The court said the CFPB’s funding structure is constitutional under current 2nd Circuit precedent and the case will proceed with limited discovery.
03/04/2024 3:20 P.M.
3.5 minute read
The U.S. District Court for the Western District of New York has denied United Holding Group’s motion to stay a case on alleged violations of the Fair Debt Collection Practices Act until the Supreme Court issues a decision in Consumer Financial Protection Bureau v. Community Financial Services Association of America Limited (CFSA).
The CFPB filed a complaint against United Holding Group, JTM Capital Management, and their owners, Craig Manseth, Jacob Adamo and Darren Turco, for alleged violations of the Consumer Financial Protection Act and FDCPA in January 2022, ACA International previously reported.
The New York district court denied the defendants’ motion to dismiss the case, prompting them to ask for a stay until the U.S. Supreme Court issues its decision in the CFPB v. CFSA case, which challenges the constitutionality of the bureau’s funding structure.
“The defendants say that because that case raises an issue about whether the CFPB’s funding structure violates the United States Constitution’s Appropriations Clause, it calls into question ‘whether the CFPB may prosecute the present action,’” according to the decision (PDF) on the motion for a stay.
First, the decision notes that “the CFPB’s funding structure clearly is constitutional under current Second Circuit precedent,” based on the outcome of cases such as CFPB v. Law Offices of Crystal Moroney P.C.
Next, district courts in the Second Circuit typically consider five factors in determining whether a case should be stayed:
- The private interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against the prejudice to the plaintiffs if delayed.
- The private interests of and burden on the defendant[s].
- The interests of the courts.
- The interests of persons not parties to the civil litigation.
- The public interest.
The court found the defendants did not meet the burden to prove these factors. The CFPB argued that its interests would be prejudiced if the stay were granted and it would not be able to proceed with discovery and evidence.
According to the CFPB’s arguments, the possible loss of evidence is “a particular concern” because—as alleged in the complaint—the defendants have a record of “changing names and corporate forms to obscure their identities.”
The defendants countered that because the Supreme Court is expected to issue a decision in its case by the end of June, if not earlier, the impact of the delay on discovery would be minimal.
“The [c]ourt finds that while one consideration—the interests of the defendants in avoiding unnecessary litigation costs—weighs in favor of granting a stay, several others counsel against it,” the decision states.
To remedy the debate over discovery, the court is allowing the case to proceed but with limited discovery until the Supreme Court issues its decision in CFSA.
Meanwhile, other actions have been stayed pending the Supreme Court’s decision. In New York, a federal judge stayed a lawsuit on predatory lending claims by the CFPB as well as the New York attorney general.
Meanwhile, several CFPB actions and rules are on hold pending the outcome of this case:
- In August 2023, a federal judge stayed a lawsuit on predatory lending claims by the CFPB as well as New York Attorney General Letitia James against Credit Acceptance Corp. until the Supreme Court issues a decision, ACA previously reported. Another case from James and the CFPB, CFPB v. Moneygram International, Inc., is also on hold until the Supreme Court issues its decision, according to Reuters.
- On the regulation front, a CFPB rule on small business lending data is on hold for a group of banks after they secured an injunction in court, ACA previously reported. In his decision, Judge Randy Crane of the U.S. District for the Southern District of Texas granted the injunction on the grounds that the plaintiffs would likely succeed in their challenge to the CFPB’s rule after the 5th Circuit declared the bureau’s funding structure is unconstitutional, which prompted the Supreme Court case.
- A U.S. district judge serving in the Eastern District of Kentucky granted a plaintiff’s motion for a preliminary injunction (PDF), also effectively putting a halt on the enforcement of CFPB’s Small Business Lending Rule, ACA previously reported.
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