Congress Tosses (Another) CFPB Rule While Constitutionality Battle Continues

Financial Services Law

In another use of the Congressional Review Act (CRA) to repeal a Consumer Financial Protection Bureau (CFPB or Bureau) rule, lawmakers did away with the Bureau’s Bulletin 2013–02, negating guidance on indirect automobile financing.

At the same time, even as the CFPB continues to undergo considerable changes, the battle over its constitutionality grinds on, with the U.S. Court of Appeals, Fifth Circuit agreeing to weigh in on the issue.

What happened

With the change of administration and Republican control of the federal legislature, Congress has turned to the CRA process to chip away at CFPB and other Obama-era rules. Lawmakers previously did away with the Bureau’s arbitration rule using the CRA.

In the most recent instance, lawmakers set their sights on Bulletin 2013-02, which took the position that the practice of automobile “dealer markups” would be challenged by the Bureau under a disparate impact theory of discrimination. Last year, the Government Accountability Office concluded the Bulletin was a general statement of policy and therefore a rule that may be repealed pursuant to the CRA process.

Lawmakers responded with a resolution disavowing the Bulletin, which passed the Senate by a vote of 51 to 47 in April and the House in a vote of 234 to 175 in May. S.J. Res. 57 was sent to President Trump, who signed it on May 21.

However, even as the CFPB’s rules are wiped out and the Bureau continues to remake itself under the leadership of Acting Director Mick Mulvaney, the debate over its constitutionality endures.

The Fifth Circuit recently agreed to hear an interlocutory appeal in a case where the CFPB accused two entities engaged in payday lending and check cashing services and their owner of engaging in unfair, deceptive or abusive acts or practices (UDAAP). In May 2016, the Bureau asserted the defendants misrepresented the financial benefits of their two-week payday loans to consumers and failed to inform customers of the fees they would be charged for check cashing services.

The defendants answered with a direct challenge to the constitutionality of the Bureau. U.S. District Judge William H. Barbour Jr. denied the motion, relying on the U.S. Court of Appeals, D.C. Circuit’s opinion in PHH Corp. v. CFPB, where the panel upheld the constitutionality of the Bureau in a similar challenge.

However, Judge Barbour also granted the defendants’ request to appeal the issue, certifying the following question: “Does the structure of the Consumer Financial Protection Bureau violate Article II of the Constitution and the Constitution’s separation of powers?”

In addition to finding that the issue presents a controlling question of law, the court noted “there is substantial ground for difference of opinion as to this issue as exhibited by the differences of opinion amongst the jurists in the [D.C. Circuit] who have considered the issue.”

With the Fifth Circuit now taking up the issue, it remains to be seen whether Mulvaney will defend the CFPB’s constitutionality, given his repeated criticisms of the Bureau’s structure.

The issue could wend its way to the Supreme Court, although PHH—the defendant in the CFPB action that challenged the Bureau’s constitutionality before the D.C. Circuit—decided not to file a writ of certiorari on the panel’s January 2018 decision.

To read S.J. Res. 57, click here.

To read the order certifying the appeal to the Fifth Circuit, click here.

Why it matters

With one successful CRA resolution already under its belt, Congress had little trouble repealing Bulletin 2013–02, guidance that was widely perceived by the industry at the time it was released as the CFPB involving itself where it did not belong. While some state regulators have indicated they might fill the void left by the vacated guidance, the analysis required to demonstrate disparate impact discrimination is costly, and it remains to be seen whether the state attorneys general will step up. As for the continued battle over the CFPB’s constitutionality, all eyes will be on the Bureau to see whether it defends the current structure.



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