Seila Law Case Final Word on CFPB Constitutionality, Judge Says

The Consumer Financial Protection Bureau’s independent funding mechanism is not a constitutional violation, a New York federal judge ruled.

The U.S. Supreme Court’s June ruling in Seila Law v. CFPB cured all of the constitutional defects at the bureau, including the funding question, Judge Kenneth M. Karas of the U.S. District Court for the Southern District of New York said Tuesday in a case brought by a New York debt collection firm.

The Law Offices of Crystal Moroney P.C. said the Supreme Court ruling, which determined that the president has broad power to fire the CFPB director, didn’t address whether the bureau’s funding through the Federal Reserve violated Congress’s appropriations powers under the U.S. Constitution.

The firm, which is challenging a CFPB investigation, said the bureau’s ability to draw funding from the Fed was unique among federal agencies and thus unconstitutional.

Karas ruled from the bench that there was “really no authority to support this self-funding theory.” He noted that the CFPB is required under the Dodd-Frank Act to get approval from Congress if it requests more than 12% of the Fed’s combined earnings, among other controls on the bureau.

Karas also upheld the CFPB’s civil investigative demand against the New York law firm.

The fight between the Moroney law firm and the CFPB stretches back to June 2017, when the bureau under former Director Richard Cordray demanded documents as part of a sweeping probe into debt collection activities.

Moroney sued the CFPB in December 2019 after the bureau issued a second, nearly identical civil investigative demand against her law firm. The new CID came just days after the bureau, then led by Kathy Kraninger, rescinded the original civil subpoena, according to Moroney’s complaint.

The CFPB filed its own motion to enforce the CID in April.

The case is CFPB v. Law Offices of Crystal Moroney P.C., S.D.N.Y., No. 7:20-cv-03240, opinion and order, 8/18/20