District Judge Denies Student Loan Servicer’s Motion to Dismiss, Rules CFPB is Constitutional

Courts Student Lending CFPB Dodd-Frank Litigation UDAAP Single-Director Structure

On August 4, a federal judge in the U.S. District Court for the Middle District of Pennsylvania denied a motion to dismiss brought by a student loan servicer, ruling that the CFPB is constitutional, and that it has the authority to act against companies without first adopting the rules used to define a specific practice as unfair, deceptive, or abusive. Further, the court found that the Bureau’s complaint is “adequately pleaded.” As previously reported in InfoBytes, the CFPB filed a complaint in January of this year, contending that the student loan servicer systematically created obstacles to repayment and cheated many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans.

Citing numerous precedents, including several which have already examined the issue of the CFPB’s constitutionality, the court disposed of several arguments raised by the student loan servicer, finding that:

• There is no merit in the argument that the “CFPB lack[ed] statutory authority to bring an enforcement action without first engaging in rulemaking to declare a specific act or practice unfair, deceptive, or abusive,” because under the provisions of Title X of Dodd-Frank, the CFPB has the authority to declare something as “unlawful” both through rulemaking and litigation.
• The CFPB isn’t outside the bounds of the Constitution, in part because its provision making it difficult for the President to remove the CFPB’s director isn’t any more burdensome than those of other agencies, such as the FTC. By recognizing this, and that the CFPB director “is not insulated by a second layer of tenure and is removable directly by the President,” the court ruled that the “Bureau’s structure is not constitutionally deficient.”
• The funding method utilized by the Bureau has parallels in other federal agencies and does not affect presidential authority, stating that “although the CFPB is funded outside of the appropriations process, Congress has not relinquished all control over the agency’s funding because it remains free to change how the Bureau is funded at any time.” The court therefore found that the President’s constitutional powers have not been curtailed.

The court dismissed the student loan servicer’s assertion that it is unable to “reasonably prepare a response” due to the vague and ambiguous nature of the complaint. Rather, the court argues that the Bureau’s complaint provides enough “multiple specific examples” to warrant a response by way of an answer.