Last week, the CFPB filed its supplemental brief with the Ninth Circuit in Seila Law and its supplemental en banc brief with the Fifth Circuit in All American Check Cashing.  The CFPB argues in both briefs that ratification of its actions by both former Acting Director Mulvaney and Director Kraninger cured any initial constitutional deficiency.

Seila Law.  In its Seila Law decision, after ruling that the CFPB’s structure was unconstitutional because its Director could only be removed by the President “for cause,” the U.S. Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s ratification argument.  Because it had ruled that the CFPB’s leadership structure was constitutional, the Ninth Circuit had not previously considered the CFPB’s argument that former Acting Director Mulvaney’s ratification of the CID issued to Seila Law cured any constitutional deficiency.  Following the Supreme Court’s Seila Law decision, the CFPB filed a declaration with the Ninth Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to issue the CID, to deny Seila Law’s request to modify or set aside the CID, and to file a petition in federal district court to enforce the CID.

In its supplemental brief, the Bureau argues that the CID should be enforced because a valid ratification cures an initial defect in an agency action, including the filing of an enforcement action, and the CID’s issuance to Seila Law was “formally and expressly ratified by two Bureau officials removable at will by the President.”  In support of its ratification argument, the CFPB cites the Ninth Circuit’s decision in CFPB v. Gordon that involved former Director Cordray’s ratification of the CFPB’s enforcement action against Gordon after his recess appointment was called into question by the U.S. Supreme Court’s Canning decision and he was reappointed and confirmed by the Senate.  The CFPB also cites the D.C. Circuit’s decision in FEC v. Legi-Tech, Inc. that involved the ratification of an enforcement action by the Federal Election Commission after the correction of a constitutional flaw in its membership structure.  (In its supplemental en banc brief filed in All American Check Cashing discussed below, the CFPB also cites Gordon and Legi-Tech in support of its ratification argument.)

The CFPB also asserts that should the Ninth Circuit set aside the CID, its ruling could “depending on the Court’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.  These actions include, for example, regulations governing the nation’s multitrillion-dollar mortgage market.”

All American Check Cashing.  In March 2020 (when Seila Law was still awaiting decision by the Supreme Court), the Fifth Circuit, on its own motion, entered an order vacating the panel’s ruling in All American Check Cashing that the CFPB’s structure was constitutional and granting rehearing en banc.  All American filed its supplemental en banc brief last month.

The underlying case is an enforcement action filed by the CFPB against All American in 2016 in a Mississippi federal district court for alleged violations of the CFPA’s UDAAP prohibition.  In March 2018, the district court denied All American’s motion for judgment on the pleadings based on the Bureau’s unconstitutionality and ruled that the CFPB’s structure was constitutional.  In opposing All American’s motion to certify the case for interlocutory appeal, the CFPB argued that a notice of ratification of the action by former Acting Director Mulvaney cured any constitutional defect and mooted the constitutional issue.  The district court did not rule on the CFPB’s ratification argument and in March 2018 granted All American’s motion for interlocutory appeal which the Fifth Circuit agreed to hear.  In July 2020, following the Supreme Court’s Seila Law decision, the CFPB filed a declaration with the Fifth Circuit in which Director Kraninger stated that she had ratified the Bureau’s enforcement action against All American.

In its supplemental en banc brief, the CFPB makes the following principal arguments:

• Because a valid ratification cures an initial defect in an agency action, the CFPB’s constitutional deficiency and any purported injury suffered by All American as a result of such deficiency was cured by the ratification of the enforcement action by both Acting Director Mulvaney and Director Kraninger.
• In response to All American’s argument that the Bureau had no authority to bring the enforcement action at the time it was filed because of its unconstitutionality, the Bureau argues that the CFPA’s removal provision did not affect the operation of the remainder of the CFPA, including the CFPA provisions that authorize the Bureau to bring enforcement actions.
• In response to All American’s argument that Director Kraninger’s purported ratification was ineffective because it occurred after the expiration of the relevant 3-year CFPA statute of limitations, the Bureau argues that (1) only the date on which it filed the enforcement action is relevant for whether the SOL had run, and (2) even if the SOL had run by the date of Director Kraninger’s ratification, it should be equitably tolled because the Bureau pursued its rights diligently by filing its lawsuit in 2016.
• In response to All American’s argument that an action taken by a structurally defective agency cannot be ratified, the CFPB argues that dismissal of the enforcement action after its ratification by both Acting Director Mulvaney and Director Kraninger (both removable by the President at will) would erode Presidential authority and, if ratification is not permitted, major regulatory disruption would result.
• In response to All American’s argument that the Bureau lacked standing to file the enforcement action, the Bureau argues that an Article II violation does not implicate the limits on a federal court’s powers in Article III.
• In response to All American’s argument that the CFPB’s prosecution of the enforcement action after the Supreme Court’s Seila Law decision remains unconstitutional because the Bureau’s funding structure violates the U.S. Constitution’s Appropriations Clause in Article I, the Bureau argues that its funding is not unconstitutionally shielded from Congress because (1) Congress exercised its power under the Appropriations Clause when it enacted the CFPA provision authorizing the Bureau to obtain a capped amount of funding annually from the Federal Reserve, and (2) Congress, at any time, could change the source of the Bureau’s funding or eliminate the Bureau’s funding entirely.