On August 16, a group of passive securitization trusts formed between 2001 and 2007 (the petitioners or trusts) petitioned the U.S. Supreme Court for a writ of certiorari to hear its case against the CFPB on the “unaccountable exercise of executive power to target individual companies.” In their cert petition, the petitioners posed two questions: one on whether enforcement actions should be dismissed based on unconstitutional agency structures; and the other on whether securitization vehicles are covered persons under the CFPA. Specifically, the two questions presented were:
- “When should an enforcement action that is insulated by an agency head unconstitutionally insulated from removal be dismissed to remedy that separation-of-powers violation?
- “Whether passive securitization vehicles used to acquire and pool consumer loans are ‘covered persons’ because they ‘engage in offering or providing a consumer financial product or service’ under the CFPA.”
As background, in September 2014, the CFPB issued a civil investigative demand (CID) to each petitioner seeking information on collections lawsuits brought against student loan borrowers. Three years later, the CFPB brought an enforcement action against the petitioner, ultimately moving for a proposed consent judgment following an agreed upon settlement. The district court, however, denied the proposed consent judgment. The case was initially dismissed following the Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the CFPA’s restrictions on removing the CFPB director were unconstitutional (covered by Orrick Insights here). The CFPB then filed the operative complaint alleging both that the trusts were “covered persons” under the CFPA and that the trusts had violated the CFPA. The district court declined to dismiss the amended complaint, finding both that the trusts were “covered persons” under the CFPA and that an unconstitutional removal restriction does not invalidate agency action taken by a properly appointed agency head, relying on the Supreme Court’s decision in Collins v. Yellen. The appellate court affirmed both holdings, finding that the trusts were “covered persons” and that the trusts were not entitled to relief for actions taken by the CFPB while its director was unconstitutionally insulated from removal.
The petitioners argue that a grant of certiorari is appropriate because lower courts are divided on the interpretation of Collins v. Yellen as to the remedies available to targets of enforcement actions brought by an agency with constitutionally subject removal provisions. Additionally, the petitioners argue that the lower court’s interpretation of the CFPA is incorrect and threatens the stability of securitization markets, justifying a grant of certiorari.
