On February 27, 2023, the Supreme Court granted the certiorari petition of the Consumer Financial Protection Bureau (CFPB) to hear a case that could cast doubt on all of the regulations that have been promulgated by the bureau to date, as well as all pending investigations and litigation brought by the agency.

The Court will consider in Consumer Financial Protection Bureau (CFPB) v. Community Financial Services Association of America (CFSA) whether the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution, which says, “no money shall be drawn from the Treasury, but in consequence of appropriations made by the law.”

How We Got Here

On October 19, 2022, a unanimous three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that the CFPB’s funding mechanism, funded by fees collected by the Federal Reserve Board rather than appropriations from Congress, is unconstitutional. According to the panel, the CFPB’s funding was doubly insulated from congressional appropriations, and, as a result, the agency was unaccountable to both Congress and the public. Specifically, the panel held that the funding mechanism violates the Constitution’s separation of powers framework, and in particular the Appropriations Clause.

The Fifth Circuit’s ruling was the culmination of a multi-year litigation challenging the CFPB’s Payday Lending Rule, which was codified in 2017. The CFSA challenged the rule and the constitutionality of the CFPB itself.

The Fifth Circuit also held that even though the CFPB funding mechanism was unconstitutional, the agency did otherwise have the authority to promulgate the rule.

With respect to the CFSA, the Fifth Circuit held, “Because the funding employed by the Bureau to promulgate the Payday Lending Rule was wholly drawn through the agency’s unconstitutional funding scheme, there is a linear nexus between the infirm provision (the Bureau’s funding mechanism) and the challenged action (promulgation of the rule) . . . Plaintiffs were thus harmed by the Bureau’s improper use of unappropriated funds to engage in the rulemaking at issue.” The Fifth Circuit’s ruling is binding on the federal district courts in Texas, Louisiana, and Mississippi.

Next Steps

The Supreme Court will not hear this case until its next term, which begins in October 2023. In the interim, in districts other than those bound by the Fifth Circuit ruling, the decision will continue to cloud the CFPB’s actions and create uncertainty for industry. Any potential enforcement activity will likely be met with assertions related to the unconstitutional funding mechanism of the CFPB. Nonetheless, we expect the CFPB to continue to pursue its investigatory and supervisory activity aggressively and in furtherance of its stated regulatory agenda.

For more information on this decision and its potential impact on your business, please contact any of the authors.

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Related Articles

Federal Appeals Court Finds CFPB Unconstitutionally Funded, Structured (10.21.2022)

The Future of the CFPB Post-Appeals Court Decision

Supreme Court Severs For-Cause Removal Provision, but CFPB Remains (6.29.2020)

Seila Law v. CFPB: The Fate of the Bureau in the Balance (3.4.2020)

Consumer Financial Services Outlook 2023

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Photo of Jonathan L. Pompan Jonathan L. Pompan

Jonathan Pompan is co-chair of the firm’s Consumer Financial Services Practice Group and Consumer Financial Protection Bureau (CFPB) Task Force. Jonathan’s practice focuses on providing comprehensive legal advice and regulatory advocacy to a broad spectrum of clients, such as nonbank financial products and…

Jonathan Pompan is co-chair of the firm’s Consumer Financial Services Practice Group and Consumer Financial Protection Bureau (CFPB) Task Force. Jonathan’s practice focuses on providing comprehensive legal advice and regulatory advocacy to a broad spectrum of clients, such as nonbank financial products and services providers, advertisers and marketers, and trade and professional associations, before the CFPB, the Federal Trade Commission (FTC), state attorneys general, and regulatory agencies. At a time when government consumer protection agencies are stepping up their scrutiny, Jonathan develops strong and lasting relationships with clients by understanding their business objectives, helping them recognize opportunities and avoid legal pitfalls.

Photo of Ellen T. Berge Ellen T. Berge

Ellen Berge provides counsel on regulatory compliance, government investigations, contract negotiations, and general business matters. Ellen focuses on advertising, marketing practices, payment processing, and merchant services. Her clients include major brand advertisers and direct-response retailers, and lead generators, telemarketers, media agencies, software providers…

Ellen Berge provides counsel on regulatory compliance, government investigations, contract negotiations, and general business matters. Ellen focuses on advertising, marketing practices, payment processing, and merchant services. Her clients include major brand advertisers and direct-response retailers, and lead generators, telemarketers, media agencies, software providers, and others who serve them. On the merchant services side, she leads a practice that works with banks, processors, sales agents, payment facilitators, independent software vendors, and fintech and financial services businesses. Ellen also serves as the firm’s managing partner of Professional Development and Recruiting.

Andrew E. Bigart

Andrew Bigart focuses his practice on helping bank and non-bank financial institutions navigate the federal and state regulatory environment governing payments, lending, and consumer financial services. Andrew provides regulatory and business counseling advice to clients across a variety of industries, including banks, payments…

Andrew Bigart focuses his practice on helping bank and non-bank financial institutions navigate the federal and state regulatory environment governing payments, lending, and consumer financial services. Andrew provides regulatory and business counseling advice to clients across a variety of industries, including banks, payments companies, money transmitters, broker-dealers, lenders, and trade associations. He counsels clients on regulatory compliance matters, contract negotiations, due diligence, federal and state examinations, and civil investigations and litigation before federal and state banking and financial institution regulators. Andrew has been recognized by Legal 500 and named to the Electronic Transactions Association’s Forty under 40 list.

Photo of Leonard L. Gordon Leonard L. Gordon

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in…

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in investigations and litigation with the FTC, state attorneys general, the Department of Justice (DOJ), and the Consumer Financial Protection Bureau (CFPB). Len also represents clients in business-to-business and class action litigation involving both consumer protection and antitrust issues. He also counsels clients on antitrust, advertising, and marketing compliance issues.

Photo of Anu Baron Anu Baron

Anu Baron helps companies navigate the statutes, regulations, and rules that govern the financial services industry. With decades of legal experience, Anu provides detail-oriented guidance and creative problem-solving to clients. She advises across a variety of industries on all aspects of regulatory compliance…

Anu Baron helps companies navigate the statutes, regulations, and rules that govern the financial services industry. With decades of legal experience, Anu provides detail-oriented guidance and creative problem-solving to clients. She advises across a variety of industries on all aspects of regulatory compliance, with an emphasis on Consumer Financial Protection Bureau (CFPB) regulations, including Regulation E (Electronic Fund Transfer Act), Unfair or Deceptive or Abusive Acts or Practices (UDAAP), the Bank Secrecy Act (BSA), Regulation Z (Truth in Lending Act), as well as National Automated Clearing House Association (Nacha) rules, card network rules, advertising, marketing, and consumer protection laws.