Community Financial Services Association (CFSA) has filed its brief in opposition to the CFPB’s certiorari petition seeking review of the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB.  In that decision, the panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution and, as a remedy for the constitutional violation, vacated the CFPB’s payday lending rule (Rule).  CFSA also filed a cross-petition for certiorari in which it asks the Supreme Court to review the Fifth Circuit’s rejection of the other grounds on which CFSA claimed the Rule was unlawful.  The CFPB has indicated that it will reply to CFSA’s cross-petition by January 25 and it appears that the CFPB does not intend to file a reply to CFSA’s brief in opposition to its certiorari petition.  The Supreme Court is expected to consider both the CFPB’s certiorari petition and CFSA’s cross-petition at its February 17 conference.

Opposition to certiorari petition  

In its opposition to the CFPB’s certiorari petition, CFSA makes the following principal arguments in support of its position that the Court should deny the petition:

  • As established by legislative history and case law, the role of the Appropriations Clause is to ensure Congressional oversight of federal fiscal matters and restrain the Executive Branch’s exercise of power


  • The CFPB’s funding mechanism nullifies Congress’s appropriations authority in an unprecedented manner “by allowing a single Congress to unite purse and sword for an Executive agency that it wishes to permanently shield from political accountability, unless and until the President and both chambers of Congress agree to restore fiscal oversight.”  The CFPB has the ability to self-determine the amount of its funding, subject to an “illusory” cap.  In addition, the CFPB can retain its unused funds, effectively creating a “‘permanently available’ endowment ‘without any further act of Congress,’” there is no temporal limit on Congress’s ceding of its appropriations power to the CFPB “because it operates in perpetuity,” and there is no limitation on the CFPB functions that are funded.  Should “the people’s representatives try to take back the power of the CFPB’s purse, the President or either chamber can unilaterally ‘veto’ that effort.”  

  • The CFPB’s funding mechanism is unprecedented in nature in that “[n]o other agency from the Founding until 2010 appears to have been permanently ceded the power to choose the amount of its own public funding for core executive powers.”

  • The CFPB’s argument that a statute passed by Congress satisfies the Appropriations Clause ignores the Clause’s text and context.  “Deciding the amount that an agency may draw from the government’s accounts is the key legislative function that the Appropriations Clause vests ‘exclusive[ly]’ in Congress…..[U]nder any standard, it is ‘delegation running riot’ to grant a law-enforcement agency perpetual authority to fill in a blank check from the federal fisc every year so long as it does not exceed more than half a billion dollars (plus inflation adjustment).” (emphasis included).

  • The CFPB is not comparable to other agencies funded outside the appropriations process through sources such as fees, assessments, or investments.  “[T]hese agencies are in an entirely unrelated family, given their historical pedigree and compatibility with the political accountability concerns animating the Appropriations Clause.”  The practice of funding certain agencies such as the Post Office and National Mint through fees they charge for services they render was authorized by the earliest Congresses, providing evidence of constitutionality.  Even if Congress “might be thwarted in taking back the purse-strings from such agencies, [there is political accountability because] the people have some ability to do so directly [by refusing to buy the agencies’ services.]”  The practice of funding certain agencies such as the OCC and FDIC through assessments they charge to entities they regulate began in the early 1900s, also making it a practice that is “‘long settled and established.’”  This practice also preserves some level of political accountability because these regulators “must consider the risk of losing funding if regulated entities exit their regulatory sphere due to excessive regulation.”  The Federal Reserve also fits within this funding tradition and “’is in a totally different league’” from the CFPB because of its limited regulatory and enforcement authority.

  • Vacatur of the Rule was the appropriate remedy.  Because the Bureau could not have promulgated the Rule without the unconstitutional funding, it did not have the power to do so.  It does not matter if the Bureau had statutory authority to promulgate the Rule or whether it would have promulgated the Rule if validly funded.

  • The Fifth Circuit decision does not warrant review because it is poor vehicle for the Appropriations Clause question.  The judgment only vacates a single CFPB regulation that has never gone into effect and the vacatur can be affirmed on two independent, alternative grounds that were rejected by the Fifth Circuit.  Constitutional avoidance principles require the Supreme Court to consider those grounds first and only reach the Appropriations Clause question if does not agree with CFSA on either one.  It makes little sense for the Supreme Court to accept discretionary jurisdiction given the possibility that it will disagree with the Fifth Circuit on the alternative grounds and be unable to reach the constitutional question.  In these circumstances, the Court should allow “further percolation on the novel constitutional question.”  The alternative grounds for vacating the Rule are:

  1. The Rule was promulgated under former Director Cordray, who was unconstitutionally insulated from removal by former President Trump; and

  2. The conduct prohibited by the Rule falls outside the statutory definition of unfair or abusive conduct.

CFSA concludes its opposition brief by urging the Supreme Court, if it decides to grant certiorari, to hear the case next term rather than this Term as the CFPB has urged.  CFSA argues that it is “neither necessary or appropriate to try to resolve a case of this complexity and importance in just four months during the busy conclusion of a momentous Term.”  CFSA comments that despite the Fifth Circuit decision, the CFPB “continues to plow full steam ahead, initiating and pursuing enforcement actions and even recently proposing new regulations.”  It also observes that if it is concerned about the decision’s impact on the CFPB’s ongoing activities, the Administration can seek interim appropriations until the Court resolves the Appropriations Clause issue.

Cross-petition for certiorari

While reinforcing its opposition to the CFPB’s certiorari petition, CFSA urges the Court, if it grants the CFPB’s petition (1) to also grant its cross-petition to consider the alternative grounds for vacating the Rule that the Fifth Circuit rejected or, (2) instead of granting the cross-petition, to consider the alternative grounds as antecedent questions added to the CFPB’s petition.  CFSA frames the alternative grounds as the following questions:

  • Whether the Rule should be vacated because it was promulgated by Director Cordray while shielded from removal by President Trump under a statutory provision this Court later held is unconstitutional.

  • Whether the Rule should be vacated because the prohibited conduct falls outside the statutory definition of unfair or abusive conduct.

With respect to the first question, CFSA argues that because the unconstitutional removal provision is what allowed Director Cordray to remain in office against President Trump’s wishes and promulgate the Rule by exercising powers of the Director’s office that he did not lawfully possess, the Rule is directly attributable to, and tainted by, the unconstitutional provision.  In such circumstances, vacatur is the standard and proper remedy.  The Fifth Circuit’s demand that CFSA provide evidence that the President’s hypothetical replacement for Director Cordray would have acted differently with respect to the Rule is at odd with Supreme Court precedent.  (The Fifth Circuit did not consider the CFPB’s argument that even if Director Cordray unlawfully promulgated the Rule, former Director Kraninger lawfully ratified the Rule after Seila Law made her removable at will by the President.  Nevertheless, CFSA calls the CFPB’s argument “clearly wrong” and asserts that unlike some agency actions, notice-and-comment rulemaking cannot be ratified by a later official.)

With respect to the second question, CFSA argues that the Rule’s provision that prohibits lenders from continuing to attempt preauthorized withdrawals for repayment from consumer’s bank accounts after two failed attempts exceeds the CFPB’s statutory authority to prohibit unfair or abusive conduct.  In exercising such authority, the CFPB cannot prohibit conduct where consumers are capable of reasonably avoiding the harm caused by such conduct.  Consumers can reasonably avoid additional fees or other harms caused by successive withdrawal attempts in various ways, such as declining loans that preauthorize successive withdrawal attempts, funding their accounts before the repayment date, or revoking access to their accounts if they lack the necessary funds. 

Next Article: Healthcare Receivables Group Joins Revenue Cycle Leader ...