By Jeff Sovern, St. John’s University School of Law
Allison blogged earlier about Judge Preska’s decision striking down the CFPB as unconstitutional and I’ve been wondering what it means for consumers. I hope some of our readers will offer their own thoughts in the comments, because I’m still trying to figure this out. As a formal matter, in terms of the binding aspects of res judicata and stare decisis, I don’t think it means much. While Judge Preska would surely dismiss any claims brought by the CFPB that land in her court, her decision does not bind any other district court judge, and so the Bureau could still bring cases before other judges, including other judges in the Southern District of New York (if I recall correctly, the SDNY uses random assignment, so the odds are any cases the CFPB brings would go to another judge). I believe non-mutual issue preclusion doesn’t bind the federal government and in any event, the D.C. Circuit disagreed with Judge Preska’s decision in the PHH case.
But that’s not the end of it. The decision could lend support to courts considering invalidating the Bureau (other court challenges are pending) and inspire other financial services companies to challenge Bureau actions. Some have suggested that the decision increases the likelihood that the Supreme Court will take the issue; I’m not sure because thus far only one circuit court has weighed in, but if the Court wants to hear the case enough, it doesn’t need to wait for a circuit split. Another question is whether the Bureau will appeal. Judging by the position the Trump administration took in the PHH case, it might not.
So what does all this mean for consumers? Judge Preska went further than the PHH panel decision and held that the defects she saw in the Bureau’s structure could not be cured simply by allowing the president to fire the director without cause. If the Supreme Court adopts a similar position, I’m not sure what would happen. Probably the Court would allow Congress some time to amend the statute to address the problem before allowing a decision to take effect. But if not, or if Congress failed to act before any court-imposed deadline passed, I’m not sure what would happen. Maybe responsibility for the Bureau’s inherited regulations would revert to the agencies that had jurisdiction over them before the Dodd-Frank Act (i.e., the agencies that Congress decided didn’t protect consumers adequately in the run-up to the Great Recession), but what would happen to the regulations that the Bureau created? Would the Bureau’s amendments to the inherited regulations be invalid? Who would have enforcement power? It could be chaos.