9th Circuit Holds CFPB Director Validly Ratified CID Issued While the CFPB’s Structure was Unconstitutional

On December 29, 2020, the U.S. Court of Appeals for the Ninth Circuit issued its decision on remand from the Supreme Court, following the Supreme Court’s holding that the CFPB’s structure was unconstitutional because the leadership of the agency was placed in a single Director who could only be removed for cause.  The Ninth Circuit affirmed the district court opinion enforcing a civil investigative demand (CID) issued by the CFPB, finding that after the Supreme Court’s order, the current CFPB Director, Kathleen Kraninger, had validly ratified the CID.

A law firm that provided debt relief services had challenged a CID issued to it by the CFPB on the basis that the CFPB’s structure was unconstitutional because its Director was only removable for cause.  As WBK previously reported here, the Supreme Court agreed that the CFPB’s structure was unconstitutional, and severed the clause providing that the Director could only be removable for cause.  The Supreme Court remanded the case to the Ninth Circuit, to consider whether the prior Acting Director, Mick Mulvaney, had validly ratified the CID.

However, the Ninth Circuit found that it need not decide whether Acting Director Mulvaney had validly ratified the CID, because after the Supreme Court severed the removable for cause requirement, current CFPB Director Kraninger ratified the CFPB’s decisions to issue the CID; to deny the law firm’s request to modify or set aside the CID; and to file a motion requesting the district court to enforce the CID.  The ratification was effective and valid because at the time she made the decision, Director Kraninger knew that the President could remove her with or without cause.

The Ninth Circuit rejected the law firm’s argument that the CID could not be enforced because the CFPB lacked the authority to issue the CID when it was first issued, finding that ratification was a valid cure for the constitutional defect.  The Ninth Circuit also rejected the law firm’s argument that the statute of limitations foreclosed the ratification, because the statute of limitations would only be relevant to an enforcement action by the CFPB, and was not a defense to an investigation.