En Bank Fifth Circuit Rules CFPB Enforcement Action Can Proceed Against All American Check Cashing

May 9, 2022 9:49 pm
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The en banc U.S. Court of Appeals for the Fifth Circuit has ruled that the CFPB’s enforcement action against All American Check Cashing can proceed despite the unconstitutionality of the CFPB’s single-director-removable-only-for-cause-structure at the time the enforcement action was filed.  However, in a concurring opinion, five judges expressed their agreement with All American’s argument that the unconstitutionality of the CFPB’s funding mechanism requires dismissal of the enforcement action.

The underlying case is an enforcement action filed by the CFPB against All American in 2016 in a Mississippi federal district court for alleged violations of the CFPA’s UDAAP prohibition.  In March 2018, the district court denied All American’s motion for judgment on the pleadings based on unconstitutionality of the CFPB’s single-director-removable-only-for-cause-structure.  The district court ruled that the CFPB’s structure was constitutional but, on All American’s request, certified for interlocutory appeal the question of whether the CFPB’s structure violated the Constitution’s separation of powers.  The appeal was accepted by the Fifth Circuit.

After a Fifth Circuit panel initially ruled (while Seila Law was awaiting decision by the U.S. Supreme Court) that the structure was constitutional, the Fifth Circuit, on its own motion, voted to rehear the case en banc, thereby vacating the panel’s ruling.

In its en banc decision, the Fifth Circuit ruled that the Supreme Court’s decision in Seila Law decided the pure question of law raised by All American in the interlocutory appeal.  Because the Supreme Court also held that the unconstitutional removal provision was severable from the rest of the Dodd-Frank Act, the Fifth Circuit determined that dismissal was not warranted despite the district court’s error in finding no constitutional violation.

The Fifth Circuit indicated that the absence of a dismissal left the CFPB free to continue the enforcement action against All American and remanded the case to the district court.  It stated, however, that “[w]e place no limitation on the matters that the court may consider, including, without limitation, any other constitutional challenges, and we express no view on the actions it should take in accordance with this opinion or otherwise.”

As an alternative basis for challenging the CFPB’s constitutionality, All American had argued that the CFPB’s budgetary independence from Congress contravenes the Constitution’s separation of powers by violating the Appropriations Clause.  Pursuant to Dodd-Frank, the CFPB receives its funding through requests made by the CFPB Director to the Federal Reserve, subject to a cap equal to 12% of the Federal Reserve’s budget, rather than through the Congressional appropriations process.  In a scholarly concurring opinion in which four other Fifth Circuit judges joined, Judge Edith Jones agreed with All American’s argument, writing that “[t]he CFPB’s budgetary independence makes it unaccountable to Congress and the people.”

Judge Jones also concluded that there was “no other option” for remedying the separation of powers violation arising from the CFPB’s budgetary independence than dismissing the enforcement action against All American.  She distinguished cases involving an improper removal restriction because, as the Supreme Court indicated in Collins, an unlawful removal provision does not take away an officer’s power to exercise his or her authority.  As a result, for a party challenging a removal provision to establish a right to a remedy, it must show that the unconstitutional provision caused compensable harm.  In the case of an Appropriations Clause violation however, Judge Jones concluded that “a government actor cannot exercise even its lawful authority using money the actor cannot spend.”  She stated that “a constitutionally proper appropriation is as much a precondition to every exercise of executive authority by an administrative agent as a constitutionally proper appointment or delegation of authority.”  Because the separation of powers violation at issue impaired the CFPB Director’s authority to act, she concluded that “the proper remedy is to disregard the government action.”

In a second concurring opinion, Judge Oldham, joined by Judge Englehardt, took the position that the Fifth Circuit had jurisdiction on the interlocutory appeal to decide whether the CFPB’s funding mechanism is constitutional.  (Both of these judges had joined in Judge Jones’ concurring opinion.)

As Judge Jones indicated in her opinion, the D.C. Circuit and several district courts have rejected the argument that the CFPB’s funding mechanism is unconstitutional.  In addition to noting that none of those decisions bind the Fifth Circuit, she observed that “no decision serous wrestles with the overwhelming separation of powers problem discussed [in her opinion].”  The Appropriations Clause issue could pose a significant threat to the CFPB and It would not be surprising if Judge Jones’ opinion gives rise to a new wave of constitutional challenges in CFPB enforcement actions.

In fact, the trade groups challenging the payment provisions in the CFPB’s 2017 final payday/auto title/high-rate installment loan rule have submitted the en banc All American decision as supplemental authority to the Fifth Circuit panel hearing their appeal.  They argue that the panel should invalidate the rule based on Judge Jones’ concurring opinion.  Oral argument in that case is scheduled for today.  The trade groups have appealed from the district court’s final judgment granting the CFPB’s summary judgment motion and staying the compliance date for the payment provisions until 286 days after August 31, 2021 (which would have been until June 13, 2022).  After the appeal was filed, the Fifth Circuit entered an order staying the compliance date of the payment provisions until 286 days after the trade groups’ appeal is resolved.

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