New York Federal Court Stays CFPB’s Lawsuit Against Indirect Auto Finance Company Pending U.S. Supreme Court Decision in CFPB Funding Case

As discussed here, on January 4, the Consumer Financial Protection Bureau (CFPB) and the New York Attorney General (NY AG) filed a joint complaint in the U.S. District Court for the Southern District of New York against Credit Acceptance Corporation (Credit Acceptance), a major subprime indirect auto finance company. The joint complaint alleges that Credit Acceptance pushed dealers to sell cars with hidden interest costs, include add-on products, and inflate prices. On March 14, Credit Acceptance filed a motion to dismiss the complaint. 

On March 21, Troutman Pepper filed an amicus brief in support of Credit Acceptance on behalf of the American Financial Services Association, the Consumer Bankers Association, and the Chamber of Commerce of the United States. Credit Acceptance’s motion to dismiss and Troutman’s amicus brief pointed out the deficiencies in the complaint and fatal flaws in the plaintiffs’ legal theories, as well as challenging, under the appropriations clause of the U.S. Constitution, the CFPB’s right to use unappropriated funds to bring a lawsuit against Credit Acceptance. This issue is currently pending before the Supreme Court in Community Financial Services Association of America Ltd. (CFSA) v. CFPB (discussed here).

Yesterday, the New York district court entered an order staying the lawsuit pending the Supreme Court’s decision in CFSA v. CFPB. The CFPB and the NY AG had opposed the stay, arguing that the CFSA case did not implicate the NY AG’s ability to pursue all eight causes of action and any concern about discovery specific to non-New York consumers could easily be addressed by the parties. The district court disagreed. 

Among other factors weighing in favor of staying the case, the district court reasoned that if it denied the stay and went on to decide the motion to dismiss, it would need to decide Credit Acceptance’s constitutional challenge to the CFPB’s authority to pass and enforce the laws directly implicated by the three federal claims in the case. “[W]here, as here, a forthcoming decision in another action may dispose of least some of [the plaintiffs’] claims, proceeding with ‘discovery … will serve little or no purpose’ and will not advance interest of judicial economy.” The district court also found that proceeding with premature discovery could be costly and duplicative.

The district court’s decision to stay the lawsuit is especially noteworthy given the Second Circuit’s unanimous decision earlier this year in CFPB v. Law Offices of Crystal Moroney, P.C. (discussed here), where a three-judge panel declined to follow CFSA v. CFPB finding no “support for the Fifth Circuit’s conclusion” that the CFPB’s funding structure is unconstitutional in Supreme Court precedent. Ultimately, the district court correctly recognized that Crystal Moroney does not change its analysis because “the Supreme Court will ultimately decide whether the CFPB’s funding mechanism is unconstitutional.”

The order concluded by directing the parties to file a joint letter updating the district court by the earlier of November 3 or one week after a major decision in the CFSA case.