Consumer Finance Litigation

On Monday, February 27, 2023, the United States Supreme Court granted the petition for a writ of certiorari in the case Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd., No. 22-448, agreeing to hear the appeal filed by the CFPB.

In its petition, the CFPB sought review of the opinion rendered by the United States Court of Appeals for the Fifth Circuit on October 19, 2022, in which the Fifth Circuit struck down Congress’s mechanism for funding the CFPB and, consequently, vacated the Payday Lending Rule promulgated by the CFPB in 2017. Under the statutory framework laid out in the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, the CFPB was established as an “independent bureau” within the Federal Reserve System. Rather than obtaining its funding from annual budgets set by Congress, the CFPB draws its funding from the Federal Reserve System each year at the discretion of the CFPB director, up to a statutory cap. See 12 U.S.C. § 5497(a). Reversing the district court’s grant of summary judgment in favor of the CFPB, the Fifth Circuit held that this funding structure violated the Appropriations Clause of the U.S. Constitution. The Fifth Circuit rejected the CFPB’s argument that the Appropriations clause “means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress” and stated that “Congress’s mere enactment of a law, by itself, does not satisfy the clause’s requirement. Otherwise, the Bureau’s position means that no federal statute could ever violate the Appropriations Clause because Congress, by definition, enacts them.” Cmty. Fin. Servs. Ass’n of Am., Ltd. v. CFPB, 51 F.4th 616, 640 (5th Cir. 2022). Expressing concern with Congress’s decision to cede control over the budget of the CFPB to the CFPB itself, the Fifth Circuit therefore ruled that the funding structure was unconstitutional and vacated the 2017 Payday Lending Rule.

The CFPB has played a significant role in regulating the consumer finance realm. Should the court affirm the Fifth Circuit’s holding, the potential implications are unquestionably broad. The case is currently expected to be heard during the court’s next term, beginning in October 2023, although the CFPB requested that it be heard during the current term. We will continue to monitor and provide updates as available.