Banking and Finance Law Daily State briefs support cert petition questioning CFPB constitutionality
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Monday, November 4, 2019

State briefs support cert petition questioning CFPB constitutionality

By Colleen M. Svelnis, J.D.

Eleven states have filed an amici curiae brief in support of a case questioning the constitutionality of the CFPB structure.

A Mississippi payday lending company’s constitutional challenge to the Consumer Financial Protection Bureau has garnered an amici curiae brief in support of the petition for a writ of certiorari to the U.S. Supreme Court. The brief is for the states of Texas, Arkansas, Indiana, Kansas, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, and West Virginia in the case All American Check Cashing, Inc. v. Consumer Financial Protection Bureau, which is awaiting a decision on All American’s petition for certiorari to the U.S. Supreme Court.

The states argue that the CFPB has "wielded its unchecked power" in bringing an enforcement action against All American Check Cashing and its structure violates the separation of powers in the Constitution. According to the states’ brief, "the CFPB’s structure violates the Constitution whether its director was (at any given point) temporary or permanent. The CFPB thus had no authority to bring or to continue the enforcement action" against All American.

The case began when the Bureau brought an action against All American Check Cashing, Inc., alleging that it had engaged in unfair, deceptive, and abusive practices in its check cashing and payday lending business. The issue on appeal has been whether the single-director structure of the CFPB violates Article II of the Constitution and the Constitution’s separation of powers (see Banking and Finance Law Daily, April 20, 2018).

Origins of CFPB. In 2010 the Consumer Financial Protection Act established the CFPB as an independent agency responsible for overseeing 18 consumer-protection statutes previously administered by other agencies. The CFPB is headed by a single Director who serves a five-year term and may not be removed by the President except "for inefficiency, neglect of duty, or malfeasance in office."

All American Check Cashing contended in its petition that the President has no input on the CFPB’s funding, and that the Director may unilaterally request up to 12 percent of the Federal Reserve System’s annual operating budget to the CFPB for its sole use, which is not subject to review. All American’s petition asks whether the structure of the CFPB is constitutional in light of these statutory restrictions on the President’s power to remove the Director. Also at issue, if the Bureau’s structure is not constitutional, is what the proper judicial remedy would be to redress the structural constitutional violation. All American wants the Court to undo CFPB enforcement actions, or even strike down the law that created the Bureau.

Red states brief. The states argue that this case "calls upon the Court to vindicate that principle by striking down the unlawful action of an administrative agency built around a single unaccountable and unchecked administrator." The states argue that any agency built around a sole administrator "is unchecked by the constraints of group decision-making among members appointed by different presidents," and that "the Fifth Circuit’s interpretation of Article II" in Collins v. Mnuchin, which also has a petition before the Supreme Court (see Banking and Finance Law Daily, Oct. 2, 2019) "was correct and should be applied to the CFPB." The President must retain the power to remove at will individuals who wield executive power.

The brief also argues that the Supreme Court should grant review in this case to definitively resolve the question of whether the appropriate remedy changes when the agency Director "purports to ratify the decision of an otherwise unconstitutional agency." The brief warns that "any further delay in definitively resolving the issues presented in this case will prolong a period of regulatory confusion without appreciable benefit to this Court."

Additionally, the brief states that questions regarding the legality of the CFPB are of "vital importance" and the "threat to liberty posed by the CFPB is uniquely acute." According to the brief, the Dodd-Frank Act "deliberately stripped power that had been spread ‘across seven different federal regulators’ as well as their state-la counterparts" and "concentrated enormous policy-setting authority in the hands of a bureaucrat who need not seek the approval either of the electorate or an elected official."

Attorneys: Theodore B. Olson (Gibson Dunn & Crutcher LLP) for All American Check Cashing Inc. Noel J. Francisco, U.S. Department of Justice, for the CFPB.

Companies: All American Check Cashing Inc.

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