Take the Fifth

Designated for publication

• Community Financial Services Association of America, Ltd. v. Consumer Financial Protection Bureau, 21-50826, appeal from W.D. Tex.
  • Wilson, J. (Willett, Engelhardt, Wilson), separation of powers
  • Affirming in part and reversing district court’s summary judgment in favor of the CFPB on plaintiffs’ challenge of CFPB’s 2017 Payday Lending Rule and constitutional challenge to CFPB’s structure, holding that “Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers”; and rendering judgment in favor of plaintiffs, ruling that the Rule is invalid.
  • The CPFB was created by the Consumer Financial Protection Act in the wake of the 2008 financial crisis. Under the Act, “Congress transferred to the Bureau administrative and enforcement authority over 18 federal statutes which prior to the Act were overseen by seven different agencies,” and “enacted a sweeping new proscription on ‘any unfair, deceptive, or abusive act or practice’ by certain participants in the consumer-finance industry.” The Act provided for a CPFB Director appointed by the President with Senate advice and consent, serving a five-year term with potential holdover until confirmation of a successor. In Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020), the Supreme Court invalidated a provision of the Act that limited the President’s ability to remove the Director. The Act provided that the CFPB would be funded not by Congressional appropriations, but from the bank-assessment-funded Federal Reserve, through annual requests to the Federal Reserve by the CPFB Director in amounts the Director determines to be reasonably necessary.
  • Under this statutory scheme, in 2016 and 2017 the CPFB Director, Richard Cordray, engaged in notice-and-comment rulemaking to promulgate the Payday Lending Rule, which regulates payday, vehicle title, and certain high-cost installment loans, becoming effective January 16, 2018. The “Underwriting Provisions” of the Rule prohibited lenders from making loans “without reasonably determining that consumers have the ability to repay the loans according to their terms”; those provisions have since been repealed. The “Payment Provisions” limit lenders’ ability to obtain loan repayments through preauthorized account access, by prohibiting repeated attempts to withdraw the payment amount after two consecutive unsuccessful attempts.
  • The Court held that the Payment Provisions of the Rule satisfied the Act’s requirements for the CFPB to declare a practice “unfair,” and were “fully fleshed out in the Payday Lending Rule’s 519-page rulemaking record, where they are supported by a variety of data and industry-related studies.” Likewise, the Court held that the rulemaking record showed that the CFPB’s Payment Provisions were not arbitrary and capricious.
  • The Court rejected the plaintiffs’ argument that the Payment Provisions must be invalidated because they were initially promulgated by a director who was unconstitutionally shielded from removal. The Court held that the plaintiffs failed to show that this unconstitutional removal provision was the cause of harm.
  • The Court also rejected plaintiffs’ argument that the validity of the Rule was undermined by any violation of the nondelegation doctrine. Because “Congress … circumscribed that authority [of the CPFB] by including specific criteria that must be met before the Bureau can label a practice ‘unfair’ or ‘abusive,'” the Court held that there was not violation of the nondelegation doctrine.
  • However, the Court held that the Rule is invalid because the CPFB’s funding structure violates the Appropriations Clause of the Constitution. Engaging in a detailed historical analysis, the Court noted that “[t]he Framers also believed that vesting Congress with control over fiscal matters was the best means of ensuring transparency and accountability to the people”; and noted that “[t]he Appropriation Clause’s straightforward and explicit command ensures Congress’s exclusive power over the federal purse.” (Internal quotation marks and citation omitted; emphasis in original). Turning to the Act, the Court observed, “Most anomalous is the Bureau’s self-actualizing, perpetual funding mechanism. While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not. … The funds siphoned by the Bureau [through its requests to the Federal Reserve], in effect, reduce amounts that would otherwise flow to the general fund of the Treasury, as the Federal Reserve is required to remit surplus funds in excess of a limit set by Congress.” The Court held, “[T]he Bureau’s funding is double-insulated on the front end from Congress’s appropriations power. And Congress relinquished its jurisdiction to review agency funding on the back end. In between Congress gave the Director its purse containing an off-books charge card that rings up ‘[un]appropriated monies.’ Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.”

Unpublished

• Lewis v. Smith, 19-30689, appeal from E.D. La.
  • per curiam (Stewart, Dennis, Haynes), Dennis, J., dissenting in part; § 1983
  • Affirming 12(b)(6) dismissal of sheriff’s deputy’s constitutional challenge to termination of deputy under sheriff department’s anti-fraternization policy.
  • Although this was denominated as a “per curiam” opinion, Judge Dennis dissented in part. He would hold that the plaintiff plausibly alleged that the sheriff’s office violated his constitutional rights by insisting that he dissociate himself from the woman he had been living with and raising children with for ten years as a condition of continued employment.

• U.S. v. Sanchez-Juarez, 21-51248, appeal from W.D. Tex.
  • per curiam (Davis, Smith, Dennis), criminal
  • Granting Anders motion to withdraw, and dismissing appeal.