Nicolas G. Keller

SDNY Extends RD Legal Funding Dismissal to the NYAG; CFPB Appeals

By Nicolas G. Keller

new updateOn September 12, 2018, Judge Loretta Preska of the District Court for the Southern District of New York dismissed the New York State Attorney General’s (“NYAG”) suit against RD Legal Funding, LLC, and related entities (collectively, “RD Entities”)[1] for allegedly defrauding individuals awaiting payouts from two separate funds—the September 11th Victim Compensation Fund of 2011 (“VCF”) and the fund arising out of the NFL Concussion Litigation Settlement Agreement (“NFL Fund”).[2] The Court’s ruling demonstrates the potentially far-reaching implications of the ongoing debate over the constitutionality of the CFPB’s structure in terms of not only the CFPB’s enforcement actions but also those of state actors. 

The lawsuit, commenced jointly by the NYAG and the Consumer Financial Protection Bureau (“CFPB”) in February 2017, alleges that the defendants’ transactions with individuals that the defendants characterized as “purchases” or “assignments” of VCF or NFL Fund payouts are substantively high-interest loans.[3] The CFPB and the NYAG assert that the alleged loans are usurious and violate provisions of the Consumer Financial Protection Act (“CFPA”)—also known as Title X of the Dodd-Frank Act—and various New York state fraud and usury laws.[4]

Nearly three months ago, on June 21, the Court dismissed the CFPB from the suit.[5] The gist of the Court’s holding, which we wrote more about here, was that the CFPB’s structure as an independent agency headed by a single director who can be removed by the President only for cause violates separation of powers.[6]  And the Court ruled that the remedy for this constitutional infirmity is to strike the CFPA in its entirety, thereby leaving the CFPB without the authority to bring suit.[7]  The Court also noted that:

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Congress Upends CFPB’s Indirect Auto Lending Guidance, Spares Payday Lending Rule

By Nicolas G. Keller

-On May 21, 2018, President Trump signed into law a resolution disapproving the Consumer Financial Protection Bureau’s (“CFPB”) guidance on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act (“Indirect Auto Lending Guidance” or “Guidance”).  In that Guidance, the CFPB expressed the view that certain indirect auto lenders—that is, lenders that coordinate with dealerships to provide auto loans to consumers—are subject to the Equal Credit Opportunity Act and its anti-discriminatory provisions.[1] 

The CFPB issued the Indirect Auto Lending Guidance in 2013 as a bulletin, not a formal rule, and did not submit it to Congress for review under the Congressional Review Act (“CRA”), which would have allowed Congress sixty days to disapprove the Guidance by simple majority vote in both houses.[2]  However, in March 2017, Senator Patrick Toomey of Pennsylvania requested that the Government Accountability Office (“GAO”) determine whether the Indirect Auto Lending Guidance is a “rule” under the CRA and therefore subject to the disapproval procedures.[3]  In an opinion issued on December 5, 2017, the GAO concluded that the Guidance is indeed a “rule” under the CRA—this was effectively treated as a trigger for the sixty-day clock, enabling Congress to exercise its powers under the CRA even though the Guidance was never submitted to Congress or published in the Federal Register.[4]  In its opinion, the GAO expressed a broad stance on the reach of the CRA over agency guidance, stating that “CRA requirements apply to general statements of policy which, by definition, are not legally binding.”[5]  This holds open the door for the CRA to be used to disapprove agency guidance that is much older than sixty days, as was the case with the Indirect Auto Lending Guidance.

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