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All of CFPB's Past Actions Threatened by Appeals Court Decision

Authored By: Lewis Wood on 10/21/2022

Source: American Banker

An appeals court decision that invalidated the Consumer Financial Protection Bureau's payday lending rule has far broader implications, potentially opening all of the agency's past rules and other actions to legal challenges, say regulatory and constitutional lawyers. 

On Wednesday, a panel of three judges on the U.S. Court of Appeals for the 5th Circuit vacated the CFPB's payday lending rule that had been challenged by two Texas trade associations. The three judges, all appointed by then-President Donald Trump, ruled that the CFPB's funding source — the Federal Reserve's operating budget and not congressional appropriations — violates the Constitution's separation of powers because it gives the executive branch too much, and the legislative branch too little, control of a federal agency.   

The panel's decision is not binding, and the CFPB has roughly two weeks to seek a review of the case by the full appeals court. If that appeal is accepted, the three-judge panel's decision would be automatically vacated until the entire court hears the case, Community Financial Services Association of America v. CFPB. Alternatively, the CFPB could ask the Supreme Court for a review, lawyers said. 

The ruling creates an opportunity for companies to challenge the CFPB further and attempt to unwind the bureau's 12-year history of rules and enforcement actions. A broad application of the court's theory could tie up the CFPB in litigation for years unless it prevails on appeal, some lawyers said.

"As a federal regulator, the CFPB should be subject to the accountability, transparency, and checks and balances that come along with funding through the Congressional appropriations process.," notes League Chief Advocacy Officer JT Blau. "Uncertainty remains about what this ultimately means for the CFPB and its authority. As the Bureau considers its appeal options, companies may consider challenging the CFPB’s authority in other areas or even past enforcement actions."

"This ruling is a positive step toward ensuring the CFPB provides effective and transparent regulation that benefits credit union members across the country," says Blau. "We also believe the CFPB should have a multi-member commission to provide the fairest and most-effective governance in service to U.S. consumers."

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