WASHINGTON — The Consumer Financial Protection Bureau racked up an impressive track record related to enforcement actions between its formation in 2011 and 2015, winning 122 cases without losing a single one.
But that unblemished record has come to an abrupt end. More companies and individuals are challenging the CFPB's authority, inspired in part by a successful suit by the nonbank mortgage lender PHH Corp. as well as a feeling that the agency has overplayed its hand.
The PHH case represents the first serious constitutional challenge to the bureau's structure. Yet several other cases are now winding their way through the courts, most filed by individuals who were sued by the CFPB and refused to settle.
"It used to be you had to be either really brave or crazy to challenge the CFPB, but now I don't think you have to be either," said Ari Karen, a partner at Offit Kurman. "Now it's not just the outliers anymore. The ground the CFPB was on just a year ago was solid and safe, and now it's become rocky and unclear. "
Ever since the first days of the CFPB's enforcement actions, some small nonbank companies were willing to challenge the agency. Yet they had a difficult time in winning a case or often even a successful motion.
But in recent months, a few cases have gone against the CFPB. Earlier this month, for example, a district court judge dismissed a lawsuit that the CFPB filed against the payment processor Intercept Corp., based in Fargo, N.D., and harshly criticized the bureau for failing to present enough evidence. Those losses have steep consequences for the agency.
"Intercept is gratified that the district court dismissed the CFPB's complaint in its entirety," said Richard Zack, a partner at Pepper Hamilton who represented Intercept. "Intercept has always complied with all applicable laws and industry standards."
In January, Pathfinder Payment Solutions, an independent sales organization based in Columbia, Md., asked a judge to sanction the CFPB, claiming the agency "knowingly exceeded its statutory authority, deliberately disregarded the law and consciously distorted the facts."
"We were collateral damage in their effort to go after a debt collector and the debt collection industry as a whole," said John Da Grosa Smith, an attorney at Smith LLC who represents Pathfinder.
The CFPB declined to comment for this article.
Christopher Peterson, a former special adviser to CFPB Director Richard Cordray and a professor at the S.J. Quinney Collect of Law at the University of Utah, said he could find only four cases that the CFPB has lost, including PHH and Intercept.
In December, a federal district judge dismissed three of the four claims that the CFPB brought against Prime Market Holdings, a Van Nuys, Calif., credit repair company. And last year a federal district judge dismissed a lawsuit brought against the Accrediting Council for Independent Colleges and Schools, an accreditor of for-profit colleges, saying the CFPB lacked the authority to investigate.
"What has been rare are defendants that succeed in winning a case or motion," Peterson said. "This is only a small number of setbacks in comparison to the 150 or so successful actions and $12 billion in consumer restitution."
Roughly 24% of all the CFPB's publicly-announced cases through 2015 were contested by at least one defendant, according to a 59-page study that Peterson published last year in the Tulane Law Review. In all there have been 29 cases in which a defendant contested a public enforcement action, compared with 93 in which the CFPB reached a favorable settlement or prevailed in court.
The study also found that the proportion of cases in which an individual was charged is much higher among contested cases. During a four-year period through 2015, the CFPB charged individuals in 20 out of 29 contested cases, compared with 17 out of 93 settled cases.
Individuals may be less likely to accept settlement offers from the CFPB when the bureau is determined that the individuals pay some portion of restitution, disgorgement or penalties for illegal activity out of their own pocket, Peterson said.
One of the first companies to take on the constitutional question is a small Texas bank not directly supervised by the CFPB. State National Bank of Big Spring alleged Cordray's 2012 recess appointment was unconstitutional. Though the bank's case was dismissed in 2013, it has petitioned the U.S. District Court for the District of Columbia to hold a status conference on its case as part of the rehearing of the full court in the PHH case.
Those challenging the CFPB contend that the bureau wields enormous unchecked power.
Da Grosa Smith took particular umbrage with some of the language the CFPB used to describe how Pathfinder provided debt collectors with "an air of legitimacy."
"The fact that a company provided a debt collector with electricity or a bank account or an office, doesn't that also give them an air of legitimacy?" Da Grosa Smith asked. "So should the CFPB sue the landlord, the utility company and the bank? And if not, what's the difference?"