Perhaps ushering in a new wave of similar challenges, Walmart is challenging the FTC’s constitutionality in its motion to dismiss the FTC’s lawsuit filed in June 2022. In the lawsuit, the FTC alleges that Walmart violated Section 5 of the FTC Act and the Telemarketing Sales Rule as a result of its failure to take appropriate measures to detect and prevent third-party fraud in the processing of money transfers sent and received by consumers at its store locations.
In addition to challenging the FTC’s Section 5 and TSR claims on the merits, Walmart argues that the FTC lacks constitutionally valid authority to bring the action because FTC Commissioners can only be removed by the President for “inefficiency, neglect of duty, or malfeasance.” Walmart acknowledges that in 1935, in Humphrey’s Executor, the U.S. Supreme Court upheld the constitutionality of the FTC Act’s removal provision. Walmart argues, however, that when the Supreme Court upheld the FTC’s constitutionality in Humphrey’s Executor, it did so based on its view that the FTC as it existed in 1935 did not exercise any executive power and instead was an “administrative body” that exercised only “quasi-legislative or quasi-judicial powers.”
In bringing the lawsuit against Walmart, the FTC relies on 15 U.S.C. Sections 45(m), 57b, and 53(b), which allow the FTC to seek permanent injunctive relief in the absence of an agency adjudication as well as monetary relief, in the form of civil penalties or consumer redress. These powers were given to the FTC in 1973 and 1975 through amendments to the FTC Act. Walmart asserts that when the Supreme Court decided Seila Law, it “repeatedly emphasized that Humphrey’s Executor is limited to the powers the FTC possessed in 1935.”
According to Walmart, the powers granted to the FTC in 1973 and 1975 are incompatible with the FTC’s status as a valid independent agency because they represent “indisputably executive powers.” As a result, Congress violated the Constitution when it amended the FTC Act to give these powers to the FTC and the unconstitutional amendments should be considered void when enacted. Walmart argues that because the FTC does not have constitutionally valid authority to bring the lawsuit, the lawsuit should be dismissed.
With Seila Law having resolved the constitutional challenge to the CFPB based on the CFPA’s “for cause” removal provision, the CFPB is now facing a constitutional challenge based on its funding. That challenge asserts that the CFPB’s budgetary independence from Congress contravenes the Constitution’s separation of powers by violating the Appropriations Clause.