After the Supreme Court’s long-awaited 7-2 decision in CFSA v. CFPB that the Consumer Financial Protection Bureau’s (“CFPB’s”) funding mechanism did not violate the appropriations clause of the U.S. Constitution, the case was remanded to the Fifth Circuit, which affirmed the judgment of the district court and reinstated its own judgment in favor of the CFPB on plaintiffs’ three other challenges to the Payday Lending Rule (the “Rule”) that the Fifth Circuit panel had previously rejected:
- That the payday lending rule’s promulgation violated the Administrative Procedure Act;
- That the rule was promulgated by a CFPB Director unconstitutionally insulated from presidential removal; and
- That the CFPB’s UDAAP rulemaking authority violates the Constitution’s separation of powers.
On July 3, 2024, the plaintiff trade groups filed a petition for a rehearing en banc, arguing that the court had applied the incorrect standard in evaluating the availability of a remedy under the second of these three arguments and had inappropriately relied on “agency convenience” to uphold arbitrary application of the Rule.
To understand the intricacies of these arguments, it’s necessary to revisit the Fifth Circuit’s 2022 decision to vacate the Rule. Since the day the court’s opinion was published, most of the focus has been on the challenge to the Rule that the court accepted and its implications for the past and the future of the CFPB. However, among the rejected arguments was an argument that the Rule must be vacated because it was initially promulgated by a director who was unconstitutionally shielded from removal. In rejecting that argument, the Fifth Circuit largely focused on another recent Supreme Court case, Collins v. Yellen, to support the principle that “a party challenging agency action must show not only that the removal restriction transgresses the Constitution’s separation of powers but also that the unconstitutional provision caused (or would cause) them harm.” The Fifth Circuit determined that the plaintiff trade groups did not show the latter. “In short, nothing the Plaintiffs proffer indicates that, but for the removal restriction, President Trump would have removed Cordray and that the Bureau would have acted differently as to the rule.” Notably, because the court ruled that the plaintiffs failed to demonstrate harm, it did not reach the Bureau’s alternative argument that any alleged harm was cured by Director Kraninger’s ratification of the Rule.
In their July 3, 2024 petition, the plaintiff trade groups argue that the Fifth Circuit inappropriately ratcheted up the standard for relief under Collins and that, “[i]f the President would have removed the officer, then the officer’s ability to take that action is attributable to the removal restriction, and the action should be vacated.” In other words, even if the President’s hypothetical replacement officer would have taken the same exact action, the action still must be vacated if the President would have removed the officer but for the unconstitutional insulation. The plaintiff trade groups argue that their position is supported by the Supreme Court’s Appointments Clause precedents and decisions in the Third, Ninth, and Tenth Circuits.
Returning again to October of 2022, the Fifth Circuit also rejected the plaintiff trade groups’ argument that the two-attempt limitation provisions of the Rule as applied to debit and prepaid card payments and as to separate scheduled installment payments on the same loan were arbitrary and capricious. In providing support for its decision, the court mentioned the Bureau’s explanation that a carve-out for debit and prepaid card transactions would be “impracticable to comply with and enforce” and that “the tailoring of individualized requirements for each discrete payment practice would add considerable complexity to the rule.”
In their July 3, 2024 petition, the plaintiff trade groups argue that the Fifth Circuit ultimately deferred to agency convenience and that this was inappropriate based on precedent that “efficiency is no substitute for reasoned decisionmaking” and “an irrationally overbroad regulation” cannot be “justified by efficiency.” The petition concludes with a warning that the “Bureau (and its ilk) [will] adopt indefensibly broad rules, safe in the knowledge that this Court is unlikely to pare back their arbitrary applications so long as the agency mouths concerns about efficiency.”
The CFPB is not permitted to file a brief in opposition to the petition for rehearing en banc unless the Fifth Circuit orders the CFPB to do so.
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