Consumer bureau is ruled unconstitutional by judge

A New York federal judge ruled Thursday that the structure of the Consumer Financial Protection Bureau is unconstitutional and that the watchdog agency should be eliminated.

Senior U.S. District Judge Loretta Preska threw out the bureau’s lawsuit against a New Jersey company that the bureau had accused of scamming former NFL players and Sept. 11, 2001, emergency medical workers out of millions of dollars.

Preska’s ruling contradicts a decision by a U.S. appeals court on the issue this year and increases the likelihood that the bureau’s constitutionality could become fodder for the Supreme Court. Noting that the decision by the U.S. Court of Appeals for the District of Columbia Circuit was not binding in New York, Preska, who was nominated to the bench by President George H.W. Bush in 1992, said she “respectfully” disagreed.

The independent structure of the bureau has long been at the center of a fierce partisan debate over the agency, which was created during the administration of President Barack Obama in response to the global financial crisis. The bureau is ruled by a single director rather than a commission and gets its funding from the Federal Reserve rather than Congress. The bureau’s director also can only be fired for cause by the president, another element of independence.

The bureau’s supporters say these streaks of independence give the agency needed freedom from political and financial pressures. But Republicans and business leaders complain that it has made the bureau a rogue force.

The contradictory court rulings make it more likely that the Supreme Court could ultimately be called on to decide the fate of the agency, legal experts said.

In the New York case, the bureau and the New York attorney general sued RD Legal Finding last year, accusing the company of scamming retired NFL players suffering from brain injuries and 9/11 first responders anticipating money from large settlements. RD Legal contacted the alleged victims after they had been awarded a settlement but before they had received all of it, tricking them into taking out high-interest loans while they waited for their money, according to the lawsuit.

Preska sided with RD Legal Finding and ruled that the bureau does not have standing to pursue its case. “Because the [bureau’s] structure is unconstitutional, it lacks the authority to bring claims” against the company, the ruling says. But the New York attorney general’s office can continue to pursue its claim, Preska said.