Supreme Court Denies Oral Argument to Republican State AGs Who Argue That the CFPB Funding Mechanism Is Unconstitutional

Troutman Pepper

[co-author: Stephanie Kozol]*

On August 21, the U.S. Supreme Court denied a request by West Virginia Attorney General (AG) Patrick Morrisey and 26 other state AGs to participate in oral arguments in Consumer Financial Protection Bureau (CFPB) et al. v. Community Financial Services Association of America et al., which concerns whether the CFPB’s statutory authorization violates the Constitution’s Appropriations Clause. Morrissey and 26 other predominantly Republican state AGs have submitted an amicus brief arguing that it does. Morrissey is joined by the AGs for Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming.

The CFPB is a product of Congress’s 2010 enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the CFPB as an “independent bureau” within the Federal Reserve System and transferred certain consumer financial protection authorities of several existing agencies to the CFPB.

Republican state AGs had sought 10 minutes of argument time in support of Community Financial Services Association of America Limited and the Consumer Service Alliance of Texas, who largely prevailed before the U.S. Court of Appeals for the Fifth Circuit, which held that Congress, when it enacted the statute providing funding to the CFPB, 12 U.S.C. § 5497, had “abdicate[d] its appropriations power” by granting the CFPB a “self-actualizing, perpetual funding mechanism” and thus vacated a regulation promulgated at a time when the CFPB was receiving such funding, the so-called Payday Lending Rule.

In an amicus brief submitted in support of the CFPB’s petition for writ of certiorari, a group of 22 Democratic AGs argues that the Fifth Circuit erred in finding the CFPB’s funding mechanism unconstitutional, but primarily focused their arguments for reversal on the remedy imposed by that court, which they contend would cause irreparable harm to the states’ efforts to combat consumer fraud and abuse. The Democratic AGs did not seek leave to participate in oral argument.

Why It Matters

The amicus brief by the state AGs demonstrates both the continuing controversy over the CFPB’s exercise of its regulatory powers and the state-level interest in regulating consumer-facing financial services entities.

*Senior Government Relations Manager

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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