CFPB declared unconstitutional, SEC ALJs are officers of the United States, and more in this issue of Consumer Financial Services Practice Digest

3 min

SDNY Judge Declares CFPB to be Unconstitutional

Last week, U.S. District Judge Loretta Preska of the Southern District of New York ruled in CFPB et al. v. RD Legal Funding, LLC that the CFPB is unconstitutionally structured and, thus, lacks the authority to bring claims under the CFPA. Judge Preska's decision has broad implications.

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The CFPB Requests Reconsideration of Payday Rule Order

A legal challenge to the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (the "Payday Rule") issued by the Bureau of Consumer Financial Protection (Bureau) has been stayed. Thus, the compliance date remains unchanged—for now.

As we noted previously, the Bureau is reexamining its recent Payday Rule, which became effective on January 16, 2017, with full compliance required by August 19, 2019. The two trade associations that had challenged the Payday Rule under the APA have since moved (jointly with the Bureau) to (1) stay their litigation and (2) stay the compliance date of the regulation.

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Circuit Split Resolved – SEC ALJs Are "Officers of the United States"

In a long-awaited decision in Raymond J. Lucia v. SEC, the U.S. Supreme Court addressed the question of whether the SEC's ALJs are "Officers of the United States" and thus subject to the Appointments Clause. Holding that SEC ALJs are indeed such "officers," the Court resolved a circuit split that had been ripe for Supreme Court review. Most notable, however, was the narrow approach the Court adopted and the numerous questions it left unanswered.

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Kathleen Kraninger Nominated for CFPB Director

President Donald Trump has selected Kathleen Kraninger for nomination to serve as the next director of the CFPB. Currently, Kraninger serves as the program associate director for general government in the OMB. While at OMB, she also served as the clerk for the Senate Appropriations Subcommittee on Homeland Security, which included overseeing the U.S. Department of Homeland Security budget. Acting Director Mick Mulvaney will remain in place during the confirmation process.

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Money Transmission in the Payment Facilitator Model

The payment facilitator model continues to grow in popularity in the merchant acquiring space as a way to board merchants quickly and with minimal friction. While there are many benefits to this model, payment facilitators and their sponsoring banks and processors should be aware of the potential money transmission risks. This risk is greatest where the payment facilitator participates in the settlement of funds for its sub-merchants—a process that is popular because it provides the payment facilitator with additional control over its sub-merchant relationships. And, as explained below, the risk of unlicensed money transmission also has implications for the sponsor banks and processors that work with payment facilitators.

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Upcoming Events

July 12, 2018: "Vendor Management Integration," a Receivables Management Association Webinar

July 24, 2018: "CFPB/FTC Debt Collection Update," ACA International 2018 Convention