The plaintiffs challenging the CFPB payday lending rule should not be entitled to an en banc rehearing because the issues they cite already have become final and the time for hearing has lapsed, the CFPB said last week responding to a request for such a rehearing. The rule prohibits lenders from continuing to attempt to withdraw money from a borrower’s account after two prior attempts failed for lack of sufficient funds, unless the lender obtains new authorization from the borrower.
The CFPB stated: “Petitioners seek rehearing on issues that the panel conclusively (and unanimously) resolved nearly two years ago and that the Supreme Court declined to review.” The CFPB was responding, at the court’s request, to a petition for rehearing en banc filed by the Community Financial Services Association of America and other plaintiffs.
One of the major issues in the case was resolved earlier this year, when the Supreme Court Court ruled the agency’s funding structure was constitutional, even though the bureau is not funded through the annual congressional appropriations process.
The case was remanded to the Fifth Circuit. The payday lending rule prohibits lenders from continuing to attempt to withdraw money from a borrower’s account after two prior attempts failed for lack of sufficient funds, unless the lender obtains new authorization from the borrower.
Following remand, a panel of the Fifth Circuit then reinstated its prior decision, which had rejected the other three arguments made by the CFSA, namely, that the rule was invalid because, (1) the CFPB violated the Administrative Procedures Act, because claiming that the rule was arbitrary and capricious because the rule is not supported by substantial evidence (2) the CFPB’s leadership was unconstitutional at the time the rule was adopted and (3) the CFPB’s UDAAP rulemaking authority (the purported statutory basis for the CFPB promulgating the rule) violates the separation of powers violates the separation of powers.
In requesting the en banc Rehearing last month, the CFSA emphasized that the rule was issued in 2017 by then-Director Richard Cordray, an Obama Administration appointee. At the time, Donald Trump already had taken office and, according to the CFSA, would have removed Cordray if permitted to do so. However, Cordray was insulated by a section of the Dodd-Frank Act, which stated that he only could be removed for cause.
Subsequently, the Supreme Court ruled in the Seila Law case , That section of Dodd-Frank that the section of Dodd-Frank that prohibited the president from removing the director without case was unconstitutional and that the Director of the CFPB could be removed for any reason.
“That unconstitutional provision is what allowed Director Cordray to stay in office and promulgate the Rule ten months after President Trump’s inauguration,” the CFSA said, in its request for an en banc rehearing. “The Rule is thus directly attributable to the invalid statute, which enabled Cordray to exercise the powers of the Director’s office that he no longer lawfully possessed.”
In other words, even if the President’s hypothetical replacement officer would have taken the same exact same action in promulgating the rule, the action still must be vacated if the President would have removed the officer but for the unconstitutional insulation.
In their petition, the plaintiff trade groups also argue that the Fifth Circuit ultimately deferred to “agency convenience” and that this was inappropriate based on Administrative Procedure Act precedent that “efficiency is no substitute for reasoned decision-making” and “an irrationally overbroad regulation” cannot be “justified by efficiency.”
Responding, the CFPB said that any suggestion that the panel upheld the regulation based on agency convenience is a fabrication. “The panel’s actual holdings are correct, case-specific, and not in conflict with Petitioners’ cited decisions,” the agency said.
The CFPB also said that the [payment part of the] rule had been ratified by Kathleen Kraninger, who was appointed by Trump and could be removed at will.
In addition, the agency said, the time period during which the CFSA could have asked for a re-hearing had lapsed.
The trade groups subsequently submitted a “28(j)” letter to the Fifth Circuit arguing that its recent decision in Consumers’ Research v. FCC, dealing with the appropriate standards for review of agency action when an agency is insulated from the Congressional appropriations process, further supports granting the petition. The CFPB submitted a separate letter disagreeing with that conclusion. Rule 28(j) of the Federal Rules of Appellate Procedure allows a party to bring to the attention of the court significant decisions that come to its attention after its brief has been filed.
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