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Financial Services Law Insights and Observations


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  • CFPB asks 9th Circuit to enforce Seila CID


    On August 31, the CFPB filed a supplemental brief in the U.S. Court of Appeals for the Ninth Circuit, arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” As previously covered by InfoBytes, in 2017, the CFPB ordered Seila Law to comply with a CID seeking information about the firm’s business practices to determine whether it violated the CFPA, the Telemarketing Sales Rule (TSR), or other federal consumer financial laws when providing debt-relief services or products, but the law firm refused to comply, arguing that the CID was invalid because the CFPB’s structure was unconstitutional. Last year, after the 9th Circuit upheld the CID (covered by InfoBytes here), Seila Law appealed the decision to the Supreme Court. Following the Supreme Court’s opinion in June—which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert)—the Bureau noted that Kraninger formally ratified the agency’s decisions regarding the CID in July.

    Among other things, the Bureau highlighted in its brief Seila Law’s argument “that the CID still should not be enforced because at the time this action commenced, the Supreme Court had not yet held invalid the removal provision.” The Bureau countered that any defect in the initiation of this action has been resolved because the CID, and the action to enforce it, “have now been formally and expressly ratified” by two Bureau officials removable at will by the President. The Bureau also asked the 9th Circuit to consider what may happen if the appellate court chooses to ignore the ratifications and rule in favor of Seila Law. According to the Bureau, such a result “could also, depending on the [c]ourt’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.” Should the 9th Circuit choose to set aside the CID, the appellate court would not only further delay a “legitimate law-enforcement investigation,” but also “undermine the very Article II authority that the Supreme Court so emphasized in deciding this case,” the Bureau argued.


    Courts Appellate Ninth Circuit CIDs Seila Law

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  • CFPB ratifies prior regulatory actions in wake of Seila Law

    Agency Rule-Making & Guidance

    On July 7, the CFPB, “out of an abundance of caution,” ratified several previous actions, including the large majority of the Bureau’s existing regulations, following the U.S. Supreme Court’s opinion in Seila v. Consumer Financial Protection Bureau. As previously covered by a Buckley Special Alert, the Court held that, while the clause in the Consumer Financial Protection Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers, the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute. According to the Bureau’s announcement, the action ratifies most regulatory actions taken by the Bureau from January 4, 2012 through June 30, 2020, and “provides the financial marketplace with certainty that the rules are valid in light of the Supreme Court decision in Seila Law.” The Bureau noted, however, that the ratification does not include two actions: (i) the July 2017 “Arbitration Agreements” rule, which was disapproved following the approval by President Trump of a joint resolution under the Congressional Review Act that provides “the ‘rule shall have no force or effect’”; and (ii) the November 2017 “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule (Payday Rule), for which the Bureau previously revoked the rule’s mandatory underwriting provisions. Both of these actions are not within the scope of the ratification, the Bureau stated, noting, however, that it has separately ratified the Payday Lending Rule’s payment provisions.

    The Bureau is also considering whether to ratify other legally significant actions, such as certain pending enforcement actions, and stated it will make separate ratifications, if appropriate. However, the Bureau stressed it “does not believe that it is necessary for this ratification to include various previous Bureau actions that have no legal consequences for the public, or enforcement actions that have finally been resolved.” Additionally, because the ratification is not a “rule” or “rule making” as defined by the Administrative Procedure Act (APA), since it is “not an ‘agency statement of general or particular applicability and future effect’” and is “not ‘formulating, amending, or repealing a rule,’” the Bureau contended it is not subject to the APA’s notice-and-comment procedures.

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  • Special Alert: Supreme Court preserves CFPB through severance

    Federal Issues

    The U.S. Supreme Court on Monday issued its long-awaited opinion in Seila Law LLC v. Consumer Financial Protection Bureau, with a 5-4 split along ideological lines holding that the structure of the CFPB is unconstitutional. Specifically, the clause in the underlying statute that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In a plurality opinion representing three of the justices in the majority, the court further held that the removal provision could — and should — be severed from the statute establishing the CFPB, rather than invalidating the entire statute. While various aspects of the decision could lead to further constitutional challenges, the reasoning of the opinion was based in large part on the preservation of a regulatory framework that is now almost a decade old.

    Chief Justice Roberts issued an opinion holding the removal provision unconstitutional but finding that it could be severed from the remainder of the statute. The first portion of the opinion was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, and therefore is the opinion of the court. The severance analysis, however, was joined only by Justices Alito and Kavanaugh. Justice Thomas, in a separate opinion joined by Justice Gorsuch, concurred on the constitutional question but dissented on severance. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, issued a third opinion dissenting from the court’s opinion on the constitutional question but concurring in the judgment that “if the agency’s removal provision is unconstitutional, it should be severed.” (Kagan Dissent, at 37). Justice Kagan’s opinion did not offer any further analysis of the severance issue, nor did she state that she concurred in Chief Justice Roberts’s opinion on that issue. Therefore, none of the three opinions commanded a majority of the court on the severance issue.

    Federal Issues CFPB Single-Director Structure Seila Law Special Alerts

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  • 5th Circuit will review CFPB constitutionality case en banc


    On March 20, the U.S. Court of Appeals for the Fifth Circuit issued an opinion ordering that—“on the Court’s own motion”—it will conduct an en banc hearing on whether the CFPB’s single-director leadership structure is constitutional. The order vacates the appellate court’s March 3 opinion (covered by InfoBytes here), in which it previously determined that there was no constitutional issue with allowing the Bureau director to only be fired for cause. According to the now-vacated opinion, the majority concluded that the claim that the Bureau’s structure is unconstitutional “find[s] no support. . .in constitutional text or in Supreme Court decisions.” The 5th Circuit’s prior decision came the same day the U.S. Supreme Court heard oral arguments in Seila Law LLV v. CFPB on the same issue.

    Courts Appellate Fifth Circuit CFPB Single-Director Structure Seila Law

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  • Kraninger fields COVID-19 questions at Senate hearing

    Federal Issues

    On March 10, CFPB Director Kathy Kraninger testified at a Senate Banking Committee hearing regarding the Bureau’s Semi-Annual Report to Congress. The hearing examined the report (covered by InfoBytes here), which outlines the Bureau’s work from April 1, 2019, through September 30, 2019.

    In her opening remarks, Kraninger pointed to the newly announced measures that the Bureau has initiated to carry out the CFPB’s mission to prevent consumer harm, including the advisory opinion program, the updated Responsible Business Conduct bulletin, and proposed legislation to begin a whistleblower award program. (Covered by InfoBytes here.) In response to questions about the constitutionality of the CFPB’s structure, Kraninger stated that she was “incredibly encouraged” when the Supreme Court granted certiorari in Seila Law as it should provide “certainty and clarity.” Kraninger also addressed the Bureau’s COVID-19 preparedness by saying that the financial regulators are in “routine contact with the institutions we regulate” and that they maintain a steady flow of information with the Treasury Department, as well as with OPM, CDC, and FEMA to ensure coordinated operations. A number of Senators asked about the effects of COVID-19 on the economy, including with respect to new scams designed to take advantage of panicked consumers, consumers losing pay and benefits due to employer shut downs, and whether financial institutions are making accommodations for consumers during this time. Kraninger responded that financial institutions will have “supervisory flexibility” to help consumers and ensured that the CFPB is taking steps such as encouraging the public to attend the Bureau’s events via webcast. She also confirmed that the Financial Stability Oversight Council, of which she is a member, will meet this month. Other covered topics included small dollar loans and payday lending, supervision and enforcement, and the timeline for rulemaking on amendments to the qualified mortgage and ability to repay requirements. (Covered by InfoBytes here.)

    Federal Issues CFPB Senate Banking Committee Covid-19 FSOC Single-Director Structure Seila Law Supervision

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  • 5th Circuit: CFPB structure is constitutional


    On March 3, the same day the U.S. Supreme Court heard oral arguments in Seila Law LLC v. CFPB (covered by InfoBytes here), a divided U.S. Court of Appeals for the Fifth Circuit held that the CFPB’s single-director structure is constitutional, finding no constitutional defect with allowing the director of the Bureau to only be fired for cause. As previously covered by InfoBytes, the CFPB filed a complaint against two Mississippi-based payday loan and check cashing companies for allegedly violating the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices. In March 2018, a district court denied the payday lenders’ motion for judgment on the pleadings, rejecting the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question, and subsequently, the payday lenders filed an unchallenged petition requesting an initial hearing en banc. (Covered by InfoBytes here.)

    On appeal, the majority upheld the district court’s decision that the Bureau is not unconstitutional based on its single-director structure. “The payday lenders argue that the structure of the CFPB denies the Executive Branch its due because the Bureau is led by a single director removable by the President only for cause,” the majority wrote. “We find no support for this argument in constitutional text or in Supreme Court decisions and uphold the constitutionality of the CFPB’s structure, as did the D.C. and Ninth [C]ircuits.” The majority compared the case to the D.C. Circuit’s en banc decision in PHH v. CFPB (covered by a Buckley Special Alert) and the 9th Circuit’s decision in CFPB v. Seila Law LLC (covered by InfoBytes here), both of which upheld the Bureau’s structure. The majority also distinguished a 2018 ruling from the 5th Circuit sitting en banc, which held the FHFA’s single-director structure unconstitutional (covered by InfoBytes here). This provoked a strong dissent charging that the majority had “suddenly discover[ed] that stare decisis is for suckers.”

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Appellate Fifth Circuit

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  • Supreme Court hears arguments on CFPB’s structure


    On March 3, the U.S. Supreme Court heard oral arguments in Seila Law LLC v. CFPB to consider whether the Constitution prohibits an agency being led by a single director who cannot be removed at will by the President. In addition, the arguments addressed the question of the appropriate remedy if the Court determines that the limitation on the President’s ability to remove the director is unconstitutional.

    The case arises out of a Civil Investigative Demand (CID) issued by the CFPB to the petitioner Seila Law, a law firm providing debt relief services to consumers. Seila Law refused to respond to the CID, arguing that it is invalid because the CFPB’s structure is unconstitutional. The CFPB and the DOJ agreed with the contention that the statute is unconstitutional. However, the parties differed on the question of remedy. The government argued that the removal restriction should simply be severed from the statute, leaving the remainder of the Consumer Financial Protection Act in place. But Seila Law argued that to do so would amount to a judicial “rewrite” of the statute, and the Court should instead simply hold that the CID is unenforceable and leave to Congress the task of revising the statute to comply with the Constitution.

    Because the government was not defending the constitutionality of the statute, the court appointed a former Solicitor General to act as an amicus to defend the constitutionality of the statute. In addition, the House of Representatives, which had filed an amicus brief on behalf of that legislative body, also defended the constitutionality of the statute at the oral arguments.

    Find continuing InfoBytes coverage of Seila Law here.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank CIDs CFPA

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  • U.S. Solicitor General: Supreme Court can decide on severability clause without deciding CFPB's future


    On February 14, U.S. Solicitor General Noel J. Francisco filed a reply brief for the CFPB in Seila Law LLC v. CFPB, arguing that the U.S. Supreme Court could decide whether the CFPB’s single-director structure violates the Constitution’s separation of powers under Article II without deciding whether the Bureau as a whole should survive. “Although the removal restriction is unconstitutional, Congress has expressly provided that the rest of the Dodd-Frank Act shall be unaffected,” Francisco said, replying in part to arguments made by Paul D. Clement, the lawyer selected by the Court to defend the leadership structure of the Bureau. As previously covered by InfoBytes, Clement argued, among other things, 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.” Clement also contended 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.” According to Francisco, Seila Law’s arguments for invalidating the entirety of Title X of Dodd-Frank “are insufficient to overcome the severability clause’s plain text,” and its “arguments for ignoring the severability questions altogether are both procedurally and substantively wrong.” Francisco further emphasized that “refusing to apply the severability provision . . .would be severely disruptive” because the Bureau is the only federal agency dedicated solely to consumer financial protection.

    Seila Law also filed a reply brief the same day, countering that Clement offered “no valid justification” for the Court to rule on the severability question separately, and arguing that a “civil investigative demand issued and enforced by an unaccountable director is void, and the only appropriate resolution is to order the denial of the CFPB’s petition for enforcement.” Seila Law further contended that the Court should reverse 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 obligation to comply with a 2017 civil investigative demand—and “leave to Congress the quintessentially legislative decision of how the CFPB should function going forward.”

    Notably, Francisco disagreed with Seila Law’s argument that the 9th Circuit’s judgment should be reversed outright, stating that to do so “would deprive the Bureau of ratification arguments” that the 9th Circuit chose not to address by instead upholding the removal restriction’s constitutionality. The Bureau’s ratification arguments at the time, Francisco stated, contended that even if the removal restriction was found to be unconstitutional, “the CID could still be enforced because the Bureau’s former Acting Director—who was removable at will—had ratified it.” As such, Francisco recommended that the Court “confirm that the severability clause means what it says and remand the case to the [9th Circuit] to resolve any remaining case-specific ratification questions.”

    The same day, the Court approved Seila Law’s motion for enlargement of time for oral argument and for divided argument. The time will be divided as follows: 20 minutes for Seila Law, 20 minutes for the solicitor general, 20 minutes for the court-appointed amicus curiae, and 10 minutes for the House of Representatives.

    Find continuing InfoBytes coverage on Seila here.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank CIDs Appellate Ninth Circuit

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  • Kraninger testifies at House hearing; final payday rule expected in April

    Federal Issues

    On February 6, CFPB Director Kathy Kraninger testified at a House Financial Services Committee hearing on the CFPB’s Semi-Annual Report to Congress. (Covered by InfoBytes here.) The hearing covered the semi-annual report to Congress on the Bureau’s work from April 1, 2019, through September 30, 2019. In her opening remarks, Committee Chairwoman Maxine Waters argued, among other things, that the Bureau’s recent policy statement on the “abusiveness” standard in supervision and enforcement matters “undercuts” Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Waters also challenged Kraninger on her support for the joint notice of proposed rulemaking issued by the OCC and FDIC to strengthen and modernize Community Reinvestment Act regulations (covered by a Buckley Special Alert), arguing that the proposal would lead to disinvestment in communities, while emphasizing that Kraninger’s actions have not demonstrated the Bureau’s responsibility to meaningfully protect consumers. However, in her opening statement and written testimony, Kraninger highlighted several actions recently taken by the Bureau to protect consumers, and emphasized the Bureau’s commitment to preventing harm by “building a culture of compliance throughout the financial system while supporting free and competitive markets that provide for informed consumer choice.”

    Additional highlights of Kraninger’s testimony include:

    • Memoranda of Understanding (MOU) with the Department of Education (Department). Kraninger discussed the recently announced information sharing agreement (covered by InfoBytes here) between the Bureau and the Department, intended to protect student borrowers by clarifying the roles and responsibilities for each agency and permitting the sharing of student loan complaint data analysis, recommendations, and data analytic tools. Kraninger stated that the MOU will give the Department the same near real-time access to the Bureau’s complaint database enjoyed by other government partners, and also told the Committee that the Bureau and Department are currently discussing a second supervisory MOU.
    • Payday, Vehicle Title, and Certain High-Cost Installment Loans. Kraninger told the Committee that a rewrite of the payday lending rule—which will eliminate requirements for lenders to assess a borrower’s ability to repay loans—is expected in April. (Covered by InfoBytes here.) Kraninger noted that the Bureau is currently reviewing an “extensive number of comments” and plans to address a petition on the rule’s payments provision. “[F]inancial institutions have argued that there were some products pulled into that that were, you know, unintended,” she stated. “[W]orking through all of that and. . .moving forward in a way that is transparent in. . .April is what I am planning to do.” 
    • Ability-to-Repay and Qualified Mortgages (QM). Kraninger discussed the Bureau’s advanced notice of proposed rulemaking that would modify the QM Rule by moving away from the 43 percent debt to income ratio requirement and adopt an alternative such as a pricing threshold to ensure responsible, affordable mortgage credit is available to consumers. (Covered by InfoBytes here.) She stated that the Bureau would welcome legislation from Congress in this area.
    • Supervision and Enforcement. Kraninger repeatedly emphasized that supervision is an important tool for the Bureau, and stated in her written testimony that during the reporting period discussed, “the Bureau’s Fair Lending Supervision program initiated 16 supervisory events at financial services institutions under the Bureau’s jurisdiction to determine compliance with federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities, including the Equal Credit Opportunity Act [] and HMDA.” In addition to discussing recent enforcement actions, Kraninger also highlighted three innovation policies: the Trial Disclosure Program Policy, No-Action Letter Policy, and the Compliance Assistance Sandbox Policy. (Covered by InfoBytes here.)
    • Military Lending Act (MLA). Kraninger reiterated her position that she does not believe Dodd-Frank gives the Bureau the authority to supervise financial institutions for military lending compliance, and repeated her request for Congress to grant the Bureau clear authority to do so. (Covered by InfoBytes here.) Congressman Barr (R-KY) noted that while he introduced H.R. 442 last month in response to Kraninger’s request, the majority has denied the mark up.
    • UDAAP. Kraninger fielded a number of questions on the Bureau’s recent abusiveness policy statement. (Covered by InfoBytes here.) Several Democrats told Kraninger the new policy will put unnecessary constraints on the Bureau’s enforcement powers, while some Republicans said the policy fails to define what constitutes an abusive act or practice. Kraninger informed the Committee that the policy statement is intended to “clarify abusiveness and separate it from deceptive and unfairness because Congress explicitly gave us those three authorities.” Kraninger reiterated that the Bureau will seek monetary relief only when the entity has failed to make a good faith effort to comply, and that “[r]estitution for consumers will be the priority in these cases.” She further emphasized that “in no way should that policy be read to say that we would not bring abusiveness claims.” Congresswoman Maloney (D-NY) argued, however, that a 2016 fine issued against a national bank for allegedly unfair and abusive conduct tied to the bank’s incentive compensation sales practices “would have been substantially lower if the [B]ureau hadn’t charged [the bank] with abus[ive] conduct also.” Kraninger replied that the Bureau could have gotten “the same amount of restitution and other penalties associated with unfairness alone.”
    • Constitutionality Challenge. Kraninger reiterated that while she agrees with Seila Law on the Bureau’s single-director leadership structure, she differs on how the matter should be resolved. “Congress obviously provided a clear mission for this agency but there are some questions around. . .this and I want the uncertainty to be resolved,” Kraninger testified. “Congress will have the opportunity to make any changes or respond to that and I think that’s appropriate,” she continued. “I would very much like to see a resolution on this question because it has hampered the CFPB’s ability to carry out its mission, virtually since its inception.” (Continuing InfoBytes coverage on Seila Law LLC v. CFPB here.)

    Federal Issues House Financial Services Committee CFPB UDAAP MOUs Department of Education Payday Rule Ability To Repay Qualified Mortgage Supervision Enforcement Military Lending Act Single-Director Structure Seila Law

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  • Parties file amicus briefs in CFPB constitutionality challenge


    On January 22, a coalition of attorneys general from 23 states and the District of Columbia filed an amicus brief in Seila Law LLC v. CFPB arguing that the U.S. Supreme Court should preserve the CFPB and other consumer protections provide under Title X of Dodd-Frank. Last October the 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. The Court also directed 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. (Previous InfoBytes coverage of the parties’ submissions available here.) In their amicus brief, the AGs argue that the Bureau’s structure is constitutional, and that—even if the for-cause removal provision is deemed invalid—the Bureau and the rest of Title X should survive. The brief highlights joint enforcement actions and information sharing between the states and the Bureau, and emphasizes the importance of Title X provisions that are unrelated to the Bureau but provide states “powerful new tools” for combating fraud and abuse. “These provisions are entirely independent of the provisions governing the CFPB, and they serve distinct policy goals that Congress would not have wanted to abandon even if the CFPB itself were no longer operative,” the AGs write. While the AGs support the U.S. Court of Appeals for the Ninth Circuit’s decision that the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here), they stress that should the leadership structure be declared unconstitutional, the specific clause should be severed from the rest of Dodd-Frank. According to the AGs, “[s]everability is supported not only by [Dodd-Frank’s] express severability clause, but also by Congress’s strongly expressed intent to create a more robust consumer-protection regime to avert another financial crisis.” Moreover, the AGs assert that the states would suffer concrete harm if the Court decides to eliminate the Bureau or rule that the entirety of Title X should be invalidated.

    The same day the U.S. House of Representatives filed an amicus brief arguing that the Court should resolve Seila without deciding the constitutionality of the Bureau director’s removal protection because the removal protection has no bearing on the issue in the case, which is an action addressing whether the Bureau’s civil investigative demand should be enforced. However, should the Court take up the constitutionality question, the brief asserts it should uphold the removal protection. “In establishing the CFPB, Congress built upon its long history of creating, and this Court’s long history of upholding, independent agencies.” The brief states that the “CFPB performs the same functions independent regulators have long performed, and it does so under the same for-cause standard this Court first blessed 85 years ago. The CFPB’s single-director structure does not transform that traditional standard into an infringement on the President’s authority.”

    Earlier on January 21, Seila Law filed an unopposed motion for divided argument and enlargement of time for oral argument, which states that all parties “agree that divided argument is warranted among petitioner, the government, and the court-appointed amicus.” The brief suggests a total of 70 minutes, with 20 minutes for the petitioner, 20 minutes for the government, and 30 minutes for the court-appointed amicus, and notes that any time allotted to the House of Representative should come from the court-appointed amicus’ time. (The House filed a separate brief asking to be allotted oral argument time.)

    A full list of amicus briefs is available here. Oral arguments are set for March 3.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank U.S. House State Attorney General

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