Law Firm Loses Challenge To Consumer Financial Protection Bureau’s Demand for Documents

Editor’s Note: This article was originally published on Messer Strickler’s blog and is republished here with permission.

On August 18, 2020, New York federal judge Kenneth Karas upheld the Consumer Financial Protection Bureau's Petition to Enforce Civil Investigative Demand (CID) against a law firm rejecting the firm's constitutional challenges to the agency's investigation and its assertion of attorney-client privilege. The lawsuit, CFPB v. the Law Offices of Crystal Moroney PC, was brought in the U.S. District Court for the Southern District of New York as case No. 7:20-CV-3240. Judge Karas held that the law firm must turn over material to the CFPB, including recordings of calls with debtors, records of disputes and information about its clients.

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"What a long, strange trip it's been," the judge said before issuing findings at the end of a telephonic hearing which lasted over two hours. Rejecting the Moroney firm’s assertion that the mechanism for funding the CFPB was unconstitutional, Judge Karas held that Congress had the legal authority to fund the CFPB through the Federal Reserve. 

Judge Karas also upheld the legality of the CFPB’s civil subpoena despite the fact that it was issued prior to U.S. Supreme Court’s June 29, 2020 ruling in Seila Law LLC v. CFPB that the single-director structure of the Consumer Financial Protection Bureau is unconstitutional.  The judge said that forcing the bureau to go back to the drawing board in its investigation of the firm because of the Supreme Court's ruling on the CFPB’s structure was not necessary and would only delay the CFPB’s fact-finding.

Judge Karas also rejected the firm's contention that the information sought by the CFPB is protected from disclosure pursuant to the attorney-client privilege. He called the CFPB investigation "legitimate" and rejected what he characterized as the firm's "broad" assertion of privilege.

This decision shows that constitutional challenges to the investigatory actions brought by the CFPB will not necessarily receive a warm welcome by federal courts. 

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