable only ‘for cause’ rather than at the will of the president,” CFPB lawyers wrote in their court filing.

“The panel decision was wrongly decided and is not likely to withstand further review,” CFPB lawyers added. “Nor would the PHH decision control the outcome of this motion in any event. This court is, of course, not bound by the decisions of an appellate court outside of the Eighth Circuit.”

Intercept, represented by Pepper Hamilton in Philadelphia and the Fargo, North Dakota-based firm Anderson, Bottrell, Sanden & Thompson, argued the decision supported its push to dismiss the CFPB’s case.

“The Court of Appeals found in favor of PHH in every possible respect and, critically for the purposes of the present litigation, ruled that the structure of the Bureau violates Article II of the U.S. Constitution by lodging ‘massive, unchecked power’ in the director,” wrote Anderson Bottrell attorney Michael Andrews.

Read more:

D.C. Circuit Strikes ‘Massive, Unchecked Power’ of Consumer Bureau Director

The Consequences of the D.C. Circuit’s CFPB Smackdown

Little-Discussed Aspect of CFPB Ruling Could Be Boon to Lawyers

Questions Lurk Over Navy Federal and CFPB