CFPB Dealt Setbacks in Two Important Cases

Last Friday, the U.S. District Court for the District of North Dakota dismissed the U.S. Consumer Financial Protection Bureau’s case against Intercept.

In that case, the agency had alleged that Intercept, a payments processor, had ignored obvious fraud warning signs about its merchants, which it referred to as “red flags.”

The court decided that the CFPB did not adequately back up its allegations about what Intercept should have known.

“The court concluded that the CFPB’s complaint lacked sufficient factual allegations about the particular merchants who provided the ‘red flags’ or how Intercept’s failure to act upon the ‘red flags’ caused harm to consumers,” said attorney Ellen Traupman Berge.

Berge is a partner with Washington, D.C., law firm Venable LLP, where she works with merchants and payments companies. She is also a member of the Merchant Acquirers’ Committee’s Government Relations committee.

The dismissal may not necessarily be the last of this case, she said.

“Notably, the court dismissed the case without prejudice, meaning the CFPB can refile the complaint and attempt to cure the deficiencies identified by the court,” Berge said.

Also on Friday, the U.S. Department of Justice reversed course and filed a new amicus brief opposing the CFPB’s structure in the case known as PHH v. CFPB.

As we have previously reported in PaymentFacilitator.com, a three-judge panel from the U.S. Court of Appeals for the D.C. Circuit ruled the CFPB’s structure unconstitutional in this case last October. At issue is the power of the director, who can only be removed with cause under the agency’s original structure.

The panel’s original decision kept the CFPB intact but gave the president the power to remove the director. The CFPB had asked the full court to rehear the case. The Justice Department under the Obama administration then filed a brief in support of the CFPB. Friday’s brief reverses that position.

“The brief sets forth arguments as to why the president should be able to remove the CFPB director without cause and have a CFPB director who aligns with the president’s policies. Given the Trump Administration’s opposition to the Dodd Frank Act, which created the CFPB, the filing of the brief has not come as a surprise,” Berge said.

The rehearing in the case is scheduled for May 24. According to Berge, a decision is unlikely until later in 2017.

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