Unsurprisingly, defendants in two separate enforcements actions filed by the Consumer Financial Protection Agency (CFPB) have cited the Fifth Circuit’s recent decision in Community Financial Services Association of America, Ltd. v. Consumer Financial Protection Bureau as a basis for having their actions dismissed. As we discussed here, earlier this month, the Fifth Circuit held that the CFPB’s funding violates the Constitution because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead receives funding directly from the Federal Reserve based on a request by the CFPB director. The CFPB filed a response to the Notice of Supplemental Authority filed by the defendant in an Illinois action and a letter to the Ninth Circuit responding to the Notice of Supplemental Authority filed in that court characterizing the Fifth Circuit’s decision as “neither controlling nor correct” and “mistaken.”

The main points made in the CFPB’s response filed in the Illinois action are:

  • The Fifth Circuit’s decision is not supported by law.
    • The court cited no case law holding that Congress violates the appropriations clause or separation of powers when it authorizes spending by statute as it did for the CFPB.
  • The court was wrong in finding that the CFPB’s funding through the Federal Reserve System makes it insulated from congressional oversight.
    • In fact, Congress, through provisions in the Dodd-Frank Act, requires regular audits for, reports to, and appearances before Congress concerning the CFPB’s spending.
  • The Fifth Circuit’s holding finds no support in the Dodd-Frank provision that states funds transferred to the CFPB “shall not be construed to be Government funds or appropriated monies.”
    • That clause, like similar ones applicable to the Farm Credit Administration, Federal Reserve Board, and Office of the Comptroller of the Currency (OCC), determines the degree to which various statutory restrictions apply to the CFPB’s use of funds. It has nothing to do with the constitutional requirement that Congress authorize the executive to spend money.
  • Although the Fifth Circuit described the CFPB’s funding as “novel” and “unprecedented,” it is not meaningfully different from numerous other agencies, such as the Federal Reserve Board, OCC, and Federal Deposit Insurance Corporation, that are funded in ways other than annual spending bills.
    • The decision leaves no way to know what statutory spending authorizations count, in the panel’s view, as an “appropriation” compliant with the appropriations clause.

The CFPB concluded by requesting that the court reject the Fifth Circuit’s analysis and “instead join every other court to address the issue — including the en banc D.C. Circuit — in upholding the Bureau’s statutory funding mechanism.”

In its letter to the Ninth Circuit, the CFPB focused on the remedy. “The court didn’t consider whether ‘the [CFPB] would have acted differently’ ‘but for’ its statutory funding mechanism. Here, applying Collins yields a straightforward answer: the case should not be dismissed because there is no evidence the [CFPB] ‘would have acted differently’ with different funding.”

Troutman Pepper will continue to monitor these cases — and all CFPB-related decisions — for future developments.

Photo of David N. Anthony David N. Anthony

David Anthony handles litigation against consumer financial services businesses and other highly regulated companies across the United States. He is a strategic thinker who balances his extensive litigation experience with practical business advice to solve companies’ hardest problems.

Photo of Stefanie Jackman Stefanie Jackman

Stefanie takes a holistic approach to working with clients both through compliance counseling and assessment relating to consumer products and services, as well as serving as a zealous advocate in government inquiries, investigations, and consumer litigation.

Photo of James Kim James Kim

As a former senior enforcement attorney with the CFPB, James provides the industry knowledge and expertise that fintechs and financial institutions require when launching new products or facing regulatory scrutiny.

Photo of Jeremy Rosenblum Jeremy Rosenblum

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products…

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.