CFPB Poised To Up The Ante After Supreme Court Victory

This is the second part of a two-part series on Consumer Financial Protection Bureau v. Community Financial Services Association of America. Read part one here.

In what should not come as a surprise to anyone who observed the October oral argument¹ in the case of Consumer Financial Protection Bureau v. Community Financial Services Association of America, the U.S. Supreme Court emphatically ruled on May 16 that the bureau's funding structure did not violate the appropriations clause of the U.S. Constitution²

The bureau's comments ³ — and actions — after the decision make clear that entities subject to the CFPB's regulatory, enforcement and supervisory authority can expect it to ramp up its enforcement activity significantly, especially since many lawsuits were stayed pending a decision in Community Financial Services.

What Was at Issue in Community Financial Services?

Briefly, this case involved a challenge to the CFPB's payday lending regulation that was challenged by a group of trade associations that represent payday lenders.

The trade associations argued, among other things, that the regulation was unconstitutional because the bureau's funding mechanism violated the appropriations clause of the U.S. Constitution. The U.S. District Court for the Western District of Texas rejected that argument, finding that "[t]he Appropriations Clause 'means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.'"⁴

On appeal, the U.S. Court of Appeals for the Fifth Circuit reversed and found that the bureau's "self-actualizing, perpetual funding mechanism" violated the appropriations clause⁵

The bureau quickly appealed to the Supreme Court, which accepted certiorari. In the meantime, many actions brought by the bureau throughout the U.S. were promptly stayed pending the outcome of this matter. The number of lawsuits brought by the bureau also significantly slowed while its appeal was pending.

A Super Majority Found the CFPB's Funding Mechanism Complies with the Appropriations Clause's Text and History.

While the court appeared ideologically split at oral argument, a bare majority of the court seemed to believe the bureau's funding mechanism complied with the appropriations clause.

While the resulting decision, therefore, did not come as a surprise, the emphatic nature of the decision, coupled with the authority of the majority opinion, certainly did.

In a 7-2 decision authorized by Justice Clarence Thomas, the court made clear that it was an easy call to find that the CFPB's funding mechanism was constitutional.

Justice Thomas looked not only at the text of the appropriations clause but also at its history, an originalist approach that was prevalent in both the briefing and at oral argument.

As Justice Thomas noted, "an identified source and purpose are all that is required for a valid appropriation" under the appropriations clause. Here, he easily found that the CFPB's funding mechanism met this test and was, therefore, constitutional.

The majority likewise rejected the trade association's various arguments to the contrary. For instance, the court rejected the claim that an appropriation has to be a specified amount, as opposed to an amount up to a certain cap.

The court further rejected the argument that an appropriation cannot be for an indefinite period of time, noting historic examples of similar appropriations as well as contrasting the general appropriations clause language to the military appropriations clause, which does limit funding for a period no longer than two years.

Finally, the court declined to accept the trade association's concerns of other agencies being funded in a similar manner, noting that "the Appropriations Clause is simply a limitation on Congress' power over the purse, and the associations err by reducing the power of the purse to only the principle expressed in the Appropriations Clause."

The Dissent Focuses on an Alternative History.

Justice Samuel Alito, along with Justice Neil Gorsuch, dissented and would have affirmed the Fifth Circuit. Like the majority opinion, the dissent also focused on the history of appropriations, albeit a different time frame than the majority did.

Not only did the dissent come to a different conclusion on the history of appropriations in the U.S., but it likewise found that the bureau's "unique" funding structure evidenced that it was an unconstitutional outlier among federal agencies. As the dissent explained:

According to the dissent, these distinct features, coupled with what the appropriations clause requires, necessitated a finding that the bureau's funding mechanism was unconstitutional.

What Does It Mean, and What Comes Next?

The CFPB was quick to tout the court's finding, issuing a press release the very same day Community Financial Services was decided, exclaiming that the "CFPB is here to stay" and noting:

Not only was the bureau quick to tout the court's decision, but it has actively been engaged in increasing its enforcement personnel. As Director Rohit Chopra explained in a press conference⁷ following the decision in Community Financial Services, the bureau plans to increase its enforcement office personnel and to work on new rules related to a wide array of consumer protection initiatives, including activities focused on credit reports and credit scores.

The bureau also took quick action in a number of pending lawsuits, including Chamber of Commerce of the United States of America et al. v. CFPB, the challenge filed in March in the U.S. District Court for the Northern District of Texas to its proposed credit card late fee cap rule.

There, the district court had previously granted the plaintiff's request to preliminarily enjoin the credit card late fee cap explicitly on the basis that binding precedent from the Fifth Circuit found that the bureau was unconstitutionally funded.

While that matter was still on appeal to the Fifth Circuit, the bureau filed notices in both the district and appellate courts regarding the Supreme Court's decision in Community Financial Services and the impact it had on the preliminary injunction.

As well, the bureau has already begun to file similar notifications in the more than a dozen lawsuits throughout the country that had been stayed pending a decision in Community Financial Services, evidencing its intent to quickly ramp up its existing enforcement actions.

The CFPB has also been quick to bring new lawsuits, suing an online lending platform one day after Community Financial Services was decided.

With the latest constitutional challenge to the CFPB overcome, it is readily apparent that the bureau is moving full steam ahead with its regulatory, enforcement and supervisory agenda.

Footnotes

1 https://www.mcglinchey.com/insights/clues-on-high-court-outcome-in-cfpbconstitutionality-case/.

2 https://www.supremecourt.gov/opinions/23pdf/22-448_o7jp.pdf.

3 https://www.consumerfinance.gov/about-us/newsroom/statement-on-supreme-courtdecision-in-cfpb-v-cfsa/.

4 Comm. Fin. Servs. Assn v. Con. Fin. Prot. Bureau, 558 F. Supp. 3d 350, 364 (WD Tex. 2021) (quoting Office of Personnel Management v. Richmond, 496 U. S. 414, 424 (1990)).

5 Comm. Fin. Servs. Assn v. Con. Fin. Prot. Bureau, 51 F. 4th, 638–639 (5th Cir. 2022).

6 Statement on Supreme Court Decision in CFPB v. CFSA | Consumer Financial Protection Bureau (consumerfinance.gov) (last visited May 20, 2024).

7 https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-of-cfpbdirector-rohit-chopra-regarding-the-supreme-courts-decision-in-cfpb-v-cfsa/.

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