A New York judge on Friday agreed to pause a Consumer Financial Protection Bureau lawsuit against fintech MoneyLion, pending the result of a U.S. Supreme Court case that would decide whether the CFPB’s funding apparatus is constitutional.
The CFPB sued MoneyLion in September 2022 claiming the New York City-based fintech violated the Military Lending Act by imposing illegal and excessive charges on service members and their families.
MoneyLion, which denies the CFPB’s claims, filed a motion in early October requesting the judge pause the case in light of the Supreme Court’s decision to hear a CFPB case challenging the constitutionality of the agency’s funding structure.
In a case brought in 2018 by two payday lender trade groups, Community Financial Services Association of America and the Consumer Service Alliance of Texas, a federal appeals court ruled in October 2022 that because the CFPB receives funds from the Federal Reserve and not Congress, the bureau’s funding apparatus violates the separation-of-powers principles in the U.S. Constitution.
The CFPB has appealed the ruling to the Supreme Court, which heard oral arguments for the case in October.
Meanwhile, MoneyLion, which in July moved to dismiss the CFPB’s case against it, has used the same argument presented by the payday lender groups.
“MoneyLion asserts that this case should be dismissed because the CFPB’s funding structure violates the Appropriations Clause of the U.S. Constitution and the nondelegation doctrine,” the U.S. District Judge John Cronan wrote in his order on Friday.
The CFPB opposed MoneyLion’s request for a pause, claiming a stay would allow MoneyLion to “carry out more violations ... and thereby inflict more injury on consumers,” according to the order.
MoneyLion disputed the agency’s assertion that violations are ongoing, insisting that “the bulk of the allegations ... pertain to allegedly historical conduct,” according to the order. The CFPB noted in an amended complaint that most of the alleged violations ceased in August 2019, MoneyLion argued.
The CFPB expressed concern about the possibility of “spoliation” that would result from a delay to the case.
Cronan, ultimately, decided that the potential delay would not be lengthy, since a decision from the Supreme Court in the CFPB case is expected by late June or early July next year.
“[A]t the core of the appeal pending before the Supreme Court is the constitutional legitimacy of the enforcement authority that the CFPB seeks to wield in this case,” the judge wrote. “Further, the CFPB has not even established that MoneyLion has violated any law, as this case has not proceeded past the motion to dismiss stage.”
Cronan also cited “judicial economy” as a reason for granting the pause.
“Imposing a stay would therefore be the most efficient use of court resources,” he wrote. “[P]roceeding with discovery would ‘serve little or no purpose’ if the Supreme Court’s decision in CFSA has the effect of disposing of this case entirely.”
Within two weeks of the Supreme Court’s decision in CFSA, MoneyLion and the CFPB are required to file a joint status letter with their views as to how the case should proceed, Cronan wrote.
The CFPB has faced a constitutional challenge to its structure before. In 2020, the Supreme Court ruled 5-4 that the agency’s leadership structure was unconstitutional.
That case was brought by a California debt collection law firm, which argued it should not have to comply with a CFPB civil investigative demand because the bureau’s leadership, which could only be removed “for cause,” violated the Constitution’s separation-of-powers rule.