Populus Financial Group, Inc., which does business as ACE Cash Express, has filed a motion to dismiss the lawsuit filed by the CFPB in July 2022 against Populus in a Texas federal district court in which the CFPB alleges that Populus engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers and making unauthorized debit-card withdrawals.  Populus also filed a motion to stay all proceedings in the case pending the Fifth Circuit’ decision in Community Financial Services Association of America Ltd. v. CFPB.

In its motion to dismiss, Populus argues that the CFPB’s enforcement action is invalid because the CFPB’s funding structure violates the separation-of-powers principle embodied in the Appropriations Clause of the U.S. Constitution.  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.  Populus argues:

• This structure shields the CFPB from Congressional oversight in violation of the Appropriations Clause, which mandates that Congress alone wields the power of the federal purse.
• The CFPB is “doubly insulated” from the appropriations process because the Federal Reserve itself is insulated from the appropriations process due to its own self-funding mechanism. 
• The U.S. Supreme Court’s decision in Seila Law, which invalidated the CFPB Director’s for-cause removal protection, makes Congress’s abdication of its power over the purse even more dangerous because it puts that power in the President’s hands without any Congressional oversight.
• No other federal agency is doubly insulated from the appropriations process and wields the Bureau’s range of legislative, executive, and judicial power.  Populus contrasts the narrower missions and authority of the Federal Reserve, FDIC, and OCC, which are also self-funded.  With regard to the OCC, Populus distinguishes the OCC’s reliance on fees from the entities it regulates which it asserts creates political accountability for the OCC.  With regard to the Federal Reserve and FDIC, Populus distinguishes their multimember, bi-partisan leadership structure.

In challenging the constitutionality of the CFPB’s funding structure, Populus places substantial reliance on the concurring opinion of Judge Edith Jones in the Fifth Circuit’s en banc May 2022 decision in All American Check Cashing.  The en banc Fifth Circuit ruled that that the CFPB’s enforcement action against All American Check Cashing could 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 scholarly concurring opinion in which four other Fifth Circuit judges joined, Judge Edith Jones agreed with All American Check Cashing’s argument that the CFPB’s funding mechanism is unconstitutional.  (The majority opinion did not consider the funding argument but indicated that the district court could consider other constitutional challenges on remand.)

Although the en banc Fifth Circuit did not reach the funding argument, a Fifth Circuit panel is expected to consider that issue in the CFSA lawsuit which challenges the payment provisions in the CFPB’s 2017 final payday/auto title/high-rate installment loan rule.  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.  On May 9, 2022, a Fifth Circuit panel heard oral argument in the CFSA lawsuit. 

The trade groups’ primary argument on appeal continues to be that the 2017 Rule was void ab initio because the CFPA’s unconstitutional removal restriction means that the Bureau did not have the authority to promulgate the 2017 Rule.  However, the trade groups submitted the concurring opinion in All American Check Cashing as supplemental authority to the Fifth Circuit panel hearing their appeal and have argued that the panel should adopt the reasoning of the concurring opinion and invalidate the 2017 Rule.

In its stay motion, Populus argues that, because the Fifth Circuit panel is poised to rule on the constitutionality of the CFPB’s funding structure in the CFSA lawsuit, the district court should stay all proceedings in the CFPB’s enforcement action pending the panel’s decision.

Populus argues that a stay would be efficient for the court and the parties because a decision on the constitutionality issue would substantially simplify the issues in the enforcement action and potentially resolve it outright.  It also argues that a stay will avoid inconsistent outcomes by ensuring that the district court’s orders do not conflict with the forthcoming Fifth Circuit decision, Populus would be prejudiced if a stay is not granted because it could be forced to unnecessarily expend substantial resources defending an enforcement action that could soon be found to be invalid, and the CFPB would not be prejudiced by a stay.

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