U.S. Supreme Court Grants Cert Petition by CFPB, Regulatory Uncertainty Remains

On Monday, February 27, the U.S. Supreme Court granted the certiorari petition¹ filed by the Consumer Financial Protection Bureau (“CFPB”) seeking review of the Fifth Circuit decision in Community Financial Services Association of America v. CFPB,² which held unconstitutional the CFPB’s independent funding structure. The Court will hear arguments in the case next term.

In Community Financial Services Association of America v. CFPB, two trade groups representing payday lenders challenged a CFPB regulation limiting the number of times lenders can try to withdraw funds from borrowers’ bank accounts (the “Payday Lending Rule”). One provision of the Payday Lending Rule, known as the “payment provision,” provides that, so long as the purpose of a lender’s attempt to transfer funds from a consumer’s account is to collect payment due on a covered loan, the withdrawal is limited to two consecutive attempts unless additional payment transfers are authorized by the consumer.³ The Fifth Circuit struck down the Payday Lending Rule on the basis that the CFPB’s funding—which is provided by the Federal Reserve outside of the congressional appropriations process—violated the Appropriations Clause of the U.S. Constitution, which provides that “no [m]oney shall be drawn from the Treasury, but in [c]onsequence of [a]ppropriations made by law . . . .”⁴

In response, the CFPB filed a certiorari petition to the Supreme Court, arguing that the Fifth Circuit’s holding on the CFPB’s funding mechanism runs contrary to decisions by the D.C. Circuit Court of Appeals and at least six district courts, is inconsistent with U.S. Supreme Court precedent, and is contrary to the text of the Constitution.⁵ Furthermore, the CFPB argued that the ruling threatens legal and practical burdens to the CFPB’s enforcement authority, resulting in uncertainty to consumers and the broader financial sector. Not only did the Fifth Circuit’s ruling prompt defendants in several related CFPB enforcement cases to seek dismissal or similar relief based on the ruling, the Appropriations Clause issue implicates the validity of other important CFPB regulations, including certain disclosure requirements under the Truth in Lending Act.

The Supreme Court granted the CFPB’s petition, but declined to expedite the hearing. Instead, the Court will hear the case next term, continuing the current state of regulatory uncertainty surrounding the actions of the CFPB generally.

Footnotes

1) See Orders in Pending Cases (Feb. 27, 2023), No. 22-448, available here.

2) Community Financial Services Association of America, Limited, et al. v. Consumer Financial Protection Bureau, No. 21-50826 (5th Cir. Oct. 19, 2022), available here.

3) 12 C.F.R. § 1041.7.

4) U.S. Const., art. I, § 9, cl. 7.

5) See CFPB’s Petition for a Writ of Certiorari (Nov. 2022), available here.