The CFPB has received its first opinion from a federal court regarding the validity of a rule it was tasked with enforcing. In a September 23, 2011 opinion, the U.S. District Court for the District of South Dakota held that the revised version of Regulation Z, § 226.52, promulgated by the Federal Reserve Board, was likely to be invalid because it conflicted with the plain language of the CARD Act. The ruling was on a preliminary injunction motion, so it is not a final decision, but the Court’s rationale suggests that it will ultimately find the rule invalid.
Our e-Alert on the decision gives a thorough description of the Court’s opinion, but in essence, the Court held that the relevant provision of the CARD Act only prohibited fees charged “in the first year during which the account is opened” when those fees were paid “from the credit made available under the terms of the account.” The Fed’s revised Regulation prohibited not only fees charged to the account itself, but also fees charged directly to the consumer before the account was opened. The Court held that this interpretation, which was inherited by the CFPB when it took over responsibility for TILA and the CARD Act, impermissibly went beyond the authority granted by Congress.
Brian Wolfman’s post about the decision on the Public Citizen blog ponders whether the CFPB will appeal the ruling, but I don’t think it should. The Court’s opinion is thorough and well-reasoned and tracks well with both the language of the CARD Act and the principle that statutes should be interpreted according to their plain language. Not only is the CFPB unlikely to want an appellate court decision against it, but it should also strive to avoid taking positions that over-reach the authority granted by Congress. Thus far in this case, the CFPB has simply dealt with a situation it inherited from the Federal Reserve, but if it exercises the choice to appeal this decision, it will have sent a signal to the industry that it is willing to go beyond its statutory authority to reach a particular result. Such a move, in my view, would be counterproductive and unnecessary for the CFPB, so I don’t think it should appeal the district court’s decision.