In response to the Fifth Circuit’s ruling in Community Financial Services Association of America, Ltd. v. Consumer Financial Protection Bureau (CFSA) that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism is unconstitutional, West Virginia Attorney General Patrick Morrisey sent a letter on October 24th to the CFPB, calling its continued operations into question and foreshadowing potential state challenges to its actions. While some state AGs and financial regulators are likely to help offset any reduction in CFPB activity through their own investigations and coordination with the CFPB, the dark cloud of the CFSA opinion hangs over the agency.
In his letter to CFPB Director Rohit Chopra, Attorney General Morrisey highlighted the Fifth Circuit’s holding that the CFPB’s “independent funding mechanism … is unconstitutional” and questioned Director Rohit’s “business as usual” response to the court’s decision. He also reminded Director Chopra that the CFPB must discharge its responsibilities in a “constitutionally permissible way,” which, according to Attorney General Morrisey, the “CFPB plainly cannot do” without congressional appropriations. Attorney General Morrisey ends by asking the CFPB to detail its own perception of the effect of its regulations and to state how the Fifth Circuit’s decision affects the CFPB’s past enforcement actions.
Until the challenge posed to the CFPB by CFSA is resolved, it is likely that state attorneys general will look to fill at least some of the perceived regulatory vacuum like they did when the U.S. Supreme Court curtailed the Federal Trade Commission’s ability to seek monetary relief in AMG Capital Management LLC v. Federal Trade Commission. The CFPB’s own interpretative rulings that emphasize state attorneys general’s concurrent and independent authority to pursue actions under the federal Consumer Financial Protection Act in 2010 should strengthen the hands of attorneys general in this effort. This independent authority remains viable and unobstructed by CFSA.
We note that West Virginia successfully challenged the Environmental Protection Agency’s power to regulate carbon emissions from existing power plants in the U.S. Supreme Court, resulting in the landmark West Virginia v. EPA decision. It remains to be seen whether West Virginia or other states will challenge any CFPB actions, especially rules and regulatory guidance that may broadly impact the consumer finance space.
Troutman Pepper will continue to monitor this case—and all related activity—to provide our latest insights. In case you missed Troutman Pepper attorneys Misha Tesytlin and Chris Willis reacting to the Fifth Circuit’s decision, you can listen to their commentary here.