As discussed here, on October 19, 2022 the Fifth Circuit Court of Appeals in Community Financial Services Association of America Ltd. (CFSA) v. Consumer Financial Protection Bureau (CFPB) held that the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution. The Fifth Circuit based its decision on the fact that, among other things, the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead, receives funding directly from the Federal Reserve based on a request by the CFPB’s Director.

In response, on November 15, as discussed here, the CFPB filed a petition for a writ of certiorari to the U.S. Supreme Court, requesting not only that the Court hear the case, but also that the Court decide the case on an expedited basis during the current term. Then, on December 15, as discussed here, two groups of state attorneys general, with diametrically opposed positions on the Appropriations Clause issue, filed separate amicus briefs urging the Court to grant the CFPB’s petition and intervene to stave off the “confusion and regulatory chaos” caused by the appellate court’s decision. On January 13, 2023, the CFSA filed its opposition to the CFPB’s petition as well as its own cross-petition for a writ of certiorari on two antecedent questions. As to the two antecedent questions, the CFSA argues the Supreme Court should consider those issues before reaching the Appropriations Clause question.

Highlights From the CFSA Briefs

The CFSA argues that the Fifth Circuit correctly held that “‘Congress’s decision to abdicate its appropriations power’ to the CFPB ‘violates the Constitution[]’ and deprived the [CFPB] of lawfully funded means ‘to promulgate the [Payday Lending] Rule.'” As a result, the Court should deny the CFPB’s cert petition. The CFSA summarily dismisses the CFPB’s request for expedited review because “the judgment below simply vacated a single resolution that has never been in effect” and has not “significantly disrupted the agency’s activities.”

But the primary focus of the CFSA’s briefs is on the two questions it argues the Court should address before even considering the Appropriations Clause question. “[W]hile the Appropriations Clause question may well warrant this Court’s review at some point, it is neither cleanly presented in this case nor ripe for definitive resolution at this time.” Instead, the CFSA argues the Payday Lending Rule should be vacated because: 1) the CFPB Director was unconstitutionally shielded from removal at the time the rule was promulgated; and 2) issuing the Payday Lending Rule exceeded the CFPB’s authority.

First, the CFSA argues the Payday Lending Rule should be vacated because the structure of the CFPB, which insulated the Director from removal by the President, violated Article II. Specifically, “the invalid restriction on the President’s power to remove the CFPB’s head — is what allowed Director Cordray to stay in office and promulgate the [Payday Lending] Rule ten months after President Trump’s inauguration.” While the removal restriction was declared unconstitutional by the Supreme Court’s 2020 decision in Seila Law LLC v. CFPB, the CFSA argues “the [Payday Lending] Rule’s promulgation in 2017 occurred under the ostensible shield of removal protection” and thus should be vacated.

Second, the CFSA argues that the Payday Lending Rule should be vacated because the CFPB exceeded its statutory authority. While Congress permitted the CFPB to issue regulations prohibiting “unfair” and “abusive” practices under the Dodd Frank Act, it imposed a precondition that bars the CFPB from action in situations where consumers are capable of reasonably avoiding substantial injury and protecting their own interests. Here, the CFSA argues consumers can avoid lenders that continue to attempt withdrawals from consumer accounts after attempts are denied for insufficient funds by: 1) declining loans that preauthorize successive withdrawal attempts; 2) funding their accounts before the repayment date; or 3) revoking access to their accounts if they lack the funds.

Going Forward

The CFPB has until January 25 to respond to the CFSA’s cross-petition. The Supreme Court should consider both petitions at its February 17 conference.