QUESTION
I have been reading about the CFPB coming under attacks as being unconstitutional. If it is found to be unconstitutional, we are concerned about everything it has done all these years, such as whether we are going to still be required to follow all its rules and regulations.
It seems to me the politicians who created the CFPB should have thought of its constitutionality before setting it up in the first place. We send them to Congress, they create the CFPB, and then it is found to be unconstitutional years later. I think that could affect the whole shebang of policies my company put in place for years at a huge expense.
I'm no lawyer but most of these Congress critters are lawyers. They should know how to write a constitutional law. I am frustrated. I am concerned about CFPB enforcement, too. Especially at this time, I do not have the money to reset our policies to pre-CFPB conditions if the CFPB's authority is destroyed.
I have read your articles for years. I know you can explain what is going on.
What are the implications of the CFPB being considered unconstitutional?
ANSWER
I have received many questions along the lines of your inquiry. Quit paying so much attention to snollygosters who prey on your fears. Fear gets people fired up, which is the point of it all. Then they get all charged up, go out to vote, and, lo and behold, they elect the fearmongering throttlebottoms who proceed to screw up the machinery with anfractuous, circuitous, serpentine, and tortuous crepitations of impending apocalypse.
Let's dispense with the realm of signs, portents, and omens.
So, first and foremost, take a deep breath. The CFPB's rules are not going anywhere for now. However, there are some litigation challenges along the way that will need to be vetted.
A few weeks ago, on October 19, 2022, three judges in the Fifth Circuit Court of Appeals ruled that the funding mechanism of the Consumer Financial Protection Bureau (CFPB) is unconstitutional.[i] Specifically, the court found it was a violation of the Appropriations Clause[ii] of the Constitution for the CFPB to receive funds upon the CFPB Director's request to the Federal Reserve instead of through Congressional appropriations.
The instant case involves a challenge to the validity of the payment provisions of the CFPB's 2017 Payday Lending Rule ("Rule"). Under the Rule, lenders are prohibited from making payment transfers from consumer accounts after two consecutive failed attempts due to insufficient funds unless the consumer authorizes such attempts.
The district court granted summary judgment in favor of the CFPB. But, on appeal, the plaintiffs challenged the CFPB's promulgation of the Rule, alleging that the Rule was promulgated by a Director who could not be removed, which means the Director is "insulated" from removal. (I'll come back to the implications of the Director being "insulated" momentarily.) The plaintiffs further alleged that the CFPB's rulemaking itself is violative of the non-delegation doctrine and that the CFPB's means of receiving funds violates the Appropriations Clause.
The non-delegation doctrine stems from the Constitution's vesting clause and separation of powers. The doctrine is an interpretation derived from Article I, Section I of the Constitution that declares all legislative power granted by the Constitution is vested in the Congress, the legislative branch. Thus, it's a principle in administrative law that holds Congress cannot delegate its legislative powers to other entities, such as delegating its power to administrative agencies or private organizations.
The court said that the way the CFPB receives funds allows the CFPB to have a "double insulation" from the Congressional appropriation power: the CFPB Director's requesting funds from the Federal Reserve, which the Director deems "to be reasonably necessary," violates Congress's appropriations power.
Furthermore, the court reasoned that the Federal Reserve itself falls outside of Congress's appropriations power because it receives funds from bank assets not subject to review by the House or Senate Committee on Appropriations.
Therefore, the court found that Congress's authorization of the CFPB to promulgate the Rule was not unconstitutional, but the CFPB improperly used unappropriated funds to engage in the rulemaking process. In its reasoning, the court clarified that the CFPB lacked the ability to exercise the power to promulgate the Rule through constitutionally appropriated funds.
In my view, this ruling will not have much or any impact on the structure of the CFPB. The court's ruling focuses on how the CFPB receives its funding and its violation of the Appropriations Clause. I think it's unlikely that this case will have any effect on the CFPB's enforcement powers as a regulatory agency.
That word "unlikely" is doing a lot of work there. I happen to think the CFPB's funding mechanism is constitutional under the Appropriations Clause; in fact, the CFPB must ask Congress for any money it receives out of the Treasury, which goes for several other federal agencies operating similarly, including the FDIC.
The court must recognize the potentially devastating consequences that could result from interfering with the funding practices of all independently funded government agencies. We know this because the court specifically limited its reasoning to the CFPB. It did this juridical prestidigitation by claiming that the CFPB's authority is unlike those of other federal regulators and that its funding independence "goes a significant step further." How it goes a "significant step further" is somewhat of a mystery.
I fail to see the difference. And if there is a difference, the court does not bother to explain why those differences are constitutionally significant, as far as I can tell.
As the Constitutional Accountability Center has stated:
"Despite the court's attempt to carve
out a special rule for the CFPB, its reasoning would seemingly apply to the
host of other financial regulators that are independently funded, including the
Federal Reserve Board, which supervises and regulates numerous banking
institutions."[iii]
So, the court has put the CFPB and many similarly funded agencies into a reductio ad absurdum conundrum since it now calls into question the rules, guidance, and orders that the CFPB and the other agencies have issued, inasmuch as they are similarly funded like the CFPB. For instance, agencies similarly funded outside the congressional appropriations process are the Federal Reserve, Federal Deposit Insurance Corp (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NCUA), and Federal Housing Finance Agency (FHFA).
The ruling attempts a surgical clip but winds up taking a machete to many agencies.
Indeed, the CFPB has already stated that the Fifth Circuit's decision is "neither controlling nor correct" and "mistaken." The CFPB has stated, "there is nothing novel or unusual about Congress's decision to fund the CFPB outside of annual spending bills."[iv]
This past Monday, November 14th, the CFPB petitioned for a writ of certiorari to the U. S. Supreme Court, saying that the Fifth Circuit’s decision "threatens to inflict immense legal and practical harms on the CFPB, consumers, and the nation’s financial sector.”[v]
The CFPB should now request a stay from the Fifth Circuit pending the Supreme Court decision, or, if denied by the Fifth Circuit, it should ask for a stay from the Supreme Court. If the CFPB doesn’t get a stay, it is not unreasonable to conclude that the Fifth Circuit’s decision could impede the CFPB’s litigating of current cases while also potentially impacting past enforcement actions and rulemaking.[vi]
Jonathan Foxx, Ph.D., MBA
Chairman &
Managing Director
[i] Community
Financial Services Association of America, Limited; Consumer Service Alliance
of Texas v Consumer Financial Protection Bureau; Rohit Chopra, in his official
capacity as Director, Consumer Financial Protection Bureau, United States
Court of Appeals for the Fifth Circuit, Case 21-50826
[ii] Article
I, Section 9, Clause 7, U. S. Constitution: “No Money shall be drawn from the
Treasury, but in Consequence of Appropriations made by Law; and a regular
Statement and Account of the Receipts and Expenditures of all public Money
shall be published from time to time.”
[iii] As
Wrong as It is Dangerous: The Fifth Circuit’s Decision Holding the CFPB Funding
Structure Unconstitutional, Constitutional Accountability Center, https://www.theusconstitution.org/blog/blog-as-wrong-as-it-is-dangerous-the-fifth-circuits-decision-holding-the-cfpb-funding-structure-unconstitutional
[iv] Appeals
court finds CFPB funding unconstitutional, Katy O'Donnell, October 19,
2022, statement to Politico from CFPB spokesperson Sam Gilford. https://www.politico.com/news/2022/10/19/appeals-court-cfpb-unconstitutional-00062626
[v] Consumer
Financial Protection Bureau, Et Al, v Community Financial Services Association
of America, Limited, Et Al, Petition for a Write of Certiorari, November
14, 2022, section Reasons for Granting the Petition, p. 10
[vi] Ibid.
Reasons for Granting the Petition, Section B. The Decision Below
Warrants Review, And The Court Should Hear The Case This Term, p. 28
