A lawsuit challenging the constitutionality of the newly established Consumer Financial Protection Bureau has been filed in federal court.
The lawsuit was filed by Morgan Drexen, a Costa Mesa, California, company under CFPB pressure to turn over millions of private consumer information files as part of the agency's controversial consumer surveillance program.
CFPB is currently under fire from Congress for its surveillance program, which is designed to unearth the consumer habits of millions of Americans.
Morgan Drexen, is an administrative support company for hundreds of attorneys around the country, especially bankruptcy attorneys. The company stores millions of secure documents for the attorneys and their clients.
The company asked for an injunction to halt the CFPB, claiming it's activities violate client-attorney privilege.
Morgan Drexen also alleged that CFPB's chartering legislation — the Dodd-Frank Act approved in 2011 — violates the checks and balances established by the U.S. Constitution.
A CFPB spokesman said the agency had no comment on the lawsuit.
CFPB has issued multiple subpoenas to Morgan Drexen in the last year and a half seeking to compel its attorneys to turn over private documents for "tens of thousands" of individuals facing bankruptcy or other economic problems.
Randall K. Miller, an attorney from Venable, LLP who represents Morgan Drexen said CFPB's information program is part of a massive "data mining campaign" that is being reviewed by the oversight and investigations subcommittee of the House Financial Services Committee.
Morgan Drexen also argued that the government has engaged in "abusive practices," including "overreaching demands for, and mining of personal financial information of American citizens."
CFPB has paid three firms $16.2 million since March 2012 to carry out a consumer surveillance program to obtain 10 years of private financial information on five million American consumers, according to documents obtained by the non-profit watchdog group Judicial Watch under the Freedom of Information Act.
On July 9, CFPB acting director Stephen Antonakes described the monitoring program before the House Financial Services Committee. Among other data, he said the agency was seeking about 900 million credit card accounts to monitor consumer behavior.
Other companies have complained about CFPB practices. Last year, Susan Faulkner, vice president of Bank of America, complained about CFPB demands for private consumer documents.
"Do they need the reams and reams and reams of data we're having to provide to them?" she asked the Conference of Consumer Bankers Association in Phoenix, according to PYMTS.com, an online site for the payments industry.
On March 13, 2012, CFPB issued a "Civil Investigative Demand" to the California firm, seeking various categories of information.
The firm says it initially cooperated with the demand and pulled 11.7 million files for the agency. But when the company balked on offering more files, the federal agency threatened to retaliate.
Morgan Drexen's attorneys said the Dodd Frank Act excludes the agency from exercising any authority over attorneys and that the company cannot disclose information that is protected by attorney-client privilege.
CFPB subsequently deposed Morgan Drexen officers including its CEO, sent CIDs to the company's attorneys and affiliated firms, and threatened the company with enforcement action.
The agency sent an April 22, 2013, letter to the firm demanding to know why CFPB "should not take action against Morgan Drexen."
In its filing before the U.S. District Court, Morgan Drexen complained that the Dodd Frank Act denies oversight authority to Congress and the executive branch, with a result that no official entity can tell CFPB what to do with its budget, which is funded through the Federal Reserve System.
The "delegation of unlimited power to CFPB, together with the elimination of the necessary checks and balances of CFPB's exercise of that power, is unconstitutional, must be declared unconstitutional and must be enjoined," the firm claimed in its filing.