The CFPB has filed a certiorari petition with the U.S. Supreme Court seeking review of the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB that held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution.  Given the daunting odds the CFPB would have faced in seeking to have the decision reversed by an en banc Fifth Circuit, it is not surprising that it chose to proceed directly to the Supreme Court.  The CFPB will likely ask the Fifth Circuit to stay the issuance of its mandate pending the outcome of the certiorari petition, and if the Fifth Circuit denies a stay, seek a stay from the Supreme Court. 

Under Supreme Court rules, CFSA’s opposition to the certiorari petition must be filed within 30 days (i.e. by December 14), unless it obtains an extension.  There is no time limit for the CFPB to file a reply brief.  However, because the certiorari petition and opposition brief are distributed to Supreme Court justices 14 days after the opposition brief is filed, a petitioner will invariably file its reply brief within the 14-day period.  In its petition, the CFPB notes that “to facilitate consideration of this case this Term,” it filed the petition less than one month after the Fifth Circuit decision was issued (under Supreme Court rules it had 90 days to file the petition) and “plans to waive the 14-day waiting period after the brief in opposition is filed, which will enable the Court to consider the petition at its January 6, 2023 conference and hear the case during its April 2023 sitting.”  In stating that it plans to waive the 14-day waiting period, the CFPB presumably means that it plans to waive the opportunity to file a reply brief so that the petition and opposition brief can be distributed immediately once the opposition brief is filed.

Pursuant to the Dodd-Frank Act, the CFPB receives its funding through requests made by the CFPB Director to the Federal Reserve, subject to a cap equal to 12% of the Federal Reserve’s budget, rather than through the annual Congressional appropriations process. In its petition, the CFPB asserts that Congress’s enactment of a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes satisfies the requirement of the Appropriations Clause that no money can be paid from the Treasury “but in Consequence of Appropriations made by law.”

The CFPB cites to the Constitution’s text, historical practice relating to congressional appropriations, and Supreme Court precedent to demonstrate that the Fifth Circuit’s decision is incorrect.  In addition to challenging the Fifth Circuit’s interpretation of the Appropriations Clause, the CFPB also argues that the Fifth Circuit’s remedial approach (i.e. invalidating the payday lending rule) was incorrect.  The CFPB asserts that even if the Supreme Court were to hold that its funding mechanism is unconstitutional, such a holding would require the CFPB to stop further spending of transferred funds but would not require the unwinding of already completed and authorized CFPB actions such as the payday lending rule.   

The CFPB argues that prompt Supreme Court review is necessary because the Fifth Circuit’s ruling “threatens to inflict immense legal and practical harms on the CFPB, consumers, and the nation’s financial sector.”  The CFPB lists the following “compelling reasons” for the Court to review the Fifth Circuit decision promptly:

  • Supreme Court intervention is necessary because the Fifth Circuit has held that an Act of Congress violates the Constitution and the decision conflicts with the D.C. Circuit’s decision in PHH Corporation v. CFPB.
  • The decision has “immense legal and practical significance” because (1) “defendants in several CFPB enforcement cases have already sought dismissal or similar relief based on the decision” and “[n]ew challenges to the Bureau’s rules and other actions can be expected to multiply in the weeks and months to come, and will presumably be filed in the Fifth Circuit whenever possible;” and (2) it will frustrate the CFPB’s work administering and enforcing consumer financial protection laws and, by vacating a past CFPB action based on the purported Appropriations Clause violation, it threatens the validity of all past CFPB actions.
  • The threat to the validity of past CFPB actions raises serious concerns not only for the CFPB and consumers but for the entire financial services industry.  For example, if the CFPB’s mortgage regulations are vacated, mortgage lenders would have to immediately modify annual disclosures and borrowers could rescind transactions that had  relied on regulatory disclosure exceptions.

It should be noted that in addition to opposing the CFPB’s certiorari petition, CFSA can also file a cross-petition for certiorari to ask the Supreme Court to review the issues on which it obtained unfavorable rulings from the Fifth Circuit panel.  Those rulings were: (1) the payday loan rule was not invalid because it was promulgated by a CFPB Director who was unconstitutionally insulated from removal by the President, (2) the CFPB acted within its UDAAP authority in promulgating the payday loan rule, (3) the payday loan rule’s payment provisions were not arbitrary and capricious in violation of the Administrative Procedure Act either as a whole or as applied to debit and prepaid card transactions or as to separate installments of multi-payment installment loans, and (4) the CFPB’s UDAAP rulemaking authority did not represent an unconstitutional delegation of legislative power by Congress because Congress provided a specific purpose, objectives, and definitions to guide the Bureau’s exercise of its rulemaking authority.