Consumer Financial Protection Bureau v. RD Legal Funding LLC

Background

The Consumer Financial Protection Bureau (CFPB) and the People of the State of New York, acting through the New York Attorney General, sued RD Legal Funding, LLC; RD Legal Finance, LLC; RD Legal Funding Partners, LP; and Roni Dersovitz. The CFPB alleged that the defendants violated the Consumer Financial Protection Act (CFPA) by presenting cash advances to consumers awaiting settlement or judgment payments as enforceable sales when, in reality, they operated as loans that were void under state law. New York separately asserted related state-law claims.

The CFPB filed the action in February 2017, when Richard Cordray was the agency’s director. Cordray had been properly appointed by the President and confirmed by the Senate, but the CFPA then limited his removal to situations involving cause. The Supreme Court later held that this removal restriction was unconstitutional but severable from the rest of the statute.

After the district court’s earlier dismissal of the CFPB’s claims on constitutional grounds, the Court of Appeals sent the case back for consideration of whether a later ratification by CFPB Director Kathleen Kraninger was valid. Kraninger had ratified the decision to file the lawsuit in July 2020, more than three years after the complaint was filed. The defendants argued that ratification was legally unavailable or untimely and that the original filing was invalid because the CFPB was unconstitutionally structured.

Motion and legal standard

The defendants did not identify a specific provision of Federal Rule of Civil Procedure 12 as the basis for their motion. The court treated it as a motion under Rule 12(b)(6), which asks whether the complaint states a legally sufficient claim. In deciding such a motion, the court accepts the complaint’s material factual allegations as true and asks whether they plausibly support relief.

The motion concerned only Counts I through V, and only insofar as those counts were brought by the CFPB. The New York Attorney General independently asserted those counts, and the court’s ruling did not address the sufficiency of those separate claims.

Court’s analysis

The court relied on the Supreme Court’s decision in Collins v. Yellen. Under the reasoning the court applied, an unconstitutional restriction on an agency head’s removal does not eliminate the agency head’s authority to perform official duties when the agency head was properly appointed. Because Cordray was properly appointed and confirmed, the court held that he had authority to exercise the CFPB’s enforcement powers when the agency filed this action in February 2017.

The court therefore concluded that the original filing was valid and that no later ratification was necessary. It also rejected the defendants’ arguments that Collins should not apply because this was an enforcement action, because Cordray—not an acting director—filed it, or because the case involved a statute-of-limitations issue.

The court separately considered whether the unconstitutional removal restriction caused harm that could support dismissal. It concluded that some connection was required between the removal restriction and the filing or continued prosecution of the action. Even accepting the defendants’ argument that Cordray might have been removed earlier absent the restriction, the court found that it did not follow that a successor would have declined to bring the case. The CFPB’s acting director and later Director Kraninger reaffirmed and continued prosecuting the action. The court therefore found that the removal restriction did not cause the defendants’ claimed injury and that the CFPB’s initial decision was not beyond its legal authority.

Disposition

Judge Loretta A. Preska denied the defendants’ motion to dismiss. The order states that the CFPB possessed authority to bring the enforcement action and that the CFPB’s claims against the defendants may proceed. The parties were directed to confer and report how they proposed to proceed.