We have been following two federal court cases that involve challenges to Director Cordray’s appointment. The California case, CFPB v. Chance Edward Gordon, was filed in summer 2012 by the CFPB against an attorney and his law firm alleging that the defendants duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers. The CFPB charged the defendants with violations of the Consumer Financial Protection Act of 2010 (meaning Title X of Dodd-Frank) and Regulation O, the Mortgage Assistance Relief Services Rule.
In November 2012, the CFPB obtained a preliminary injunction freezing the law firm’s assets and appointing a receiver. As part of their affirmative defenses to the CFPB’s complaint, the defendants had included a challenge to President Obama’s recess appointment of Director Cordray. In February 2013, the defendants also raised that challenge in their opposition to the receiver’s request for payment. However, in its order granting the receiver’s request. the court concluded that “any questions as to the constitutionality of the CFPB’s prosecution of this action should not delay the Court’s consideration of the [receiver's request.]“ The court noted that if it were to eventually determine that the CFPB did not have the authority to institute the action, it “could, presumably, remedy the depletion of the receivership estate by requiring the CFPB to reimburse the receivership estate for the expenses of wrongfully procuring the appointment of the Temporary Receiver.”
In May 2013, both sides filed motions for summary judgment and a hearing on the motions has been set for June 17, 2013. In support of their summary judgment motion, the defendants assert that, based on the reasoning of the D.C. Circuit’s decision in NLRB v. Noel Canning, Richard Cordray was not validly appointed as CFPB Director. They argue that in the absence of a validly-appointed Director, the CFPB has no jurisdiction over non-banks and the CFPB’s action against the defendants is therefore rendered invalid.
Alternatively, the defendants argue that they are not “covered persons” within the meaning of the Dodd-Frank Act because they did not provide a “consumer financial product or service” but instead provided “custom legal products.” The defendants also assert that they did not provide “mortgage assistance relief services” within the meaning of Regulation O because the loan modification services they offered were provided for no compensation. According to the defendants, fees were only charged for pre-litigation, custom legal products. The CFPB has until June 3 to file a response to the defendants’ motion.
The other case we continue to follow is the Washington, D.C. case filed in summer 2012 by State National Bank of Big Spring against the CFPB, the Department of Treasury, Richard Cordray, and a number of other federal officials. The original plaintiffs also included two non-profit organizations in the metropolitan Washington, D.C. area. Since the original complaint was filed, it has been amended twice to also add 11 state Attorneys General as plaintiffs. Pending before the court is the motion to dismiss filed by the CFPB and other defendants. The motion does not address the merits of the plaintiffs’ challenge to Mr. Cordray’s appointment but instead challenges the bank’s standing to bring the lawsuit.