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CFPB brief defends funding structure
On May 8, petitioner CFPB filed its brief with the U.S. Supreme Court, criticizing the U.S. Court of Appeals for the Fifth Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where the appellate court found that the Bureau’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause (covered by InfoBytes here and a firm article here). The 5th Circuit’s decision also vacated the agency’s Payday Lending Rule on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding.
Earlier this year, the Bureau filed a petition for a writ of certiorari, which the Court granted (covered by InfoBytes here). The Bureau explained in its petition that the 5th Circuit’s decision would negatively impact its “critical work administering and enforcing consumer financial protection laws” and “threatens the validity of all past CFPB actions as well” as the decision vacates a past agency action based on the purported Appropriations Clause violation. Community Financial Services Association of America (CFSA) filed a conditional cross-petition, seeking review on other aspects of the 5th Circuit’s decision, including that the 5th Circuit’s decision does not warrant review because the appellate court correctly vacated the Payday Lending Rule, which, according to the respondents, has “multiple legal defects, including but not limited to the Appropriations Clause issue.” (Covered by InfoBytes here.)
In its opening brief, the Bureau expanded on why it believes the 5th Circuit erred in its holding. The Bureau argued that the text of the Appropriations Clause “does not limit Congress’ authority to determine the specificity, duration, and source of its appropriations.” The agency further explained that Congress has chosen similar funding mechanisms for many other financial regulatory agencies, including the FDIC, NCUA, FHFA, and the Farm Credit Administration (and agencies outside of the financial regulatory sector), where they are all funded in part through the collection of fees, assessments, and investments. The Bureau emphasized that the 5th Circuit and the CFSA failed “to grapple with the Appropriation Clause’s text, Congress’ historical practice, or [Supreme] Court precedent,” but instead asserted only that the funding mechanism was “unprecedented.” “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes,” the Bureau emphasized. “The Appropriations Clause requires nothing more.” The 5th Circuit’s “novel and ill-defined limits on Congress’s appropriations authority contradict the Constitution’s text and congressional practice dating to the Founding.”
The Bureau also addressed the now-vacated Payday Lending Rule. Arguing that even if there were some constitutional flaw in 12 U.S.C. § 5497 (the statute creating the Bureau’s funding mechanism), the 5th Circuit should have looked for some cure to allow the remainder of the funding mechanism to stand independently instead of “adopting an unjustified and profoundly disruptive retrospective remedy” and presuming the funding mechanism created under Section 5497(a)-(c) was entirely invalid. The Bureau also stressed that vacatur of the agency’s past actions was not an appropriate remedy and is inconsistent with historical practice. Adopting a remedial approach, the Bureau warned, would inflict significant disruption by calling into question 12 years of past agency actions.
The Bureau urged the Court to at most grant only “prospective relief preventing the CFPB from enforcing the Payday Lending Rule against [CFSA] or their members until Congress provides the Bureau with funding from another source.” While such an approach could still “upend” the Bureau’s activities, “it would at least avoid the profoundly disruptive effect of unwinding already completed and concededly authorized agency actions like the Payday Lending Rule,” the Bureau wrote, adding that “[v]acatur of the CFPB’s past actions would be inappropriate in light of the significant disruption that such vacatur would produce.”
Texas bankers seek to invalidate CFPB’s small business lending rule
On April 26, plaintiffs, including a Texas banking association, sued the CFPB, challenging the agency’s final rule on the collection of small business lending data. As previously covered by InfoBytes, last month, the Bureau released its final rule implementing Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and provide to the Bureau data on lending to small businesses with gross revenue under $5 million in their last fiscal year. According to the Bureau, the final rule is intended to foster transparency and accountability by requiring financial institutions—both traditional banks and credit unions, as well as non-banks—to collect and disclose data about small business loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing.
The plaintiffs’ goal of invalidating the final rule is premised on the argument that it will drive from the market smaller lenders who are not able to effectively comply with the final rule’s “burdensome and overreaching reporting requirements” and decrease the availability of products to customers, including minority and women-owned small businesses. Plaintiffs argued that the Bureau “took the original three pages of legislation and the 13 reporting data points required by [Dodd-Frank] and turned them into almost 900 pages of rulemaking—a new [f]inal [r]ule that requires banks to develop and implement new software and compliance mechanisms to comply with over 80 reporting requirements that have been exponentially grown by the CFPB since the Act requiring this [r]ule was passed.”
The plaintiffs further pointed to a decision issued by the U.S. Court of Appeals for the Fifth Circuit in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where the court found that the CFPB’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause (covered by InfoBytes here and a firm article here), as justification for why the final rule should be set aside. The plaintiffs also pointed out certain aspects of the final rule that allegedly violate various requirements of the Administrative Procedure Act, and claimed that a recent data breach involving sensitive information on numerous financial institutions and consumers indicates that the agency is unprepared “to adequately assess the security and privacy impacts of its massive § 1071 data collection on small businesses.” The complaint seeks a court order finding the final rule to have been premised on the same unconstitutional grounds as found in CFSA, preliminary and permanent injunctions to set aside the final rule, and attorney fees and costs.
District Court won’t stay CFPB litigation with credit reporter
On April 13, the U.S. District Court for the Northern District of Illinois denied a credit reporting agency’s (CRA) bid to stay litigation filed by the CFPB alleging deceptive practices related to the marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The Bureau sued the CRA and one of its former senior executives last April (covered by InfoBytes here), claiming the defendants allegedly violated a 2017 consent order by continuing to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges.
The CRA requested a stay while the U.S. Supreme Court considers whether the Bureau’s funding mechanism is unconstitutional. Earlier this year, the Court agreed to review next term the 5th Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where it found that the CFPB’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause. (Covered by InfoBytes here and a firm article here.) While acknowledging that a ruling against the Bureau may result in the dismissal of the action against the CRA, the court concurred with the Bureau that consumers may be exposed to harm during a stay. “Were I to grant the requested stay, it could last more than one year, depending on when the Supreme Court issues its opinion,” the court wrote. “In that time, if the Bureau’s allegations bear out, consumers will continue to suffer harm because of defendants’ unlawful conduct. That potential cost is too great to outweigh the resource preserving benefits a stay would confer.”
CFPB, New York AG ask court to lift stay after 2nd Circuit decision
On March 31, plaintiffs CFPB and the New York Attorney General moved the U.S. District Court for the Southern District of New York to lift its stay order in their litigation against a remittance provider in response to a recent U.S. Court of Appeals for the Second Circuit decision upholding the CFPB’s funding structure under the Constitution’s Appropriations Clause. (Covered by InfoBytes here.) The plaintiffs argued that the 2nd Circuit’s binding opinion has now “answer[ed] the question at the heart of this Court’s stay order: whether the Bureau’s statutory funding mechanism violates the Constitution.”
As previously covered by InfoBytes, the district court had originally paused the proceedings at the defendant’s request when the Supreme Court was considering whether to hear an appeal in a different matter relating to the Bureau’s funding structure. The district court continued the stay after the Supreme Court agreed to review the 5th Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where it found that the CFPB’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause. The Supreme Court is scheduled to review the 5th Circuit’s decision next term (covered by InfoBytes here).
The agencies argued primarily that (i) the 2nd Circuit “expressly considered and rejected the Fifth Circuit’s contrary view in CFSA;” (ii) it “did so notwithstanding that the Supreme Court will consider the same issue next Term”; and (iii) “[g]rants of certiorari do not change the law, and a district court remains bound by circuit precedent until the Supreme Court or the court of appeals changes that precedent.”
On April 7, the court issued an order denying the Bureau's request and electing to keep the stay in place while the Supreme Court resolves the circuit split on this issue.
House subcommittee discusses CFPB reform proposals
On March 9, the House Financial Services Committee’s Subcommittee on Financial Institutions and Monetary Policy held a hearing to discuss proposals that would alter the structure and authority of the CFPB. The subcommittee heard from several witnesses, including the CEO of the American Financial Services Association (AFSA), the Bureau’s former deputy director, and the Minnesota attorney general.
During the hearing, members discussed legislation that would reform the Bureau, including: (i) the Consumer Financial Protection Commission Act, which would make the Bureau an independent commission; (ii) the Transparency in CFPB Cost-Benefit Analysis Act, which would require the Bureau to include a statement justifying any proposed rulemaking (including “why the private market, State, local, or tribal authorities cannot adequately address the problem”), as well as provide qualitative and quantitative cost assessments and data or studies used in preparing a proposal; (iii) the CFPB-IG Reform Act, which would create a separate inspector general for the Bureau; and (iv) the Taking Account of Bureaucrats’ Spending (TABS) Act, which would make the Bureau an independent agency from the Federal Reserve System called the “Consumer Financial Empowerment Agency” that would be funded through congressional appropriations rather than the Fed.
In his prepared testimony, the AFSA CEO alleged several examples of regulatory overreach taken by the Bureau, including: (i) imposing limits on arbitration, despite the Bureau’s own finding that arbitration benefits consumers; (ii) releasing guidance, instead of legislative rulemaking, which creates ambiguity for companies and consumers; (iii) using “regulation by enforcement” to change TILA and creating an ability to repay standard that does not exist in any consumer financial law or regulation; (iv) issuing press releases that serve as regulations and provide recommendations inconsistent with the plain language of laws such as the SCRA; and (v) creating potential harm to servicemembers through misinterpretations of the Military Lending Act. He further explained that a press release issued by the Bureau last year on junk fees (covered by InfoBytes here) “goes beyond its authority” and creates confusion for both depository institutions and finance companies who are unsure what the rules are. He emphasized that “the best way to protect consumer is to protect access to credit,” and the best method for achieving this “is to have clearly defined terms and conditions that both industry and the regulatory community can understand and follow.”
The former CFPB deputy director also asserted in his prepared testimony that the agency is prone to exceeding statutory limits or requirements. He commented that “[w]hile one or two of these actions could perhaps be dismissed as over-exuberance, the frequency with which these issues arise suggests that the agency lacks adequate internal or external controls to ensure it operates within the law,” and that in “the absence of these controls . . . [it] compels the conclusion that the CFPB is ripe for reform.” He also maintained that having the Bureau go through the annual appropriations process would help the agency “focus its priorities” and “improve its effectiveness and efficiency.” He further noted that expanding the Bureau’s UDAAP authority to cover conduct it observes in the marketplace (such as applying UDAAP credit discrimination laws to any decision making by a financial institution) is “a decision fundamentally for Congress.”
The Minnesota attorney general, however, highlighted joint enforcement actions taken with the Bureau in his prepared testimony, stating that by serving “as a critical enforcement partner,” the agency is operating as Congress intended when it created the Bureau in response to the 2008 financial crisis. “The CFPB’s destruction would topple the whole system like dominos,” he stressed, adding that the funding arguments fall short as several federal agencies are not funded by Congress.
Senators Sherrod Brown (D-OH), Chair of the Senate Banking Committee, and Representative Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, issued a statement strongly disagreeing with the introduced legislation. “We will continue to work with our colleagues to stop any anti-consumer bill and protect the CFPB so that consumers can continue to have an agency solely dedicated to protecting their hard-earned money,” the lawmakers said.
Online lender asks Supreme Court to review ALJ ruling
A Delaware-based online payday lender and its founder and CEO (collectively, “petitioners”) recently submitted a petition for a writ of certiorari challenging the U.S. Court of Appeals for the Tenth Circuit’s affirmation of a CFPB administrative ruling related to alleged violations of the Consumer Financial Protection Act (CFPA), TILA, and EFTA. The petitioners asked the Court to first review whether the high court’s ruling in Lucia v. SEC, which “instructed that an agency must hold a ‘new hearing’ before a new and properly appointed official in order to cure an Appointments Clause violation” (covered by InfoBytes here), meant that a CFPB administrative law judge (ALJ) could “conduct a cold review of the paper record of the first, tainted hearing, without any additional discovery or new testimony.” Or, the petitioners asked, did the Court intend for the agency to actually conduct a new hearing. The petitioners also asked the Court to consider whether an agency funding structure that circumvents the Constitution’s Appropriations Clause violates the separation of powers so as to invalidate prior agency actions promulgated at a time when the Bureau was receiving such funding.
The case involves a challenge to a 2015 administrative action that alleged the petitioners engaged in unfair or deceptive acts or practices when making short-term loans (covered by InfoBytes here). The Bureau’s order required the petitioners to pay $38.4 million as both legal and equitable restitution, along with $8.1 million in penalties for the company and $5.4 million in penalties for the CEO. As previously covered by InfoBytes, between 2018 and 2021, the Court issued four decisions, including Lucia, which “bore on the Bureau’s enforcement activity in this case” by “deciding fundamental issues related to the Bureau’s constitutional authority to act” and appoint ALJs. During this time, two different ALJs decided the present case years apart, with their recommendations separately appealed to the Bureau’s director. The director upheld the decision by the second ALJ and ordered the lender and its owner to pay the restitution. A district court issued a final order upholding the award, which the petitioners appealed, arguing, among other things, that the enforcement action violated their due-process rights by denying the CEO additional discovery concerning the statute of limitations. The petitioners claimed that they were entitled to a “new hearing” under Lucia, and that the second administrative hearing did not rise to the level of due process prescribed in that case.
However, the 10th Circuit affirmed the district court’s $38.4 million restitution award, rejecting the petitioners’ various challenges and affirming the director’s order. The 10th Circuit determined that there was “no support for a bright-line rule against de novo review of a previous administrative hearing,” nor did it see a reason for a more extensive hearing. Moreover, the petitioners “had a full opportunity to present their case in the first proceeding,” the 10th Circuit wrote.
The petitioners maintained that “[d]espite the Court’s clear instruction to hold a ‘new hearing,’ ALJs and courts have reached divergent conclusions as to what Lucia requires, expressing confusion and frustration regarding the lack of guidance.” What it means to hold a “new hearing” runs “the gamut,” the petitioners wrote, pointing out that while some ALJs perform a full redo of the proceedings, others merely accept a prior decision based on a cold review of the paper record. The petitioners argued that they should have been provided a true de novo hearing with an opportunity for new testimony, evidence, discovery, and legal arguments. The rehearing from the new ALJ was little more than a perfunctory “paper review,” the petitioners wrote.
Petitioners asked the Court to grant the petition for three reasons: (i) “the scope of Lucia’s ‘new hearing’ remedy is an important and apparently unsettled question of federal law”; (ii) “the notion Lucia does not require a genuinely ‘new’ de novo proceeding is necessarily wrong because a sham ‘remedy’ provides parties no incentive to litigate Appointments Clause challenges”; and (iii) the case “is an ideal vehicle to provide guidance on Lucia’s ‘new hearing’ remedy.” The petitioners further argued that “Lucia’s remedy should provide parties an incentive to raise separation of powers arguments by providing them actual and meaningful relief.”
The petitioners’ second question involves whether Appropriations Clause violations that render an agency’s funding structure unconstitutional, if upheld, invalidate agency actions taken under such a structure. The petitioners called this “an important, unsettled question of federal law meriting the Court’s review,” citing splits between the Circuits over the constitutionality of the Bureau’s funding structure which has resulted in uncertainty for both regulators and regulated parties. Recently, the Court granted the Bureau’s request to review the 5th Circuit’s decision in CFSAA v. CFPB, which held that Congress violated the Appropriations Clause when it created what the 5th Circuit described as a “perpetual self-directed, double-insulated funding structure” for the agency (covered by InfoBytes here).
Supreme Court agrees to review constitutionality of CFPB’s funding, but not on an expedited basis
The Supreme Court granted the CFPB's request to review the U.S. Court of Appeals for the Fifth Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau but so far has not expedited consideration of the case. Without quick action to expediate consideration by the Court, all CFPB actions will be open to challenge until the Supreme Court issues a decision. At the current pace, the CFPB could remain in this limbo until June of 2024.
In this case, the 5th Circuit held that Congress violated the Constitution’s Appropriations Clause when it created what that Court described as a “perpetual self-directed, double-insulated funding structure” for the agency. As a result, the CFPB’s 2017 Payday Lending Rule is invalid because the CFPB would not have been able to issue it “without its unconstitutional funding.” The implication, as the CFPB itself pointed out in its petition for certiorari, is that all past and future actions that relied on the same funding mechanism—basically everything the agency has ever done or will ever do—are invalid as well.
Although the CFPB had ninety days to seek review of the 5th Circuit’s decision, it took the unusual step of filing the petition in less than 30 days, and specifically urged the Supreme Court to “set this case for argument this Term,” to guarantee a decision by June or early July of this year. The Court’s order issued Monday simply states that the CFPB’s petition is granted, without setting an expediated briefing schedule. As a result, without the Court taking some immediate steps to speed up consideration, the case will be decided under the Court’s standard briefing schedule. This means the matter will be briefed over the next several months with oral argument likely next fall, as part of the Supreme Court’s October 2023 Term. Although a decision could come out any time after oral argument, cases as significant as this case often come out towards the end of the term, i.e., by June 2024.
The Supreme Court’s unwillingness to expedite consideration of the case to date has serious practical implications for the CFPB’s ability to push forward its ambitious agenda. As the CFPB has itself acknowledged, the 5th Circuit’s decision binds lower courts in that circuit unless and until it is overturned. It will likely encourage challenges to CFPB rulemakings and potentially other actions in that circuit. Even outside of the 5th Circuit, lower courts adjudicating CFPB enforcement actions may be unwilling to move those cases forward until the Supreme Court provides direction on this fundamental funding issue. Thus, for the time being, we can expect more challenges and more delays in CFPB enforcement actions.
For financial institutions, our advice remains the same as when the 5th Circuit’s decision was issued. Generally, companies should maintain their day-to-day focus on compliance, as the CFPB may weather this latest constitutional challenge with its full authority, including its enforcement power, intact. In addition, other Federal agencies—for example, the Federal banking agencies, the National Credit Union Administration, the Federal Trade Commission—and state attorneys general and/or state regulators often have overlapping authority to enforce Federal consumer financial law. Finally, companies should continue to assume that rules issued by the Bureau are valid and that they will not be penalized for good-faith reliance on such rules.
Supreme Court “relist” of CFPB petition for certiorari threatens prolonged legal limbo
The Supreme Court recently had the opportunity to grant the CFPB’s pending petition for certiorari seeking review of the U.S. Court of Appeals for the Fifth Circuit’s holding in Community Financial Services Association of America v. Consumer Financial Protection Bureau. The 5th Circuit found that the agency’s funding structure is unconstitutional, potentially voiding everything the CFPB has done or could do. The Justices considered the petition at their conference this past Friday, but the Court neither granted nor denied the petition. Instead, it “relisted” the petition for consideration at its conference this Friday, February 24.
The Court’s decision functions as a delay and does not necessarily suggest an ultimate denial of the petition. In recent practice, petitions have been relisted before being granted. Practically, this action makes it less likely that the case will be decided this term, leaving the agency, and the rules it issues, in a state of legal limbo for as much as another year or more. The possibility that the case will not be decided during this Supreme Court term may leave the CFPB’s actions subject to successful challenges in federal district courts in states subject to the 5th Circuit decision (Texas, Mississippi and Louisiana).
The CFPB was no doubt hoping to avoid this possible outcome. It filed the petition less than 30 days after the 5th Circuit’s decision and urged the Court to act quickly to decide the case during the current term, which typically ends in late June. In the petition the CFPB explained that the 5th Circuit’s decision would negatively impact the “CFPB’s critical work administering and enforcing consumer financial protection laws … because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well.” The CFPB argued that refusal to decide the case this term “threatens the ability of the CFPB to function and risks severe market disruption. Delaying review until next term would likely postpone resolution of the critical issues at stake until sometime in late 2023 and more likely 2024.”
The CFPB’s timeline was complicated by the Court’s agreement to extend the briefing schedule on the petition, in part to accommodate briefing on the Community Financial Services Association of America’s conditional cross-petition, which seeks review on other aspects of the 5th Circuit’s decision. The Court’s delay in acting on the CFPB’s petition complicates matters further. It is still possible that the Court could agree to hear the case and set it for expedited briefing so that it can be decided this term, but every indication so far is that the Court is in no hurry to decide this matter, even if it complicates life for the CFPB. Stay tuned. We may get action on the petition by the Court either Friday or next Monday.
Find continuing InfoBytes coverage here.
CFPB urges Supreme Court review of 5th Circuit decision
The CFPB recently filed a reply brief in its petition for a writ of certiorari asking the U.S. Supreme Court to review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution, and to consider the appellate court’s decision to vacate the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule or Rule) on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding. (Covered by InfoBytes here.)
Last month, the respondents filed an opposition brief urging the Supreme Court to deny the Bureau’s petition on the premise that the 5th Circuit’s decision does not warrant review—“let alone in the expedited and limited manner that the Bureau proposes”—because the appellate court correctly vacated the Payday Lending Rule, which, according to the respondents, has “multiple legal defects, including but not limited to the Appropriations Clause issue.” (Covered by InfoBytes here.) The respondents also maintained that the case “is neither cleanly presented . . . nor ripe for definitive resolution at this time,” and argued that the Supreme Court could address the validity of the Payday Lending Rule without addressing the Bureau’s funding issue. Explaining that the 5th Circuit’s decision “simply vacated a single regulation that has never been in effect,” the respondents claimed that the appellate court should have addressed questions about the Rule’s validity before deciding on the Appropriations Clause question. The respondents filed a cross-petition for writ of certiorari arguing that if the Supreme Court decides to hear the case, it should vacate the rule based on the unconstitutional removal restriction, and because it exceeds the Bureau’s statutory authority since “the prohibited conduct falls outside the statutory definition of unfair or abusive conduct.”
In its reply brief, the Bureau challenged the respondents’ assertion that the agency’s funding was “unprecedented,” noting that the respondents “cannot meaningfully distinguish the CFPB’s funding from Congress’s longstanding and concededly valid practice of funding agencies from standing sources outside annual spending bills.” The Bureau also argued that the respondents failed to rehabilitate the appellate court’s disruptive remedy and could not justify the district court’s failure to conduct a severability analysis. Even if any unconstitutional features could be severed, that would not justify the “extraordinarily disruptive remedy of automatic vacatur” of the Payday Lending Rule, the Bureau said. Furthermore, the Bureau contended that the respondents offered no sound basis for declining to review the appellate court’s decision in the current Supreme Court term.
According to the Bureau, the decision “carries immense legal and practical consequences that override any interest in ‘further percolation’” and “has already affected more than half of the Bureau’s 22 active enforcement actions” where five have been stayed and motions for relief are pending in seven other courts. Emphasizing that the 5th Circuit’s decision “threatens the validity of virtually all past CFPB actions, including numerous regulations that are critical to consumers and the financial industry,” the Bureau stressed that the proper course would be to grant its petition, set the case for argument in April, and add the additional questions raised by respondent in their cross-petition.
Respondents urge Supreme Court to wait on CFPB funding review
On January 13, respondents filed a brief in opposition to a petition for a writ of certiorari filed by the CFPB last November, which asked the U.S. Supreme Court to review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution (covered by InfoBytes here). The Bureau also asked the Supreme Court to consider the 5th Circuit’s decision to vacate the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule or Rule) on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding. The Bureau requested that the Supreme Court review the case during its current term, which would ensure resolution of the issue by the summer of 2023. Last December, a coalition of state attorneys general from 22 states, including the District of Columbia, filed an amicus brief supporting the Bureau’s petition for a writ of certiorari, while 16 states filed an amicus brief opposing the petition (covered by InfoBytes here).
In their opposition brief, the respondents urged the Supreme Court to deny the Bureau’s petition on the premise that the 5th Circuit’s decision does not warrant review—“let alone in the expedited and limited manner that the Bureau proposes”—because the appellate court correctly vacated the Payday Lending Rule, which, according to the respondents, has “multiple legal defects, including but not limited to the Appropriations Clause issue.” Among other things, the respondents argued that the Bureau erroneously contended that the Appropriations Clause does not limit the manner in which Congress may exercise its authority, claiming that: (i) the Appropriations Clause ensures Congressional oversight of the federal fiscal and executive power; (ii) the Bureau’s funding statute nullifies Congress’s appropriations power in an unprecedented manner; (iii) the Bureau’s merit defenses, including claims that text, history, and precedent support its funding scheme, all fail; and (iv) the Bureau’s remedial defenses of the Payday Lending Rule also fail.
The respondents also maintained that the case “is neither cleanly presented . . . nor ripe for definitive resolution at this time,” and argued that the Supreme Court could address the validity of the Payday Lending Rule without addressing the Bureau’s funding issue. Explaining that the 5th Circuit’s decision “simply vacated a single regulation that has never been in effect,” the respondents claimed that the appellate court should have addressed questions about the Rule’s validity before deciding on the Appropriations Clause question. The respondents claimed that the appellate court incorrectly rejected two antecedent grounds for vacating the Payday Lending Rule: (i) the Rule’s “promulgation was tainted by the removal restriction later held invalid in Seila Law” (covered by a Buckley Special Alert); and (ii) the Rule exceeds the Bureau’s authority “because the prohibited conduct falls outside the statutory definition of unfair or abusive conduct.” “Given the significant prospect that this Court will be unable to resolve the constitutional question in this case, it should await a better vehicle,” the respondents wrote, adding that “[i]f and when some judgment in some future case has ‘major practical effects,’  the Bureau should seek this Court’s review then—which may well present a better vehicle.”
Further, the respondents stated that if the Supreme Court grants review of the case, it “should proceed in a more deliberative fashion than the Bureau has urged.” The respondents asked the Supreme Court to expressly include the antecedent questions by either granting the respondents’ cross-petition or adding them to the Board’s petition in order to provide clarity about whether the Supreme Court intends to consider the alternative grounds. They further urged the Supreme Court to wait until next term to review the case, writing that the Bureau “cannot justify its demand for a case of this complexity and importance to be briefed, argued, and decided in a few months at the end of a busy Term.”