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Repercussions of the Fifth Circuit’s Decision to Vacate the CFPB’s Payday Lending Rule as UnconstitutionalRead Time: 2 mins
In Community Financial Services Association of America Ltd. (CFSA) v. Consumer Financial Protection Bureau (CFPB), the Fifth Circuit held that the CFPB’s independent funding mechanism is unconstitutional and, thus, vacated its payday lending rule. The Fifth Circuit ruled that the CFPB’s independent funding mechanism was Congress giving up its power under the Appropriations Clause of the Constitution, thus violating this clause and the separation of powers doctrine. The CFPB recently petitioned the Supreme Court for a writ of certiorari to appeal this decision, but in the meantime, this opinion has had an immediate impact on other federal actions involving the CFPB.
One such action is CFPB v. Populus Financial Group, Inc., d/b/a ACE Cash Express. The CFPB seeks damages, injunctive relief, and other penalties against ACE, a payday lender, for alleged unfair and deceptive practices. After CFSA, the District Court in ACE stayed the action until the Fifth Circuit issued a mandate following its decision. Both parties agreed to a stay following the decision because it controls the issue of the appropriateness and constitutionality of the CFPB’s independent funding mechanism raised by ACE’s motion to dismiss. The District Court intends to resume this case after the mandate, as it ordered the parties to report within forty-five days on how the parties will proceed.
The Fifth Circuit’s decision also impacted Integrity Advance v. CFPB, an appeal in which the Tenth Circuit had affirmed a $38.4 million order against Integrity. The Tenth Circuit rejected Integrity’s argument that the CFPB’s structure was unconstitutional, holding that even if it was, Integrity did not point to any harm from this structure. Integrity submitted the CFSA decision as supplemental authority for its petition for rehearing, arguing it showed that the CFPB’s suit should have been dismissed. The CFPB responded that Integrity was barred from raising CFSA and that CFSA was mistaken, as the funding for the CFPB was not in violation of the Appropriations Clause. The Tenth Circuit, in a short order, denied Integrity’s petition for rehearing without deciding the issue posed by CFSA.
Reprinted with permission from the American Bar Association’s Business Law Today November Month-In-Brief: Business Regulation & Regulated Industries.