Structured settlement company argues CFPB shouldn’t bring action against it in light of D.C. Circuit ruling

By Jessica Karmasek | Jan 24, 2017

WASHINGTON (Legal Newsline) - A structured settlement company is suing the Consumer Financial Protection Bureau, arguing it should not face enforcement action by the bureau given that a federal appeals court has found the agency is unconstitutionally structured.

The company, listed on the complaint as John Doe Company, filed the lawsuit against the CFPB and Director Richard Cordray in the U.S. District Court for the District of Columbia Jan. 10.

The unnamed company filed the suit care of attorney Christopher W. Jones with North Carolina-based Womble Carlyle Sandridge & Rice LLP -- considered one of the largest business law firms in the mid-Atlantic and Southeast.

“This is an action to prevent the Bureau from imposing irreparable harm on Plaintiff unless and until the Bureau is subject to the checks and balances required by the U.S. Constitution’s separation of powers,” the company wrote in its 20-page complaint.

The company, whose principal place of business is in Manila, Philippines, is in the business of purchasing and selling the right to certain income streams.

“Plaintiff purchases income streams from individuals who are entitled to receive periodic payments from a pension or similar source and who wish to sell a portion of the income stream derived from those payments. Plaintiff purchases those income streams at a discount, which reflects both the time value of money and the risk of non-payment. The existence and size of that discount are clearly and conspicuously disclosed to the seller,” according to the company’s complaint.

“Plaintiff sells income streams to individuals who wish to buy the right to receive a monthly income stream for a fixed period, usually five or ten years.”

According to the U.S. Securities and Exchange Commission, such pension purchasing or structured settlement companies, after acquiring the rights to a future income stream -- such as a retiree’s pension payments -- may turn around and sell these income streams to retail investors, often through a financial advisor, broker or insurance agent. The SEC says these companies are sometimes referred to as “factoring companies.”

The National Structured Settlements Trade Association notes that structured settlement companies are different than settlement factoring companies.

“Companies that help to negotiate and implement structured settlements are commonly referred to as structured settlement brokers or structured settlement companies,” explained Eric Vaughn, executive director of the NSSTA.

“By contrast, factoring companies (which often call themselves ‘settlement purchasers’) offer to make discounted cash payments to settlement recipients in exchange for their rights to receive future structured settlement payments. Factoring transactions deprive settlement recipients of the security and certainty that structured settlements provide.”

The company, in its complaint, argues the CFPB should not be permitted to take any further action against it, given its unconstitutional structure.

In October, the U.S. Court of Appeals for the District of Columbia Circuit concluded the bureau is “unconstitutionally structured because it is an independent agency headed by a single director.”

In PHH Corporation et al. v. the Consumer Financial Protection Bureau, the D.C. Circuit ruled in favor of lender PHH, throwing out a $109 million penalty that had been imposed on the company.

Before the ruling, the CFPB director, who runs the bureau without a board, could only be removed for cause. With the appeals court’s ruling, the director now serves at the will of the president.

“The D.C. Circuit held that the Bureau could nonetheless continue to function if the President of the United States had ‘the power to supervise and direct the Director of the CFPB, and… remove the Director at will at any time.’ The Court of Appeals determined that it could impose this constitutional fix and ordered that it be put into effect ‘by severing the for-cause removal provision from [12 U.S.C. § 5491(c)(3) (The President may remove the Director for inefficiency, neglect of duty, or malfeasance in office.)],’” the unnamed company wrote in its complaint.

“The Bureau is delaying the implementation of that constitutional remedy.”

On Nov. 18, the CFPB filed a petition for rehearing en banc. Days later, on Nov. 23, the bureau served a civil investigative demand, or CID, on the plaintiff.

In December, the company filed a petition to set aside or modify the CID because, among other reasons, the bureau was unconstitutionally structured when it issued the demand.

On Jan. 6, the CFPB, according to the company’s complaint, informed the plaintiff that Cordray, a former Ohio attorney general, had denied its petition. The bureau added that its decision and the plaintiff’s petition, including the CID, would be made public, on the CFPB’s website, on or after Jan. 13.

“The publication of this request will cause irreparable harm to Plaintiff’s business and accumulated goodwill,” the company wrote in its complaint.

“Plaintiff will suffer further irreparable harm if the Bureau initiates an enforcement action against Plaintiff.”

While the company said it is “confident” that it would ultimately prevail in any action brought against it, it said it has a “constitutionally protected liberty interest in ensuring that the Bureau is subject to checks and balances when wielding its enormous and far-reaching powers.”

“The Constitution requires that the Bureau take no further action against Plaintiff, including publication of Plaintiff's Petition, until the separation of powers violation identified by the D.C. Circuit has been remedied,” the company argues.

The company seeks a declaratory judgment and injunction preventing the CFPB from taking any further action against it until either the President has the power to remove the director at will or the bureau is otherwise brought into compliance with the Constitution.

Earlier this month, according to Troutman Sanders’ Consumer Financial Services Law Monitor blog, 21 Democrats from the U.S. House of Representatives sent a letter to then-President-elect Donald Trump in defense of CFPB Director Cordray, urging Trump not to remove Cordray before his term expires in July 2018.

“While we understand that many powerful special interests would like see Director Cordray leave, we urge you not to bow to their demands to initiate costly, meritless litigation, and we stand ready to oppose any efforts you may make to do so,” the Democrats lawmakers wrote in their Jan. 9 letter.

From Legal Newsline: Reach Jessica Karmasek by email at

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