CFPB Dodges Challenge to Its Constitutionality

Yesterday, Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia dismissed an action that claimed that the structure of the Consumer Financial Protection Bureau and the enforcement powers granted it violate separation-of-powers principles. The decision, in a case called Morgan Drexen v. CFPB, is here. The dismissal was on procedural grounds that essentially kicked the claims of unconstitutionality to another district court for decision in the context of a CFPB enforcement action.

The case was brought by a company that feared an imminent CFPB enforcement action, as well as one of the company's customers who was not a target. (The company says it provides contract paralegal services, and the customer is an attorney who uses those services.) Shortly after the lawsuit was filed in DC, the CFPB did bring an enforcement action in a federal court in California.

Relying heavily on a 1987 decision of the DC Circuit dismissing Michael Deaver's separation-of-powers challenge to the independent counsel statute, Judge Kollar-Kotelly held that neither injunctive nor declaratory relief on the plaintiffs' constitutional claims would be inappropriate, because the company could raise those claims defensively in the CFPB's action in California. As for the individual plaintiff, Judge Kollar-Kotelly ruled that she lacked standing because she was not a subject of enforcement by the CFPB, and her assertion that she had standing because CFPB's demands for information from the company might have exposed privileged information didn't stand up under the circumstances.


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