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High Court Ruling Leaves CFPB Enforcement Actions in Doubt

June 30, 2020, 9:31 AM

The U.S. Supreme Court may have settled questions about the Consumer Financial Protection Bureau’s future, but it may have opened up even more questions about the agency’s past actions.

The 5-4 decision in Seila Law v. CFPB cleared up constitutional questions that have been hanging over the bureau since its creation by the 2010 Dodd-Frank Act by removing termination protections for the CFPB director and making the position an at-will employee of the president. What’s less certain is the validity of CFPB actions taken under the old leadership structure— a protected director leading an independently funded agency— which the high court said was unconstitutional in Monday’s ruling.

With that uncertainty is likely to come a flood of lawsuits from industry to challenge ongoing enforcement actions and regulations, Joann Needleman, the leader of Clark Hill PLC’s Consumer Financial Services Regulatory and Compliance Group.

“I don’t think we go forward saying, ‘okay, the bureau’s fine’. There are a lot of questions about the bureau,” she said .

The justices remanded a question over whether the civil investigative demand at the heart of Seila Law’s challenge to the CFPB’s structure could be enforced to the U.S. Court of Appeals for the Ninth Circuit. The appellate court will have to determine whether the bureau’s subpoena for documents from the debt collection law firm —first issued under the Obama administration’s CFPB director, Richard Cordray, and later backed by Trump-era directors—was properly ratified.

Ratification is when the head of a regulatory agency goes back and unilaterally affirms all decisions undertaken by leadership during a time when that leadership was in dispute.

The Supreme Court may have “opened Pandora’s box” that could allow companies to nullify enforcement actions and even regulations from when the CFPB was constitutionally defective, said Eric Mogilnicki, a partner at Covington & Burling LLP.

Been There, Done That

Ratification questions are not new at the CFPB.

After Cordray officially won Senate confirmation to lead the CFPB in July 2013, he went back and ratified all decisions—including enforcement actions, civil investigative demands and regulations—from the prior year when he served as the bureau’s acting director.

The CFPB’s current Trump-appointed director, Kathleen Kraninger, will likely have to do the same thing following the Supreme Court’s ruling, said Lucy Morris, a former deputy CFPB enforcement director. Kraninger has been CFPB director since winning Senate confirmation in December 2018.

If Kraninger doesn’t move swiftly to ratify past actions, companies could run to court seeking to overturn them on the grounds that the CFPB was unconstitutional at the time decisions were made, she said.

“Past actions, and more importantly pending actions, are in doubt,” said Morris, now a partner at Hudson Cook LLP.

The CFPB didn’t respond to a request for comment.

Weighing Options

Companies facing CFPB investigations or other actions are already considering their options.

Needleman said she intends to confer with her clients, including many in the debt collection industry, about an “appropriate” course of action, including “whether current enforcement actions should be dismissed.”

Kraninger could choose only to ratify Trump-era CFPB actions while leaving those taken under Cordray’s watch for the courts to decide. That would set the stage for “an onslaught of litigation” over established rules like the CFPB’s qualified mortgage and mortgage servicing regulations that the current leadership may not want to have, said Anthony Alexis, a former CFPB enforcement director and a partner at Goodwin Procter LLP.

Even if the CFPB were to validate Cordray-era decisions, companies may still have some success arguing that Cordray’s actions should not be maintained, said Vaishali Rao, a partner at Hinshaw & Culbertson LLP.

CFPB regulations and enforcement actions under Kraninger, including new proposals on debt collection or payday lending, would likely be safer, she said.

“Right now we have a director who is appointed by this president and who is presumably carrying out the prerogatives of this president,” Rao said.

The case is Seila Law LLC v. Consumer Financial Protection Bureau, U.S., 19-7, Opinion 6/29/20

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editor responsible for this story: Michael Ferullo at; Roger Yu at