Although it has not yet been a week since a Fifth Circuit panel issued its decision holding that the CFPB’s funding mechanism is unconstitutional, the defendants in three CFPB enforcement matters are already attempting to use the decision as grounds for dismissal of the CFPB actions.  

The Fifth Circuit’s decision in Community Financial Services Association v. CFPB would only be binding on federal district courts in in Texas, Louisiana, and Mississippi if it becomes final without Supreme Court review.  Nevertheless, one of the cases in which the defendants have filed the decision as supplemental authority is pending in an Illinois federal district court and the other case is pending in a Utah federal district court.  The Illinois case is CFPB v. TransUnion, in which the CFPB alleges that TransUnion violated a prior consent order with the CFPB entered into in 2017.  In its Notice of Supplemental Authority, TransUnion argues that the CFSA decision establishes that the CFPB’s enforcement action must be dismissed because the consent order is invalid as the CFPB “used unappropriated funds to negotiate and prepare it.”  TransUnion also argues that the CFPB “may not expend unappropriated funds prosecuting this suit.”

The Utah case is CFPB v. Progrexion Marketing, Inc., in which the CFPB alleges that the methods used by the defendants to market credit repair services violated the Telemarketing Sales Rule and the Consumer Financial Protection Act.  The defendants had raised the Appropriations Clause issue in their motion to dismiss.  In their Notice of Supplemental Authority, the defendants argue that the Fifth Circuit decision “vitiates the Bureau’s case here” and seek leave to reopen briefing on the Appropriations Clause issue.

The third case in which the defendants are attempting to use the Fifth Circuit decision as grounds for dismissal is CFPB v Nationwide Biweekly Administration, which is pending before the Ninth Circuit.  In that case, a California district court imposed a $7.9 million civil penalty against the defendants for allegedly misleading marketing practices but did not award the nearly $74 million in restitution sought by the CFPB.  (The CFPB is seeking in the appeal to have the district court’s denial of restitution reversed.)  In their Notice of Supplemental Authority filed with the Ninth Circuit, the defendants argue that based on the Fifth Circuit’s decision, the Ninth Circuit should reverse the district court’s civil penalty award and dismiss the CFPB’s enforcement action.

We expect to see more similar filings by defendants in CFPB enforcement actions in the days and weeks to come.  We also expect to see the targets of ongoing CFPB investigations attempt to use the Fifth Circuit’s decision to block such investigations from continuing.