Three Myths Surrounding The Consumer Financial Protection Bureau's Plight For Constitutional Legitimacy

• Published date: 08 August 2023
• Subject Matter: Finance and Banking, Consumer Protection, Financial Services, Dodd-Frank, Consumer Protection Act
• Law Firm: Reed Smith
• Author: Ms J.H. Jennifer Lee

This article is the first in a three-part series addressing a seminal Fifth Circuit case that is now pending before the U.S. Supreme Court. Each week, we will debunk each myth and address the implications for consumer finance regulation going forward.

Myth No. 1: CFSA's matter presents a novel attack on the Bureau's constitutionality

Background

As many readers are aware, the plaintiffs in Consumer Financial Services Association of America, Ltd, et al. v. Consumer Financial Protection Bureau et al. challenged the Consumer Financial Protection Bureau's ("CFPB or Bureau") new regulation concerning the payday loan industry. In federal court in Texas, the plaintiff also had asserted that the Bureau's funding mechanism was unconstitutional, but it lost this argument. On appeal last fall however, the U.S. Court of Appeals for the Fifth Circuit reversed, concluding that legislative appropriations are required before the agency's expenditure. The Fifth Circuit held that because the Bureau's budgets are not subject to appropriations, its funding mechanism violated the Appropriations Clause of the Constitution. The case is pending before the U.S. Supreme Court and oral argument is now set for October 3, 2023.

Constitutionality in general. The Bureau is not new to constitutional attacks. The Bureau has been the subject of extensive public discourse concerning its legitimacy. Politicians and others have - since its inception - argued the various ways that the Bureau's architecture or leadership structure could violate the constitution. See below bullets for a brief overview:

• In 2012, a few months after the Bureau first gained its independence, President Barack Obama used the presidential recess-appointment power¹ to confirm his nominee, Richard Cordray, to serve as the first director of the Bureau. At the time Senate Republicans had preferred to oppose the appointment of a director absent structural reforms at the Bureau. According to Senator Mitch McConnell, the recess appointment "threaten[ed] the confirmation process and fundamentally endanger[ed] the Congress's role in providing a check on the excesses of the executive branch."

• In 2016, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit held in a mortgage case that the Bureau's structure, which per statute entailed allowing the President to remove the director only "for cause," was unconstitutional. In 2018, the D.C. Circuit sitting en banc reversed, holding that the "for...