Why the Supreme Court Must Turn Back Payday Lenders’ Attack on the CFPB’s Existence

October 3, 2023 | Caroline Kraczon, EPIC Law Fellow and Ben Winters, Senior Counsel

Today, the Supreme Court will hear arguments in Consumer Financial Protection Bureau (CFPB) v. Community Financial Services Association of America (CFSA). In the case, payday loan companies are trying to evade the CFPB’s consumer protection regulations by attacking the existence of the agency itself. They argue that the CFPB’s funding structure is unconstitutional, so the agency’s rules should not be enforced. EPIC joined an amicus brief with other consumer advocacy organizations to explain that Congress does have constitutional authority to fund the CFPB using its current funding structure.

The CFSA is specifically challenging the CFPB’s Payday Lending Rule in this case. The CFPB created the Payday Lending Rule in 2017 to address abusive practices by payday lenders. Before the rule was in place, payday lenders often repeatedly tried to withdraw funds from a borrower’s bank account, which left borrowers who had insufficient funds in their accounts facing large penalties and fees from their bank. To address the problem, the CFPB created the Payday Lending Rule, which prohibits covered lenders from trying to withdraw funds from a borrowers account if the lender’s two previous withdrawal attempts were unsuccessful because of insufficient funds in the account.

The CFSA, a trade group representing payday lenders, argues that the Payday Lending Rule is void because the statute funding the CFPB violates the U.S. Constitution’s Appropriations Clause. The CFPB was created by the 2010 Dodd Frank Act, which states that the Bureau may request a transfer of funds from the Federal Reserve, subject to a legally established cap. The group argues that the Bureau’s funding structure violates the Appropriations Clause, which provides that the federal government may only “draw [money] from the Treasury . . . in Consequence of Appropriations made by Law”—that is, pursuant to an appropriation enacted by Congress. The Fifth Circuit agreed with CFSA’s argument, invalidating the Payday Lending Rule and holding that the CFPB’s funding structure violates the Appropriations Clause.  

In the amicus brief EPIC joined, we argue that the CFPB’s funding structure is constitutional because it satisfies the requirements of the Appropriations Clause; “[i]t specifies the source from which the CFPB may draw funds, the amount it may draw, and the objects for which the funds may be spent.”  Although the CFPB’s funding does not come from general federal revenues and the statute providing funding to the CFPB does not provide a durational limit, these funding features do not violate the appropriations clause. In fact, Congress has long used similar appropriations methods to fund other agencies, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Federal Housing Finance Agency. As our amicus brief points out, ruling against the CFPB in this case would “empower and invite courts to second-guess Congress’s judgments about how best to fund agencies and government programs, and to supplant those congressional judgments with ad hoc judicial determinations about whether Congress had gone too far in “ceding” control over agency funding.”

The CFPB was also the target of a Constitutional attack in Seila Law v. CFPB. In that case, a law firm hoping to invalidate a CFPB order against the firm argued that the Bureau was unconstitutionally insulated from presidential control because the CFPB has a single director who was only removable for cause. There, the Supreme Court agreed that the CFPB’s current structure was unconstitutional, but it ruled that the CFPB could continue to operate as long as the director is removable at will. The Court also ruled that the order against Seila Law was still enforceable even though the CFPB was operating with a constitutional defect at the time it made the order against the law firm. If the Court ultimately agrees with CFSA’s reading of the Appropriations Clause, the CFPB rightly argues that the Court should separate the unconstitutional portion of the statute and leave the other portions standing, as it did in Seila. Specifically, the Court should not vacate the 2017 Payday Lending Rule even if the Supreme Court decides that the 5th Circuit was correct in finding an Appropriations Clause violation.

In the CFPB’s petition for a writ of certiorari in CFPB v. CFSA, the Bureau warns that the decision “calls into question virtually every action the CFPB has taken in the 12 years since it was created.” The investigatory and enforcement roles that the CFPB plays illustrates how vitally important the agency is for borrowers and the public, specializing as a regulatory check against an industry that has uniquely imbalanced power dynamics between companies and customers.

In addition to securing over $17,500,000,000 in financial relief for consumers through enforcement actions, the CFPB has made creative use of its authority to stay abreast of emerging risks. Just last month, the CFPB began a Fair Credit Reporting Act rulemaking that will address the pernicious effects of medical debts appearing on credit reports and the harmful business practices of data brokers, who evade effective regulation while building, curating, and selling profiles of unwitting members of the public. The CFPB is also in the midst of a rulemaking to strengthen consumer financial data rights and has used investigative and monitoring authorities to gain insight into the buy now, pay later market, the data broker industry, and more.

EPIC regularly engages with the CFPB, submitting comments to the Bureau’s requests for information, filing complaints about specific violations of the laws enforced by the Bureau, and helping lead a coalition calling on the CFPB to protect consumers from data brokers and other exploitative financial actors. As EPIC and its coalition partners explained in the amicus brief, the Supreme Court should affirm the CFPB’s authority to continue protecting consumers.

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