As the industry continues to digest the Fifth Circuit’s opinion in Community Financial Services Association of America, Ltd. v. Consumer Financial Protection Bureau, which held the Bureau’s funding mechanism to be unconstitutional, new litigation illustrates the challenges that the decision creates to the CFPB’s ability to conduct oversight and enforcement.
In a motion filed in the U.S. District Court for the District of New Jersey, third-party witnesses Christopher Gonzales and Apex Advising LLC seek to quash CFPB subpoenas in the Bureau’s enforcement action against software company Credit Repair Cloud. The respondent witnesses assert that the holding in Community Financial Services Association “is not limited to the Bureau’s rule-making power, [but] extends to any action taken by the agency, including its enforcement and adjudicative powers”—and that therefore, the third-party subpoenas are invalid. (Defendants in several other CFPB enforcement actions are currently seeking dismissal of the actions based on Community Financial Services Association.)
Only one district court in the Third Circuit has addressed the Bureau’s constitutionality: the 2017 Navient case, in which the court rejected the defendant’s attacks on both the funding mechanism and the leadership structure of the agency. Gonzales and Apex now urge the court to set aside that precedent, arguing that the Supreme Court’s 2020 Seila Law decision effectively overturned Navient, although Seila Law did not touch on the funding question. If the district court entertains the respondents’ reasoning, it would represent a potential adoption of the Fifth Circuit’s Community Financial Services Association holding in another circuit.
It remains to be seen whether the district court will reach the constitutional question or rule on other grounds, given that respondents also put forth arguments based on the undue burden of answering the subpoena. The Court has indicated it intends to issue a ruling on the papers as soon as mid-December. We will continue to monitor this and other developments surrounding challenges to CFPB’s authority closely.