TRENTON – Attorney General Gurbir S. Grewal last night joined 23 other state AGs in a brief before the U.S. Supreme Court standing up for the constitutionality of the federal Consumer Financial Protection Bureau (CFPB) and defending other essential consumer protection rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Passed in the wake of the national financial crisis of 2007–08, the Dodd-Frank Act gave the federal government and states powerful tools to help protect consumers from fraud and abusive consumer practices. Among other things, the Act created the CFPB, and it gave the CFPB a measure of political independence by ensuring that its Director could only be removed by the President for cause.
In Seila Law, LLC v. Consumer Financial Protection Bureau, a California law firm brought a case to the U.S. Supreme Court against the CFPB, arguing both that the CFPB’s removal provisions are unconstitutional and that, as a result, the Supreme Court must invalidate a wide array of the Dodd-Frank Act’s consumer protection provisions. Rather than defend the CFPB, the Department of Justice instead filed a brief agreeing that the CFPB’s removal rules are unconstitutional.
The amicus brief, on behalf of 24 AGs, defends the constitutionality of the CFPB and further argues that other provisions of the Dodd-Frank Act must remain effective even if the removal provision is invalidated.
“The federal government has already undermined the Consumer Financial Protection Bureau’s critical work, and now the Administration is siding with private companies who want the Supreme Court to weaken the CFPB even further,” said Attorney General Grewal. “I am proud to stand with 23 other state Attorneys General in fighting for the CFPB’s validity and its independence, and to defend the rest of the Dodd-Frank Act’s pro-consumer provisions. At the same time, of course, I’m as committed as ever to working with Governor Murphy to keep building our state-level CFPB and protecting consumers right here in New Jersey.”
In 2017, the CFPB began an investigation into the California law firm Seila Law for its debt-relief practices. Seila Law sought to block the investigation entirely, arguing that the CFPB is unconstitutional because the CFPB director may only be terminated by the president “for inefficiency, neglect of duty, or malfeasance in office.” According to Seila Law, this for-cause removal provision violates the Constitution’s separation of powers rules. The U.S. District Court for the Central District of California and U.S. Court of Appeals for the Ninth Circuit both rejected Seila Law’s arguments and upheld the constitutionality of the CFPB.
Seilia Law has now appealed to the U.S. Supreme Court, again arguing that the CFPB is unconstitutional and that all of Title X of the Dodd-Frank Act — which includes the provisions that created the CFPB, as well as powerful new tools for state consumer protection enforcement — must be struck down.
Under the Trump Administration, the CFPB changed course from the position of the Obama Administration and now agrees with Seila Law that the for-cause removal provision violates the separation of powers doctrine, although the agency argues that the rest of Title X can survive even if the for-cause removal provision is invalid.
The multi-state brief filed last night argues that the CFPB’s structure is constitutional. In creating the CFPB, Congress sought to establish an “independent bureau” that required continuity and expertise to protect consumer rights in financial markets. In service of that goal, the brief notes, Congress imposed “some modest and familiar restrictions” on removal of the agency’s director. The brief notes that “Congress broke no new ground” in structuring the CFPB as it did, and notes that the structure of the CFPB “mirrors” the structure of other key federal agencies including the Office of Special Counsel, Office of the Comptroller of the Currency, and the Social Security Administration.
The brief goes on to explain that even if the for-cause removal provision is invalid, both the CFPB and the rest of Title X should survive. The brief highlights the many ways that the states have worked cooperatively with the CFPB to root out both fraud and abusive consumer practices in the market, including joint enforcement actions and information sharing. The brief also highlights the various provisions of Title X that are unrelated to the CFPB, but nonetheless give the states powerful tools to combat fraud.
Attorney General Grewal’s efforts to protect the Dodd-Frank Act are in line with the Murphy Administration’s efforts to create a state-level CFPB in New Jersey to stand up on behalf of consumers at a time when the federal government has stood down. In this last year alone, the Attorney General’s Office and its Division of Consumer Affairs have, among other actions:
- Entered into settlements that provided over $650 million in debt relief to nearly 200,000 former students of for-profit schools operated by ITT Tech and Career Education Corp., including over $20 million for about 6,500 New Jerseyans;
- Co-led the negotiation of a $600 million national settlement with credit reporting agency Equifax, stemming from a massive 2017 data breach affecting more than 147 million Americans, which provides up to $425 million in consumer restitution and over $6 million in penalties payable to New Jersey;
- Successfully led a coalition of over 50 state and territorial attorneys general that pushed for the federal government to make it easier for totally and permanently disabled veterans to secure student loan relief;
- Led a multistate coalition opposing the elimination of protections for consumers of payday and other high-risk loans;
- Sued auto dealerships for using predatory practices to target low-income consumers and then repossessing their vehicles when they defaulted on the loans they couldn’t afford; and
- Sued a company that failed to deliver on its money-back guarantees for services to assist vulnerable consumers and their families obtain Medicaid benefits.