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  • Court says Kansas credit card surcharge ban is unconstitutional

    Courts

    On February 25, the U.S. District Court for the District of Kansas granted in part and denied in part a plaintiff’s motion for summary judgment in an action concerning whether a state statute that bans credit card surcharges violates the First Amendment. Kansas law prohibits merchants from imposing a surcharge on customers who pay with credit cards instead of cash, and allows merchants to offer discounts to consumers who pay with cash. The plaintiff, a payment processing technology company, provides “software that allows merchants to display prices, including cost surcharges on purchases made by credit card,” which “allows consumers to comparison shop among payment types.” The plaintiff challenged the constitutionality of the law, claiming it is an unconstitutional restriction on commercial speech since it “effectively limits” what the plaintiff and merchants “can treat as the ‘regular price’ of an item and the corresponding information about prices and credit card fees that can be conveyed to consumers.” The Kansas attorney general—who has the authority to enforce the state’s no-surcharge statute—countered, among other things, that the statute furthers substantial state interests by (i) encouraging merchants to charge lower prices to customers who pay with cash; (ii) lowering the amount of consumer credit card debt through the use of cash discounts; and (iii) providing benefits to merchants by encouraging cash purchases, thereby allowing them to receive immediate payments, avoid credit card fees, and incur lower costs.

    The court disagreed, ruling that none of the AG’s arguments advanced a substantial state interest—a requirement in order to not be considered a violation of the First Amendment. “Plaintiff's desire to display a single price while informing customers that credit card purchasers will be charged an additional fee would logically tend to support whatever interest the state may have in encouraging lower prices for cash customers,” the court wrote. “The statute nevertheless effectively prohibits this type of disclosure. Clearly, this restriction on speech is more extensive than necessary to further the asserted state interest.” Moreover, the court noted that “‘surcharges and discounts are nothing more than two sides of the same coin; a surcharge is simply a ‘negative’ discount, and a discount is a ‘negative’ surcharge.”

    Courts Surcharge Credit Cards State Issues State Attorney General Payment Processors Constitution

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  • Court rules CDC eviction moratorium unconstitutional

    Courts

    On February 25, the U.S. District Court for the Eastern District of Texas granted plaintiffs’ motion for summary judgment, ruling that decisions to enact eviction moratoriums rest with the states and that the federal government’s Article I power under the U.S. Constitution to regulate interstate commerce and enact necessary and proper laws to that end “does not include the power” to order all evictions be stopped during the Covid-19 pandemic. The Centers for Disease Control and Prevention (CDC) issued an eviction moratorium order last September (set to expire March 31), which “generally makes it a crime for a landlord or property owner to evict a ‘covered person’ from a residence” provided certain criteria are met. The CDC’s order grants the DOJ authority to initiate criminal proceedings and allows the imposition of fines up to $500,000. The plaintiffs—owners/managers of residential properties located in Texas—argued that the federal government does not have the authority under Article I to order property owners to not evict specified tenants, and that the decision as to whether an eviction moratorium should be enacted resides with the given state. The CDC countered that Article I afforded it the power to enact a nationwide moratorium, and argued, among other things, that “evictions covered by the CDC order may be rationally viewed as substantially affecting interstate commerce because 15% of changes in residence each year are between States.”

    However, the court disagreed stating that the CDC’s “statistic does not readily bear on the effects of the eviction moratorium” at issue, and that moreover, “[i]f statistics like that were enough, Congress could also justify national marriage and divorce laws, as similar incidental effects on interstate commerce exist in that field.” The court determined that the CDC’s eviction moratorium exceeds Congress’ powers under the Commerce Clause and the Necessary and Proper Clause. “The federal government cannot say that it has ever before invoked its power over interstate commerce to impose a residential eviction moratorium,” the court wrote. “It did not do so during the deadly Spanish Flu pandemic. . . .Nor did it invoke such a power during the exigencies of the Great Depression. [] The federal government has not claimed such a power at any point during our Nation’s history until last year.”

    The DOJ issued a statement on February 27 announcing its decision to appeal the court’s decision, citing that the court’s order “‘does not extend beyond the particular plaintiffs in that case, and it does not prohibit the application of the CDC’s eviction moratorium to other parties. For other landlords who rent to covered persons, the CDC’s eviction moratorium remains in effect.’”

    Courts Covid-19 CDC State Issues Constitution Evictions

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  • Debt collection trade association claims Massachusetts emergency regulation is unconstitutional

    Federal Issues

    On April 20, a debt collection trade association filed a complaint in the U.S. District Court for the District of Massachusetts against the Massachusetts attorney general, challenging the state’s emergency regulation issued in March, which makes numerous standard debt collection actions an unfair and deceptive act or practice during the Covid-19 pandemic. As previously covered by InfoBytes, the emergency regulation includes provisions that prohibit both creditors and debt collectors from (i) initiating, filing, or threatening to file debt collection lawsuits; (ii) garnishing wages and repossessing vehicles; and (iii) initiating phone calls with debtors, unless necessary to discuss a rescheduled court appearance or at the request of the debtor. Alleging violations of both state and federal law, including the First Amendment, Fourteenth Amendment, and the separation of powers, the trade association argues that the emergency regulations are a content-based restriction on free speech and unconstitutional because they, among other things, exclude six classes of collectors from the prohibition on placing collection calls, and do not treat all “communications” equally by excluding certain types of collections communications. The trade association also contends that the restrictions block members from providing consumers with possible resolutions, such as “temporary hardship repayment plans that may provide a variety of options for deferring payments or determining longer-term payment plans tailored to individual consumer situations where income has been interrupted for any reason.” The complaint also cites examples from debt collectors in the state that detail the negative impact the emergency regulation has had on their businesses. The trade association filed an emergency motion seeking a temporary restraining order and preliminary injunction enjoining enforcement of the regulation.

    Federal Issues Courts Debt Collection State Issues State Attorney General Constitution Covid-19

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  • Basis for invalidating CFPB is “remarkably weak,” says court-appointed defender

    Courts

    On January 15, Paul Clement, the lawyer selected by the U.S. Supreme Court to defend the leadership structure of the CFPB, filed a brief in Seila Law LLC v. CFPB arguing that Seila Law’s constitutionality arguments are “remarkably weak” and that “a contested removal is the proper context to address a dispute over the President’s removal authority.” First, Clement stated that “there is no ‘removal clause’ in the Constitution,” and that because the “constitutional text is simply silent on the removal of executive officers” it does not mean there is a “promising basis for invalidating an Act of Congress.” Moreover, the Constitution leaves it to Congress to decide “all manner of questions about the organization and structure of executive-branch departments and officers,” Clement wrote. Second, Clement disagreed with the argument that Congress cannot impose modest restrictions on the President’s ability to remove executive officers, so long as the President is the one exercising the removal powers. Third, Clement noted that in the past, the Court has repeatedly upheld the ability to place permissible restrictions on a President’s removal authority.

    Clement further contended, among other things, that the dispute in Seila is “not just unripe, but entirely theoretical.” He referenced the Bureau’s brief filed last September (covered by InfoBytes here), in which the CFPB argued that the for-cause restriction on the President’s authority to remove the Bureau’s single director violates the Constitution’s separation of powers, and noted that “[w]hatever was true when this suit was first filed, the theory of the unitary executive appears alive and well in the Director’s office.” Rather, Clement stated, the Court should wait for an instance where a CFPB director has been fired for something short of the “inefficiency, neglect of duty, or malfeasance in office” threshold that Congress set for dismissing a CFPB director in Dodd-Frank before ruling on the question. Clement also emphasized that “text, first principles and precedent” all “strongly support” upholding the U.S. Court of Appeals for the Ninth Circuit’s decision from last May, which deemed the CFPB to be constitutionally structured and upheld a district court’s ruling enforcing Seila Law’s compliance with a 2017 civil investigative demand.

    As previously covered by InfoBytes, the 9th Circuit held that the for-cause removal restriction of the CFPB’s single director is constitutionally permissible based on existing Supreme Court precedent. The panel agreed with the conclusion reached by the U.S. Court of Appeals for the D.C. Circuit majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert) stating, “if an agency’s leadership is protected by a for-cause removal restriction, the President can arguably exert more effective control over the agency if it is headed by a single individual rather an a multi-member body.”

    The parties in Seila filed briefs last December. While both parties are in agreement on the CFPB’s single-director leadership structure, they differ on how the matter should be resolved. Seila Law argued that the Court should invalidate all of Title X of Dodd-Frank, whereas the Bureau contended that the for-cause removal provision should be severed from the rest of the law in accordance with Dodd-Frank’s express severability clause. Oral arguments are scheduled for March 3. (Previous InfoBytes coverage here.)

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Constitution

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  • Supreme Court to review TCPA debt collection exemption

    Courts

    On January 10, the U.S. Supreme Court announced it had granted a petition for a writ of certiorari filed by the U.S. government in Barr v. American Association of Political Consultants Inc.—a Telephone Consumer Protection Act (TCPA) case concerning an exemption that allows debt collectors to use an autodialer to contact individuals on their cell phones without obtaining prior consent to do so when collecting debts guaranteed by the federal government. As previously covered by InfoBytes, the 4th Circuit agreed with the plaintiffs (a group of several political consultants) that the government-debt exemption contravenes the First Amendment’s Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor,” the appellate court opined. However, the panel sided with the FCC to sever the debt collection exemption from the automated call ban instead of rendering the entire ban unconstitutional, as requested by the plaintiffs. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.” The petitioners—Attorney General William Barr and the FCC—now ask the Court to review whether the government-debt exception to the TCPA’s automated-call restriction is a violation of the First Amendment. Oral arguments are set for April 22.

    Courts Appellate Fourth Circuit Debt Collection TCPA Constitution U.S. Supreme Court FCC DOJ Autodialer

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  • Briefs filed in Supreme Court CFPB constitutionality challenge

    Courts

    On December 9, parties filed briefs in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the U.S. Supreme Court granted cert in Seila to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II, while also directing the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the CFPB’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. While both parties are in agreement on the CFPB’s single-director leadership structure, they differ on how the matter should be resolved.

    According to Seila Law’s brief, the CFPB’s single-director leadership structure is a blatant violation of the Constitution’s separation of powers clause. Seila Law proposes that the Court eliminate the CFPB entirely, leaving Congress to determine how to address the unconstitutionality of the Bureau, rather than save the law by making the director an at-will employee of the President. Removing the director at will, Seila Law argues, “would radically reshape the CFPB, creating a mutant version of the agency that Congress envisioned—one that would still be unaccountable to Congress, yet fully within presidential control.” Discussing the U.S. Court of Appeals for the Ninth Circuit’s reliance in part on a 1935 Supreme Court decision in Humphrey’s Executor v. United States (which dealt with removal protections for members of a nonpartisan, multimember commission) in its May ruling which held that the Bureau’s single-director structure is constitutional (InfoBytes coverage here), Seila Law states that the Court’s ruling in Humphrey’s Executor was “badly reasoned, wrongly decided, and should be overruled,” and, in any event, is distinguishable when addressing the CFPB’s single-director leadership structure. Whether the Court distinguishes or overturns Humphrey’s Executor’s precedent, Seila Law argues, it should hold that the Bureau’s structure violates the separation of powers clause and reverse the 9th Circuit’s judgment.

    “By insulating the director of the CFPB from removal at will by the President while empowering him to exercise substantial executive power, Congress breached the President’s core prerogatives under Article II of the Constitution,” Seila Law further asserts, claiming that the appropriate remedy for the constitutional violation would be to deny the CFPB’s petition to enforce the CID and ultimately let Congress determine how to address the “constitutional defect in the CFPB’s structure.” Seila Law also argues that should the Court decide to engage in severability analysis, it should invalidate all of Title X of Dodd-Frank, which does not allow the current leadership structure to be altered to a multi-member commission.

    In contrast, though the CFPB concedes that Dodd-Frank’s restriction on the President’s ability to remove the Bureau’s director violates the “separation of powers” principles of the Constitution, it contends in its brief that, should the removal provision be found unconstitutional, it should be severed from the rest of the law in accordance with Dodd-Frank’s express severability clause. “Even considering only the Bureau-specific provisions contained in Title X . . . , there is no basis to conclude that Congress would have preferred to have no Bureau at all rather than a Bureau headed by a Director who would be removable like almost all other single-headed agencies,” the CFPB wrote. “Nothing in the statutory text or history of the Bureau’s creation suggests, much less clearly demonstrates, that Congress would have preferred, for example, that the regulatory authority vested in the Bureau revert back to the seven federal agencies that previously administered those responsibilities if a court were to invalidate the Director’s removal restriction.”

    Oral arguments are scheduled for March 3, 2020.

    Courts Federal Issues CFPB Single-Director Structure Constitution Seila Law Separation of Powers Dodd-Frank

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  • Supreme Court to decide CFPB constitutionality

    Courts

    On October 18, the U.S. Supreme Court granted cert in Seila Law LLC v. CFPB, to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II. The Court also directed the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the Bureau’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. As previously covered by InfoBytes, the law firm filed a petition for a writ of certiorari with the Court, appealing the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that (i) the Bureau’s single-director structure is constitutional, and (ii) the district court did not err when it granted the Bureau’s petition to enforce the law firm’s compliance with a 2017 Civil Investigative Demand (previously covered by InfoBytes here). In response to the petition, the Bureau and the DOJ filed a brief arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single director violates the Constitution’s separation of powers. While the Bureau previously defended the single-director structure to the 9th Circuit, the brief notes that since the May decision was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.”

    In response to the Court’s decision to grant cert, an online loan servicer that operated on tribal lands has withdrawn its appeal from the 9th Circuit challenging the Bureau’s structure pending the Court’s decision in Seila Law. In the original action, the district court found that an online loan servicer that operated on tribal lands engaged in deceptive practices by collecting on loans that exceeded the usury limits in various states, and ordered it and its affiliates to pay a $10 million penalty, far short of the Bureau’s request. (Previously covered by InfoBtyes here and here.)

    Courts CFPB Single-Director Structure Constitution Separation of Powers Federal Issues Dodd-Frank Seila Law

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