The brief in the case challenging the CFPB’s funding structure outlines the need for the court to rule the bureau is in violation of the congressional appropriations clause in the Dodd-Frank Act and leave the remedy to Congress.
07/13/2023 12:00 P.M.
4.5 minute read
ACA International has filed an amicus brief in a closely-watched Supreme Court case that could have a significant impact on the Consumer Financial Protection Bureau’s funding and regulatory authority.
ACA’s brief (PDF) submitted by Brownstein Hyatt Farber Schreck, LLP, counsel Christopher Murray, supports Community Financial Services Association of America, Limited, et al., (CFSAA), which filed suit against the CFPB and Director Rohit Chopra challenging the bureau’s 2017 payday lending rule on the grounds the rule is not valid because the CFPB’s funding structure is unconstitutional.
The 5th Circuit Court of Appeals issued a ruling that the CFPB’s funding structure violates the appropriations clause in the fall of 2022. The CFPB appealed the decision and its petition for the U.S. Supreme Court to review the case was granted, ACA previously reported.
The CFPB requested that the court address whether the 5th Circuit Court of Appeals erred in its ruling that the bureau’s funding structure through the Federal Reserve rather than the congressional appropriations process violates the U.S. Constitution’s separation of powers.
Seila Law Precedent
This isn’t the first time the CFPB’s funding and leadership structure has been before the Supreme Court.
In the 2019 Seila Law LLC v. Consumer Financial Protection Bureau decision, the Supreme Court found that the bureau’s restrictions on removal of the CFPB director were unconstitutional and ruled that the president can remove the director at will, not only for cause.
However, the court also said the components of the Dodd-Frank Act, which created the CFPB, that outline its leadership structure and funding can remain in place separate from the updated language on the president’s options to remove the director of the bureau.
CFSAA’s argument to the Supreme Court now builds on those laid out in the Seila Law case that the “CFPB’s double insulated, self-actualizing, perpetual funding mechanism violates the separation of power and therefore is unconstitutional.”
ACA’s brief addresses the question of the appropriate remedy the court may choose.
“Any changes to the ‘new normal’ since the CFPB’s inception a little more than a decade ago will impact how ACA members operate and the compliance programs and systems that they have in place in response to the [b]ureau’s rules and enforcement actions. While ACA members do not agree with many actions taken by the [b]ureau, they also benefit when there is regulatory certainty and clear requirements. ACA has an interest in ensuring that any remedy the (c)ourt imposes minimizes the disruption to markets and financial service providers, while still securing [r]espondents meaningful relief,” the brief states.
Congress Should Restructure the CFPB
In the amicus brief, ACA argues that the Supreme Court should affirm the 5th Circuit’s decision on the CFPB’s funding structure but delay its judgment for six months to allow Congress time to consider options to reconstitute the bureau while minimizing disruptions for consumers and regulated entities.
“ACA and its members have a strong interest in how the [c]ourt decides and, if necessary, remedies the constitutional issue presented in this case for many reasons, including that participants in the accounts receivables management industry are both supervised and regulated under the various consumer protection laws under the Consumer Financial Protection Bureau’s jurisdiction,” the brief states.
The authority to rewrite the appropriations statute to address the bureau’s funding lies solely with Congress.
Delaying a judgment from the court would allow the CFPB “to continue to exist, protecting market and institutional stability, while simultaneously allowing the political branches time to respond to—and potentially remedy, if desired—the defective financing scheme. This is not a novel approach; the [c]ourt has previously used stays to minimize the immediate impact of its rulings that otherwise would have sweeping consequences,” ACA’s brief states.
Members of Congress have already proposed several bills that would bring the bureau’s funding into the congressional appropriations process and change the leadership structure to a bipartisan commission, similar to the Federal Trade Commission and Federal Communications Commission.
If the court rules in favor of CFSAA, it is critical to have Congress take the reins and for the bureau to continue to operate until they act on legislation.
Without that, the roughly 70,000 businesses across the country regulated by the bureau and consumers it serves would see significant impacts without market stability from the bureau and its existing rules holding true, ACA argues in the brief.
Without a court mandate to Congress, a realigned bureau might be motivated to ratify or reconsider prior agency actions, revisit any open and pending enforcement actions; and determine whether to readjudicate certain prior adjudications.
Ultimately, even if changing the bureau’s financing structure proves too difficult for the political branches, a reasonable stay would give the CFPB time to “transition its affairs with minimal disruption to the markets, consumers, and regulated entities. It would also place the decision to allow the disruption that would necessarily follow the [b]ureau’s shuttering where it belongs: with the political branches of government,” ACA concludes in the brief.
The case is set to be heard by the Supreme Court in its term that begins in October 2023. A decision is expected to be issued between December 2023 and the end of June 2024.
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