On February 1, 2023, the parties completed briefing on the Consumer Financial Protection Bureau’s (“CFPB”) petition for writ of certiorari to the U.S. Supreme Court in the case of Consumer Financial Services Association of America, Limited, v. Consumer Financial Protection Bureau (“CFSA”). The CFPB asks the Supreme Court to review and reverse the October 19, 2022 decision from the U.S. Court of Appeals for the Fifth Circuit in this case concluding that the method in which the CFPB obtains its funding is unconstitutional in violation of the Appropriations Clause of the U.S. Constitution and separation of powers principles. The Fifth Circuit also found that (1) the 2017 CFPB rule limiting the number of withdrawal attempts that a payday lender can make on a consumer’s bank account after the consumer fails to make payment on a loan (the “Payday Lending Rule”) did not violate the Administrative Procedure Act, (2) the fact that the Payday Lending Rule was enacted during a period in which the CFPB’s director removal provisions violated the U.S. Constitution did not itself invalidate the Payday Lending Rule, and (3) Congress did not exceed its delegation powers in conferring broad regulatory and enforcement authority on the CFPB. More information on the Fifth Circuit’s decision can be found here.
What You Need to Know:
- The Consumer Financial Protection Bureau (“CFPB”) is the primary federal agency responsible for regulating the consumer finance industry.
- In Consumer Financial Services Association of America, Limited v. Consumer Financial Protection Bureau, the U.S. Court of Appeals for the Fifth Circuit held that the method in which the CFPB obtains is funding is unconstitutional.
- The CFPB has since filed a petition for writ of certiorari to the U.S. Supreme Court, requesting that the high court take the case and reverse the Fifth Circuit’s decision.
In its petition, the CFPB argues that the Fifth Circuit’s decision that the CFPB obtains its funding through unconstitutional means was incorrect. Specifically, the CFPB takes issue with the Fifth Circuit’s conclusion that the Appropriations Clause does not permit the CFPB to draw funding outside the traditional Congressional appropriations process, and instead from the Federal Reserve—an agency which is itself outside the appropriations process, as it obtains a significant portion of its funding from assessments it requires banks to pay. According to the CFPB, other federal agencies obtain funding through similar channels outside of the appropriations process, including the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency, and have not encountered similar judicial scrutiny. The CFPB argues that those agencies—like itself—have no statutory cap or time limitation on their funding schemes, and therefore, the Fifth Circuit’s interpretation of the CFPB’s funding as novel or unique was deeply flawed. Moreover, the CFPB contends that the Fifth Circuit’s reading of the term “appropriation” was too narrow and does not recognize that a federal agency can obtain its funding pursuant to federal statute authorizing funding, rather than exclusively through a formal “appropriation.” The CFPB further argues that there is no “double-insulation” from Congress for the CFPB as a result of its obtaining funds through the Federal Reserve, because the Federal Reserve has no control over how the CFPB uses those funds. As the CFPB argues: “That ministerial role in no way insulates the CFPB from congressional control.”
The CFPB also contends that the Fifth Circuit’s chosen remedy for the allegedly unconstitutional funding scheme was misguided. Namely, the Fifth Circuit held that because the CFPB draws its funding through unconstitutional means, certain rules enacted and actions taken by the CFPB during the period in which it obtained that funding are necessarily void. The CFPB posits that this conclusion was erroneous as failing to properly apply Supreme Court precedent regarding severability, citing Collins v. Yellen, 141 S. Ct. 1761 (2021). Specifically, the CFPB contends that after finding the CFPB’s funding mechanism unconstitutional, the Fifth Circuit should have severed that provision from the remainder of the Consumer Protection Act (the statute creating the CFPB and dictating its authority and functions), such that the CFPB could continue to obtain funding and carry on its regulatory responsibilities. Finally, the CFPB argues that should the Supreme Court take the case up on certiorari, it should hear it on an expedited basis given the far-reaching effects of the Fifth Circuit’s decision and harm it may cause to consumers. According to the CFPB, any delay in the disposition of the CFPB’s appeal could leave the CFPB without the necessary authority to protect consumers. The CFPB therefore asks that the Supreme Court accept the case on the merits and hold oral argument in its first term of 2023.
On November 21, 2022, CFSA filed its response in opposition to the CFPB’s petition. In its response, CFSA argues that the Fifth Circuit’s decision that the CFPB’s funding structure is unconstitutional was correct, disputing those arguments raised by the CFPB in its petition. Therefore, according to CFSA, there is no need for the Supreme Court to accept the case on certiorari. CFSA also argues, however, that if the Supreme Court does accept the case on the merits, the constitutional avoidance doctrine requires that the Supreme Court not address the constitutional funding issue if there are other means to decide the case. The constitutional avoidance doctrine dictates that “[i]f a case can be decided on either of two grounds, one involving a constitutional question, the other a question of statutory construction or general law, the Court will decide only the latter.” Dep’t of Commerce v. U.S. House of Representatives, 525 U.S. 316, 344 (1999). Thus, “[w]here a party raises both statutory and constitutional arguments in support of a judgment, ordinarily [this Court] first address[es] the statutory argument” because it may be able “to avoid unnecessary resolution of the constitutional issue.” Schweiker v. Hogan, 457 U.S. 569, 585 (1982).
Citing the doctrine, CFSA argues that this case presents an inopportune occasion to address the CFPB’s funding scheme because the Supreme Court is required to only consider the constitutional funding questions after addressing CFSA’s other arguments that the Fifth Circuit rejected, and—as CFSA contends—that the Supreme Court should now accept. Namely, CFSA argues that if the Supreme Court does take the case, it can resolve the appeal in CFSA’s favor without ever needing to address the CFPB’s funding, because (1) the Fifth Circuit’s decision that the unconstitutional CFPB director removal provision in place when the Payday Lending Rule was enacted did not invalidate the Payday Lending Rule altogether was erroneous, and (2) the Fifth Circuit erred in finding that the CFPB had authority to enact the Payday Lending Rule. Finally, CFSA argues that denying the CFPB’s petition for writ of certiorari will allow the CFPB funding issue to further “percolate” among the circuits, thus creating a broader landscape of viewpoints for the Supreme Court to consider when addressing the issue at some point in the future, and that this matter does not require expedited briefing or argument because the CFPB has largely carried on its functions notwithstanding the Fifth Circuit’s decision in CFSA.
On February 1, 2023, the CFPB filed its reply in support of its petition for writ of certiorari.[1] The CFPB first argues that CFSA’s response arguments lack merit, in that text, history, and established precedent dictate that the CFPB’s funding structure is within the range of Appropriations Clause compliance. Second, in counter to CFSA’s contention that the Fifth Circuit rightly determined that the Payday Lending Rule was improperly enacted because it was derived and enforced using monies unconstitutionally obtained, the CFPB argues that the Fifth Circuit did not conduct the proper analytical steps in reaching this inaccurate conclusion. According to the CFPB, the Fifth Circuit bypassed its requirement to determine whether the funding mechanism was severable, and even if it was not severable, whether the improper funding mechanism resulted in harm through the enactment of the Payday Lending Rule. The CFPB posits that had the Fifth Circuit undertaken the correct inquiry, it would not have stricken the Payday Lending Rule as a whole.
The CFPB also disagrees with CFSA’s argument that the Supreme Court is required to abstain from deciding the constitutional funding question before addressing CFSA’s non-constitutional, alternative arguments. Moreover, the CFPB contends that CFSA’s director removal and Payday Lending Rule enactment arguments are non-starters and would not provide a separate basis for affirming the Fifth Circuit’s conclusion that the Payday Lending Rule is invalid. Citing Collins v. Yellen, the CFPB argues that there is no requirement for a court to immediately annul actions undertaken by a federal agency during a period of time where its director was shielded from removal by an unconstitutional removal provision. Rather, the CFPB argues that the court is required to determine whether the removal provision caused harm, an inquiry which the CFPB contends was not properly undertaken and decided by the Fifth Circuit. The CFPB further counters CFSA by arguing that the Payday Lending Rule was well within the purview of the CFPB’s Congressionally derived regulatory and enforcement authority.
With the certiorari petition now fully briefed, the Supreme Court will need to decide whether to grant certiorari and accept the case on the merits. It is expected that the Supreme Court will review the certiorari briefs during its February 2023 conference. Upon review, it is likely that the high court does grant certiorari given the constitutional issues at stake, coupled with the fact that the Fifth Circuit’s decision affects a powerful federal regulatory agency’s ability to carry out its functions.
[1] In the interim, the Supreme Court received two amicus briefs on the certiorari issue, filed by two contingents of states: (1) one petition filed by sixteen states (including West Virginia, Alabama, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia), and (2) one petition filed by twenty-one states (including New York, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington, Wisconsin) and the District of Columbia. Each of these briefs suggest the Supreme Court should accept the CFSA case on its merits and overturn the Fifth Circuit’s decisions.
