All American Check Cashing and the other appellants have filed their principal brief in their interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit of the district court’s ruling upholding the CFPB’s constitutionality.
The appellants sought the interlocutory appeal after the district court denied their motion for judgment on the pleadings in a lawsuit filed by the CFPB that alleges the appellants engaged in abusive, deceptive, and unfair conduct in connection with making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks. Citing the D.C. Circuit’s en banc PHH decision, the district court rejected the defendants’ argument that the CFPB is unconstitutional based on its single-director-removable-only-for-cause structure. It also rejected the defendants’ argument that the CFPB’s UDAAP claims violated due process because the Consumer Financial Protection Act (CFPA) fails to give fair notice of the conduct it proscribes. Although the appellants had asked the district court to certify for interlocutory review the question of the CFPB’s constitutionality and the question of whether the CFPB’s UDAAP claims violated due process, the district court only agreed to certify the constitutionality question.
In opposing the appellants’ petition to the Fifth Circuit asking it to grant interlocutory review, the CFPB did not directly address the merits of the appellants’ constitutional challenge and instead argued that the issue did not present a “controlling question of law” (one of the requirements for granting an interlocutory appeal in addition to a substantial ground for difference of opinion and that an immediate appeal may materially advance the termination of the case). The CFPB claimed that because Acting Director Mulvaney is removable at will by the President and had ratified the CFPB’s decision to bring the lawsuit, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured and the constitutionality of the for-cause removal provision was no longer relevant to the case.
In their principal brief to the Fifth Circuit, the appellants argue that “the CFPB is entirely lacking in any structural accountability to the President or Congress and thus to the people, and is therefore unconstitutional.” They argue that the CFPB’s single-director-removable-only-for-cause structure, standing alone, violates Article II of the U.S. Constitution and the separation of powers and that the CFPB has other features “that render it even more clearly unconstitutional when combined with its single unaccountable Director.” Such additional features include the CFPB’s insulation from the regular appropriations process. The appellants argue that severance of the for-cause removal provision would be an inadequate remedy because it would “inflat[e] the President’s power at the expense of Congress and transform the CFPB into something Congress would never have created.” Accordingly, the appellants contend that the correct remedy is to strike down the CFPA as a whole.
The appellants reject the CFPB’s argument that any constitutional deficiencies were cured by Acting Director Mulvaney’s ratification of the CFPB’s decision to bring the lawsuit against All American Check Cashing. According to the appellants, structural constitutional violations cannot be cured through ratification and the doctrine of ratification does not apply because the CFPB “itself is and always has been unconstitutionally structured and therefore lacked the authority to initiate this action in the first place.” (emphasis in original). They further contend that even if the ratification doctrine does apply, the CFPB cannot satisfy its requirements because, among other reasons, the 3-year statute of limitations for bringing CFPB enforcement actions would have run by the time of the alleged ratification.
In support of their argument that the proper remedy is to strike the CFPA rather than sever the for-cause removal provision, the appellants cite the decision issued last month by Judge Preska of the Southern District of New York in RD Legal Funding. Judge Preska ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and struck Title X of Dodd-Frank in its entirety. Judge Preska also rejected the CFPB’s argument that Acting Director Mulvaney’s ratification of the RD Legal Funding lawsuit cured any constitutional defects. (Today is the deadline set by Judge Preska for when counsel must advise the court how they intend to proceed. Accordingly, we should learn whether the CFPB intends to seek an immediate appeal of Judge Preska’s constitutionality ruling.)
An amicus brief in support of the appellants was filed by a group of six “separation of powers scholars.” Amici describe themselves as “law professors who teach and write about executive power, administrative law, constitutional law, and the separation of powers.” In their brief, amici point to constitutional text, structure, and history which they view as providing support for the appellants’ position that the CFPB’s for-cause removal structure is unconstitutional.
As we have previously observed, it is uncertain whether the CFPB will defend its constitutionality before the Fifth Circuit. It is possible the CFPB will adopt the DOJ’s position in the rehearing en banc of the D.C. Circuit’s PHH decision and agree with the appellants that the CFPB’s for-cause removal structure is unconstitutional but argue that the proper remedy is to only strike the for-cause removal provision rather than the entire CFPA. (The CFPB, which was then still under the leadership of former Director Cordray, defended its constitutionality.) Indeed, in their opening brief, the appellants cite to the amicus brief filed by the DOJ in the rehearing en banc of the D.C. Circuit’s PHH decision in which the DOJ agreed with PHH’s position that the CFPB’s structure is unconstitutional.
On the other hand, the Notice of Ratification filed by the CFPB in RD Legal suggests that the CFPB might defend its constitutionality. Under former Director Cordray’s leadership, the CFPB defended its constitutionality in opposing the defendants’ motion to dismiss. In the Notice of Ratification, the CFPB asserted that Acting Director Mulvaney’s “recent ratification has cured any such constitutional defect (even if one even existed—which it does not, as the Bureau explained in its opposition to Defendants’ motion to dismiss).” (emphasis added)