In the first case of its fall term, the court heard arguments on how the CFPB should be funded and the implications of that funding structure on the bureau’s executive and regulatory powers.
10/03/2023 3:25 P.M.
4 minute read
Two hours of debate in front of the U.S. Supreme Court are in the books in a case that could impact the funding structure of the Consumer Financial Protection Bureau at a critical time for the agency, consumers, and the financial services industries it oversees.
The case, CFPB v. Community Financial Services Association of America Ltd. (CFSA), stems from a 5th Circuit Court of Appeals’ decision that the bureau’s funding structure is unconstitutional and violates the appropriations clause.
CFSA filed suit against the CFPB and Director Rohit Chopra challenging the bureau’s 2017 payday lending rule on the grounds the rule is not valid because the CFPB’s funding structure is unconstitutional.
The CFPB appealed the decision and its petition for the Supreme Court to review the case was granted, ACA International previously reported.
The CFPB requested that the court address whether the 5th Circuit Court of Appeals erred in its ruling that the bureau’s funding structure through the Federal Reserve rather than the congressional appropriations process violates the U.S. Constitution’s separation of powers.
Arguing on behalf of the CFPB, U.S. Solicitor General Elizabeth Prelogar drilled down into the history of funding federal agencies like the bureau, such as the Office of the Comptroller of the Currency and Federal Housing Finance Agency, and that doing so outside of the congressional appropriations process has longstanding precedent.
The Dodd-Frank Act outlines that the CFPB is funded by transfers from the Federal Reserve to execute its functions as a consumer protection agency. The CFPB can request those funds as long as they don’t exceed a cap that is a pre-determined percent of the Federal Reserve’s total operating budget, subject to an annual adjustment, according to the bureau’s website.
Arguing on behalf of CFSA, former solicitor general Noel Francisco turned to the checks and balances of the matter, contending that Congress should determine the funds appropriated to the bureau, not the bureau’s director.
The arguments before the Supreme Court focused largely on the funding mechanisms, but the challenge to the bureau’s 2017 payday lending rule by CFSA remains at the backdrop of these proceedings.
CFSA and the Consumer Service Alliance of Texas challenged the validity of the CFPB’s 2017 payday lending rule when they originally filed suit, ACA previously reported.
Case Remedies
The remedy sought in this case is to address whether the 5th Circuit Court of Appeals erred in its ruling that the bureau’s funding structure through the Federal Reserve rather than the congressional appropriations process violates the U.S. Constitution’s separation of powers.
However, the justices discussed the implications their decision could have on CFPB rulemakings—such as the payday lending rule—financial services and consumers if they went further than ruling on the funding structure.
Should the court, if it rules the bureau’s funding structure is unconstitutional, apply that decision to the bureau’s past and pending rulemakings? Should it separate the two and not invalidate any rules, or let Congress revisit the issue?
The case could have a significant impact on the bureau’s funding and regulatory authority. The arguments come at a critical time for the accounts receivable management (ARM) industry since the CFPB has released its latest rulemaking proposals related to the Fair Credit Reporting Act.
ACA filed an amicus brief (PDF) submitted by Brownstein Hyatt Farber Schreck, LLP, counsel Christopher Murray supporting CFSA.
In the amicus brief, ACA argues that the Supreme Court should affirm the 5th Circuit’s decision on the CFPB’s funding structure but delay its implementation for six months to allow Congress time to consider options, including one option to potentially reconstitute the bureau while minimizing disruptions for consumers and regulated entities.
The case result could go many ways, ACA previously reported.
There is some precedent from the 2019 Seila Law LLC v. Consumer Financial Protection Bureau decision, where the Supreme Court found that the bureau’s restrictions on removal of the CFPB director were unconstitutional and ruled that the president can remove the director at will, not only for cause.
However, the court also said the components of the Dodd-Frank Act, which created the CFPB, that outline its leadership structure and funding can remain in place separate from the updated language on the president’s options to remove the director of the bureau.
CFSA’s argument to the Supreme Court now builds on those laid out in the Seila Law case that the “CFPB’s double insulated, self-actualizing, perpetual funding mechanism violates the separation of power and therefore is unconstitutional,” ACA previously reported.
Insights Coming to ACA’s Fall Forum
ACA is reviewing the oral arguments to provide further analysis for members.
Tune in to the weekly members-only ACA Huddle for updates and register now for ACA’s Fall Forum, Nov. 8-10 in Chicago, where Brian Johnson, managing director at Patomak Global Partners and former deputy director of the CFPB, will join ACA CEO Scott Purcell and Brownstein Hyatt Farber Schreck Shareholder Leah Dempsey for the main stage session on CFPB insights, including the Supreme Court’s pending decision.
A decision in the CFPB case is expected to be issued between December 2023 and the end of June 2024.
Remember, subscribe to ACA Daily and Member Alerts under your My ACA profile when logged in to acainternational.org to receive updates on the ACA Huddle.