In Consumer Financial Protection Bureau v. Navient Corporation, No. 3:17-CV-101, 2017 WL 3380530 (M.D. Pa. August 4, 2017), Judge Mariani rejected constitutional challenges to the CFPB’s structure.
Navient first argues that the CFPB lacks statutory authority to bring an enforcement action without first engaging in rulemaking to declare a specific act or practice unfair, deceptive, or abusive. (Doc. 29 at 12-14). . . Navient argues that until the CFPB uses its rulemaking authority to declare an act or practice unlawful, that act or practice is not unlawful under federal law, and therefore cannot serve as a basis for an enforcement action. This argument fails in light of another section of the Act that plainly declares that “[i]t shall be unlawful for … any covered person or service provider … to engage in any unfair, deceptive, or abusive act or practice.” 12 U.S.C. § 5536(a)(1)(B). Thus, there appears to be no reason why the CFPB cannot base an enforcement action on a violation of this provision of federal law. . . In the end, Navient is unable to point to any clear language in the statutory scheme that requires the CFPB to first engage in rulemaking before bringing an enforcement action for unfair, deceptive, or abusive acts or practices. The plain meaning of the statutory language provides that the CFPB has both the power to engage in rulemaking, 12 U.S.C. §§ 5512(b)(1), 5531(b), and litigation, 12 U.S.C §§ 5531(a), 5564(a), to address unfair, deceptive, or abusive acts or practices. The most harmonious construction of these provisions is that the CFPB may proceed either via rulemaking or an enforcement action.
The District Court rejected the argument that the Defendant could not have been on fair notice of what conduct was unlawful because, essentially, the CFPB could declare any conduct unlawful.
With the issue properly framed, the Third Circuit found that “for civil statutes that regulate economic activities,” such as the FTC Act, “a party lacks fair notice when the relevant standard is ‘so vague as to be no rule or standard at all.’ ” Id. at 250, 255. Stated otherwise, “[f]air notice is satisfied … as long as the company can reasonably foresee that a court could construe its conduct as falling within the meaning of the statute.” Id. at 256. Therefore, in light of Wyndham, Navient’s fair notice argument fails if it was reasonably foreseeable to Navient that a court could construe their alleged conduct as unfair, deceptive, or abusive under the CFP Act. Navient, however, has only advanced arguments as to why it did not have fair notice of the Bureau’s interpretation of the CFP Act. (Doc. 29 at 14-15; Doc. 43 at 5-6). But, as discussed above, the CFPB’s interpretation of whether its allegations constitute unfair, deceptive, or abusive acts or practices is irrelevant to whether Navient had fair notice of the conduct the CFP Act itself proscribes. Stripped of these irrelevant arguments, Navient’s position reduces to its assertion that it complied with the Higher Education Act, the Department of Education’s regulations related to the Higher Education Act, and Navient’s contracts with the Department of Education. (Id.). Nevertheless, even assuming the truth of these assertions, complying with other statutory, regulatory, and contractual obligations does not relieve Navient of its obligation to refrain from committing acts that are unlawful under the CFP Act. Nor does it begin to explain why it was not reasonably foreseeable to Navient that a court could construe the acts or practices alleged in the Complaint as violations of the CFP Act.
Navient argues that the CFPB’s structure improperly interferes with the President’s powers under Article II of the Constitution because it combines the following three characteristics: (1) the agency is headed by a single director who wields executive power; (2) the director is only removable for cause; and (3) the agency is funded outside the normal budgetary process. (Doc. 29 at 15-16).. . . This Court comes to the same conclusion as that reached by our sister district courts, namely that Humphrey’s Executor and Morrison compel the conclusion that the CFPB’s structure does not violate the Constitution. As discussed above, Navient has argued that the combination of three characteristics of the Bureau’s structure render it unconstitutional: (1) the agency is headed by a single director who wields executive power; (2) the director is only removable for cause; and (3) the agency is funded outside the normal budgetary process. (Doc. 29 at 15-16). Although it is not entirely clear whether Navient has argued that this structure violates Article II by impermissibly interfering with the President’s duty to “take Care that the Laws be faithfully executed,” or whether they have argued that it violates the principle of separation of powers by undermining the President’s executive powers—Morrison clearly addressed these as two separate and distinct concerns—this Court is convinced that, under either analysis, the Bureau’s structure is not constitutionally deficient.. . . To the extent that Navient also argues that CFPB’s structure violates the principle of separation of powers, this argument fares no better. As laid out above, this is not a case, and Navient does not so argue, that either the legislative or judicial branch has usurped executive power. Nevertheless, legislation may still violate the principle of separation of powers if it “impermissibly undermines the powers of the Executive Branch, or disrupts the proper balance between the coordinate branches by preventing the Executive Branch from accomplishing its constitutionally assigned functions.” Morrison, 487 U.S. at 695 (internal citations, alterations, and quotations marks omitted). Given this Court’s above analysis and its conclusion that the CFPB’s structure does not impede a president’s ability to execute his or her Article II powers, the Court sees no reason to conclude differently here. In sum, the Court finds that the CFPB’s structure does not violate Article II or the principle of separation of powers in that it does not impede the President’s ability to “take Care that the Laws be faithfully executed.” Accordingly, the Court will deny Navient’s Motion to Dismiss on these grounds. In any event, were this Court, or any other, to find that the CFPB’s structure violates Article II, Dodd-Franks has a severance clause that provides that “[i]f any provision of this Act … or the application of such provision … to any person or circumstance is held to be unconstitutional, the remainder of this Act … and the application of the provisions of such to any person or circumstance shall not be affected thereby.” 12 U.S.C. § 5302. .. . If any of the provisions Navient has identified were to be held unconstitutional and are severed from the CFP Act, the question then presented is how would such a ruling affect the present lawsuit. At oral argument, Navient advocated for the position that, if the CFPB’s structure is unconstitutional, then the Director is acting outside of Executive control and therefore the actions of the Director in bringing the current lawsuit are unauthorized and void. (Oral Arg. Tr., Doc. 55 at 82). As a result, Navient argues that the present lawsuit should be dismissed if any provision is found unconstitutional. (Id. at 82-84). Conversely, the CFPB argued that if the for cause provision was severed, the President, if he did not approve of the current lawsuit, could simply instruct the Director to dismiss the action. (Id. at 94). If the present Director refused, the President could simply remove the Director and replace him with someone who would dismiss the lawsuit. (Id.). This Court views the latter position as the more prudent course of action for two reasons. First, and most importantly, it finds support in the case law. See, e.g., Buckley, 424 U.S. at 142 (according “de facto validity” to the past acts of the Federal Election Commission even though four members of the Commission were appointed in violation of the Appointments Clause); John Doe Co. v. CFPB, 849 F.3d 1129, 1133 (D.C. Cir. 2017) (“[T]he Supreme Court and this court have often accorded validity to past acts of unconstitutionally structured governmental agencies.”). Second, it affords the President the ability to make the determination as to whether or not he or she wishes for the Director to continue with the present litigation. Accordingly, in the event that the Bureau’s structure is found to be unconstitutional and the problematic provisions are severed from the CFP Act, the severance would not affect the CFPB’s ability to maintain the present suit.