Banking and Finance Law Daily RD Legal, NY AG continue to parse effects of CFPB constitutionality decision
Friday, August 17, 2018

RD Legal, NY AG continue to parse effects of CFPB constitutionality decision

By Colleen M. Svelnis, J.D.

The U.S. District Court for the Southern District of New York, Consumer Financial Protection Bureau, and New York Attorney General continue to argue over the effects and fallout of the court’s finding that the one-director structure of the Bureau is unconstitutional. Currently at issue is whether the New York Attorney General’s Consumer Financial Protection Act claims can proceed against RD Legal Funding. The NYAG and Consumer Financial Protection Bureau asserted claims against RD Legal Funding for violating state laws and the CFPA in the process of exchanging structured settlements for lump-sum payments. In the course of the case, the U.S. district judge decided that the Bureau’s single-director-removable-only-for-cause structure is unconstitutional, meaning the Bureau has no authority to sue the company.

The judge also decided that the organizational section of the CFPA cannot be severed from the remainder of that Act; as a result, she ruled that the entire CFPA is unconstitutional. However, the judge declined to dismiss the suit in its entirety, saying that the CFPA—which she had said was unconstitutional—allows the New York AG to bring an enforcement suit in federal court (see Banking and Finance Law Daily, June 22, 2018).

Current motions. RD Legal Funding asked the court to dismiss the NYAG’s claims based on the court’s June order (see Banking and Finance Law Daily, Aug. 7, 2018). The CFPB, meanwhile, in an August 10 letter to the court, requested a pre-motion conference for approval to file a Rule 54(b) motion for entry of a final judgment in the case (see Banking and Finance Law Daily, Aug. 14, 2018).

Stay of NY proceedings. In its letter to the district judge dated Aug. 15, 2018, RD Legal stated that it did not oppose the CFPB’s request for partial judgment under Rule 54(b), but suggested that the CFPB’s request implicitly requires that the NYAG's claims should be stayed during the pendency of the appeal. RD Legal believes that because the CFPB’s letter stated that if the NYAG’s CFPA claims proceed the CFPB "will have lost its opportunity to participate in the litigation of those claims." On that basis, RD Legal renewed its request that the proceeding be stayed during the pendency of any appeal to the Court of Appeals for the Second Circuit to avoid the potential for duplicative proceedings. Further, RD Legal also requested that in the event a partial judgment is entered against the CFPB, the remainder of the June 21 order be certified for interlocutory appeal so that "all aspects of the Court's constitutionality ruling," should be addressed in one proceeding.

In its response to RD Legal’s letter, the NYAG’s office pointed out that the Southern District of New York already denied the request of RD Legal for an interlocutory appeal and stated that it opposes RD Legal’s request for certification and any stay of this proceeding.

Clarification from Bureau. The reply from CFPB Enforcement Officer Benjamin Konop, dated Aug. 16, 2018, states that the Bureau "appreciates that the defendants do not oppose the Bureau’s request for judgment under Rule 54(b)," but clarifies that "contrary to the defendants’ assertions, the Bureau has not "implicit[ly]" indicated that the NYAG’s claims should be stayed during the pendency of the Bureau’s appeal." Furthermore, the letter states that, "Given the early stage of the proceedings, permitting the Bureau to pursue an immediate appeal would be sufficient to safeguard the Bureau’s interests if the Court were to deny the stay request. The Bureau therefore takes no position on defendants’ request for a stay."

Attorneys: Benjamin Zachary Konop for the CFPB. Jeffrey M. Hammer (McDermott Will & Emery LLP) and Michael Dietz Roth (Caldwell Leslie & Proctor, PC) for RD Legal Funding LLC, RD Legal Finance, LLC and RD Legal Funding Partners, LP.

Companies: RD Legal Funding LLC; RD Legal Finance, LLC; RD Legal Funding Partners, LP

MainStory: TopStory CFPB DoddFrankAct EnforcementActions NewYorkNews StateBankingLaws

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