Government appeals decision against Consumer Financial Protection Bureau

Petitions of the week Government appeals decision against Consumer Financial Protection Bureau By Kalvis Golde
on Nov 18, 2022 at 2:31 pm Share

The Petitions of the Week column highlights a selection of cert petitions recently filed in the Supreme Court. A list of all petitions we’re watching is available here.

For the second time in just over three years, the Supreme Court may determine the future of the federal watchdog agency that seeks to protect consumers in the financial sector.

Three terms ago in Seila Law v. Consumer Financial Protection Bureau, the justices ruled by a vote of 5-4 that Congress violated the separation of powers when it placed the CFPB under the control of a single director removable by the president only for cause, as opposed to at will. The court, however, declined to invalidate the entire agency for this structural flaw, instead severing the for-cause provision from the rest of its authorizing statute. This week, we highlight cert petitions that ask the court to consider, among other things, whether the agency is unconstitutional for a different reason: its funding mechanism.

The brainchild of Sen. Elizabeth Warren, D-Mass., the CFPB was established by Congress in the wake of the Great Recession as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress created the agency to consolidate the responsibilities spread across several agencies to enforce financial consumer-protection laws and issue new rules governing predatory business practices.

To insulate the agency from the whims of future politicians, Congress made two key decisions about its structure.

First, the Dodd-Frank Act authorizes the CFPB’s director to serve five-year terms after appointment by the president and confirmation by the Senate, and – until Seila Law – constrained the president from firing the director except for “inefficiency, neglect of duty, or malfeasance in office.” Second, the act places the agency’s funding in control of the Federal Reserve. Each year, the Fed can grant a budget request by the CFPB’s director of up to 12% of the Fed’s operating reserves. Although the director must comply with an annual audit by the comptroller general and submit regular reports to certain committees in Congress, the act shields the agency from oversight by the House and Senate Appropriations Committees.

Two financial associations sued the CFPB after the agency issued a rule cracking down on payday lenders. The associations’ last-ditch argument was that the rule should not apply to them because it was issued by an agency with an unconstitutional funding structure.

The U.S. Court of Appeals for the 5th Circuit rejected the challenges to the rule itself. However, it agreed that the CFPB is unconstitutionally funded. The Fed’s power to set the agency’s budget independent of the annual congressional appropriations process and shielded from review by the appropriations committees, the 5th Circuit ruled, violates the clause in Article I, Section 9 of the Constitution requiring congressional “Appropriations” for any “Money … drawn from the Treasury.” Concluding that the funding mechanism is inseparable from the rest of the agency’s structure, the court invalidated the payday lending rule.

In Consumer Financial Protection Bureau v. Community Financial Services Association of America, the CFPB and its current director, Rohit Chopra, ask the justices to reverse the 5th Circuit’s decision. An act of Congress authorizing the Fed to allocate funds to the agency up to a set cap satisfies the appropriations clause, the government argues, especially considering other agencies Congress has funded through similar means. If the justices disagree, however, the government insists that portions of the funding mechanism can be invalidated without jeopardizing the entire CFPB – especially given that the Dodd-Frank Act, as the court noted in Seila Law, contains an express severability clause.

The government urges the court to hear argument early next year and issue a decision by June.

A list of this week’s featured petitions is below:

Alaska v. Haaland
22-401
Issue: Whether the federal Alaska National Interest Lands Conservation Act of 1980, which sought to preserve Alaska’s traditional police powers over wildlife, grants federal agencies plenary authority to preempt state law regulating how people hunt.

Vorley v. United States
22-402
Issues: (1) Whether a “scheme or artifice to defraud” under the wire fraud statute, 18 U.S.C. § 1343, encompasses an “implied misrepresentation,” or whether the statute requires an express statement that is either false or misleading; and (2) whether a district court may cure a Speedy Trial Act violation by making an after-the-fact finding that the ends of justice outweigh the interests of the criminal defendant and the public for a speedy trial, or whether the court must make the ends-of-justice finding at the time that it grants the continuance.

Harness v. Watson
22-412
Issue: Whether any amendment to a law originally adopted for an impermissible racially discriminatory purpose, no matter how minor the amendment and no matter the historical context, cleanses the law of its racist origins for 14th Amendment purposes unless the party challenging the law can prove that the amendment itself was motivated by racial discrimination.

Metzgar v. U.A. Plumbers and Steamfitters Local No. 22 Pension Fund
22-417
Issue: Whether the Employee Retirement Income Security Act of 1974’s anti-cutback rule, 29 U.S.C. 1054(g), prohibits plan trustees and other plan sponsors from eliminating participants’ early retirement benefits through a reinterpretation of the plan to disallow previously permitted postretirement employment, thus accomplishing through a plan interpretation what they could not do through the plan’s formal amendment process.

Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited
22-448
Issue: Whether the court of appeals erred in holding that the statute providing funding to the Consumer Financial Protection Bureau, 12 U.S.C. § 5497, violates the appropriations clause in Article I, Section 9 of the Constitution, and in vacating a regulation promulgated at a time when the Bureau was receiving such funding.

Posted in Cases in the Pipeline

Cases: Alaska v. Haaland, Vorley v. United States, Harness v. Watson, Metzgar v. U.A. Plumbers and Steamfitters Local No. 22 Pension Fund, Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited

Recommended Citation: Kalvis Golde, Government appeals decision against Consumer Financial Protection Bureau, SCOTUSblog (Nov. 18, 2022, 2:31 PM), https://www.scotusblog.com/2022/11/government-appeals-decision-against-consumer-financial-protection-bureau/