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CFSA files response to CFPB’s SCOTUS petition

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Case Law, Consumer Protection, Dodd-Frank Basics, Government Oversight, Nonbank Financial
Friday, January 20, 2023

Community Financial Services Association of America (CFSA) filed its brief in opposition to the Consumer Financial Protection Bureau’s (CFPB) petition for certiorari to be heard by the Supreme Court. The opposition brief asks the court to let the Fifth Circuit decision stand; or, if the court does decide to hear the case, the brief implores the court not to examine the constitutional question.

The payday lending rule promulgated by the CFPB in 2017, which is the basis for the case, prohibited “a covered lender from continuing to make preauthorized attempts to withdraw loan repayments from a consumer’s bank account after two consecutive attempts are denied for insufficient funds.”

CFSA brought suit against the CFPB, claiming that the payday lending rule was unlawful on several grounds, including two constitutional claims against the CFPB and the way it operated. The first of which, resolved by the Seila Law decision in 2020, was that the actions of the CFPB were invalid because of unconstitutional restrictions insulating the CFPB’s director from presidential removal. Ultimately, the court agreed with the argument, but did not find it as sufficient basis to overturn rules promulgated while the removal restrictions were in place.

The second constitutional argument claimed that the funding structure of the CFPB was an unconstitutional violation of the Article I appropriations clause. In the past few years, a number of entities bringing suit against the CFPB have attempted to make this argument, but with little result. The DC Circuit Court of Appeals, the highest court to have heard a similar argument prior to the Fifth Circuit’s decision, decided on the issue of the funding structure only as it relates to the president’s removal ability, and not as its own independent constitutional issue.

Because the Fifth Circuit is the first appellate level federal court to hold specifically on the issue of the constitutionality of the CFPB’s funding structure, CFSA is pressing the Supreme Court to deny certiorari; or, if it grants certiorari, not decide on the constitutional question.

As part of this request, CFSA employs a legal principle referred to as the constitutional avoidance doctrine. This doctrine states that the court should, whenever possible, avoid ruling on constitutional issues, instead resolving cases based on other – usually statutory – grounds first. CFSA claims that by not deciding on the appropriations clause issue, the court will allow for the question to percolate in the lower courts and create better discourse and understanding of the issue.

“Further percolation would be especially useful so lower courts could address how the nondelegation doctrine relates to the appropriations clause claim,” CFSA wrote in its brief. “Even though the Fifth Circuit stressed the ‘self-actualizing,’ ‘self-determined,’ and ‘self-direct[ed]’ nature of the CFPB’s funding scheme… it artificially refused to consider the nondelegation doctrine.”

In furthering its argument that the Supreme Court should not be hearing the appropriations clause issue, CFSA reiterated its other statutory arguments, which had been dismissed by the Fifth Circuit. This included a reprisal of the removal restrictions argument in which CFSA stated, in contradiction to existing Supreme Court precedent, the Fifth Circuit erroneously dismissed this argument.

CFSA asserts that, if President Donald Trump had been able to remove then-CFPB Director Richard Cordray, the payday lending rule would have never been promulgated. This disregards the fact that Trump-appointed CFPB Director Kathy Kraninger ratified a version of the payday lending rule after the Seila Law decision.

CFSA’s other argument questions the intended reach of the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP). It argued that this payday lending rule did not prohibit UDAAP violations, but instead limited consumer autonomy.

“[T]he rule bans covered lenders from continuing to attempt preauthorized withdrawals for repayment from consumers’ bank accounts after two attempts are denied for insufficient funds, merely to protect consumers from incurring additional fees or other harms,” CFSA wrote. “Of course, consumers can reasonably avoid any such harm in myriad ways, including by declining loans that preauthorize successive withdrawal attempts; funding their accounts before the repayment date; or revoking access to their accounts if they lack the necessary funds. The bureau deemed all that irrelevant based on a paternalist misinterpretation of the statute that allows the agency to prevent informed consumers from voluntarily accepting reasonable financial risks.”

The Supreme Court is expected to review the CFPB’s petition for certiorari, this opposition, and amici curiae briefs in conference in February with a possible hearing date set before the Supreme Court’s term ends in June.

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