Cmty Fin Assoc America v. CFPB ( 2022 )

Case: 21-50826 Document: 00516514748 Page: 1 Date Filed: 10/19/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
October 19, 2022
No. 21-50826 Lyle W. Cayce
Clerk
Community Financial Services Association of America,
Limited; Consumer Service Alliance of Texas,
Plaintiffs—Appellants,
versus
Consumer Financial Protection Bureau; Rohit Chopra,
in his official capacity as Director, Consumer Financial Protection Bureau,
Defendants—Appellees.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:18-CV-295
Before Willett, Engelhardt, and Wilson, Circuit Judges.
Cory T. Wilson, Circuit Judge:
“An elective despotism was not the government we fought for; but
one which should not only be founded on free principles, but in which the
powers of government should be so divided and balanced . . . , as that no one
could transcend their legal limits, without being effectually checked and
restrained by the others.” The Federalist No. 48 (J. Madison)
(quoting Thomas Jefferson’s Notes on the State of Virginia (1781)). In
particular, as George Mason put it in Philadelphia in 1787, “[t]he purse & the
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sword ought never to get into the same hands.” 1 The Records of the
Federal Convention of 1787, at 139–40 (M. Farrand ed. 1937). These
foundational precepts of the American system of government animate the
Plaintiffs’ claims in this action. They also compel our decision today.
Community Financial Services Association of America and Consumer
Service Alliance of Texas (the “Plaintiffs”) challenge the validity of the
Consumer Financial Protection Bureau’s 2017 Payday Lending Rule. The
Plaintiffs contend that in promulgating that rule, the Bureau acted arbitrarily
and capriciously and exceeded its statutory authority. They also contend that
the Bureau is unconstitutionally structured, challenging the Bureau
Director’s insulation from removal, Congress’s broad delegation of authority
to the Bureau, and the Bureau’s unique, double-insulated funding
mechanism. The district court rejected these arguments.
We agree that, for the most part, the Plaintiffs’ claims miss their mark.
But one arrow has found its target: Congress’s decision to abdicate its
appropriations power under the Constitution, i.e., to cede its power of the
purse to the Bureau, violates the Constitution’s structural separation of
powers. We thus reverse the judgment of the district court, render judgment
in favor of the Plaintiffs, and vacate the Bureau’s 2017 Payday Lending Rule.
I.
A.
In response to the 2008 financial crisis, Congress enacted the
Consumer Financial Protection Act, 12 U.S.C. §§ 5481–5603. The Act
created the Bureau as an independent regulatory agency housed within the
Federal Reserve System. See id. § 5491(a). The Bureau is charged with
“implement[ing]” and “enforce[ing]” consumer protection laws to
“ensur[e] that all consumers have access to markets for consumer financial
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products and services” that “are fair, transparent, and competitive.” Id.
§ 5511(a).
Congress transferred to the Bureau administrative and enforcement
authority over 18 federal statutes which prior to the Act were overseen by
seven different agencies. See id. §§ 5512(a), 5481(12), (14). Those statutes
“cover everything from credit cards and car payments to mortgages and
student loans.” Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2200 (2020). In
addition, Congress enacted a sweeping new proscription on “any unfair,
deceptive, or abusive act or practice” by certain participants in the
consumer-finance industry. 12 U.S.C. § 5536(a)(1)(B). “Congress
authorized the [Bureau] to implement that broad standard (and the 18 pre-
existing statutes placed under the agency’s purview) through binding
regulations.” Seila Law, 140 S. Ct. at 2193 (citing 12 U.S.C. §§ 5531(a)–(b),
5581(a)(1)(A), (b)).
Congress placed the Bureau’s leadership under a single Director to be
appointed by the President with the advice and consent of the Senate. 12
U.S.C. § 5491(b)(1)–(2). The Director serves a term of five years, with the
potential of a holdover period pending confirmation of a successor. Id.§ 5491(c)(1)–(2). The Act originally limited the President’s ability to remove
the Director, id. § 5491(c)(3), but the Supreme Court invalidated that
provision while this litigation was pending, see Seila Law, 140 S. Ct. at 2197.
The Director is vested with authority to “prescribe rules and issue
orders and guidance, as may be necessary or appropriate to enable the Bureau
to administer and carry out the purposes and objectives of the Federal
consumer financial laws, and to prevent evasions thereof.” 12 U.S.C.
§ 5512(b)(1). This includes rules “identifying as unlawful unfair, deceptive,
or abusive acts or practices” committed by certain participants in the
consumer-finance industry. Id. § 5531(b).
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The Bureau’s funding scheme is unique across the myriad
independent executive agencies across the federal government. It is not
funded with periodic congressional appropriations. “Instead, the [Bureau]
receives funding directly from the Federal Reserve, which is itself funded
outside the appropriations process through bank assessments.” Seila Law,
140 S. Ct. at 2194. Each year, the Bureau simply requests an amount
“determined by the Director to be reasonably necessary to carry out the”
agency’s functions. Id. § 5497(a)(1). The Federal Reserve must then
transfer that amount so long as it does not exceed 12% of the Federal
Reserve’s “total operating expenses.” Id. § 5497(a)(1)–(2). For the first five
years of its existence (i.e., 2010–2014), the Bureau was permitted to exceed
the 12% cap by $200 million annually so long as it reported the anticipated
excess to the President and congressional appropriations committees. Id.
§ 5497(e)(1)–(2).
B.
In 2016, Director Richard Cordray, who was appointed by President
Barack Obama, proposed a rule to regulate payday, vehicle title, and certain
high-cost installment loans (the “Payday Lending Rule”). After a public
notice-and-comment period, Director Corday finalized the Payday Lending
Rule in November 2017, during the first year of the Trump administration.
See Payday, Vehicle Title, and Certain High-Cost Installment Loans, 82 Fed.
Reg. 54472 (Nov. 17, 2017). The rule became effective on January 16, 2018,
and had a compliance date of August 19, 2019. Id.The Rule had two major components, each limiting a practice the
Bureau deemed “unfair” and “abusive.” See id. First, the “Underwriting
Provisions” prohibited lenders from making covered loans “without
reasonably determining that consumers have the ability to repay the loans
according to their terms.” 12 C.F.R. § 1041.4 (2018); 82 Fed. Reg. at 54472.
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The Underwriting Provisions have since been repealed and are not at issue in
this appeal. See 85 Fed. Reg. 44382 (July 22, 2019).
Second, and relevant here, the “Payment Provisions” limit a lender’s
ability to obtain loan repayments via preauthorized account access. See 12
C.F.R. § 1041.8. The Bureau determined that absent a new and specific
authorization, it is “unfair and abusive” for lenders to attempt to withdraw
payments for covered loans from consumers’ accounts after two consecutive
withdrawal attempts have failed due to a lack of sufficient funds. Id. § 1041.7;
82 Fed. Reg. at 54472. The Payment Provisions accordingly prohibit lenders
from initiating additional payment transfers from consumers’ accounts after
two consecutive attempts have failed for insufficient funds unless “the
additional payment transfers are authorized by the consumer.” 12 C.F.R.
§ 1041.8(b)(1), (c)(1).
The Payment Provisions cast a wide net. So long as the purpose of the
attempted transfer is to collect payment due on a covered loan, the two-
attempt limit applies to “any lender-initiated debt or withdrawal of funds
from a consumer’s account.” Id. § 1041.8(a)(1). This includes checks, debit
and prepaid card transfers, preauthorized electronic fund transfers, and
remotely created payment orders. See id.; 82 Fed. Reg. at 54910.
In April 2018, the Plaintiffs sued the Bureau on behalf of payday
lenders and credit access businesses, seeking an “order and judgment
holding unlawful, enjoining, and setting aside” the Payday Lending Rule.
The Plaintiffs alleged that the rule exceeded the Bureau’s statutory authority
and otherwise violated the Administrative Procedure Act (APA). They
further alleged that the rule was invalid because the Act’s for-cause removal
provision, self-funding mechanism, and delegation of rulemaking authority
each violated the Constitution’s separation of powers.
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Around this time, the Bureau, now led by Acting Director Mick
Mulvaney, announced that it intended to engage in notice-and-comment
rulemaking to reconsider the Payday Lending Rule. Due to that ongoing
effort, the parties filed a joint request to stay both the litigation and the rule’s
effective date. The district court entered a stay pending further order of the
court. Cmty. Fin. Servs. Ass’n of Am., Ltd. v. CFPB, 2018 WL 6252409, at *2
(W.D. Tex. Nov. 6, 2018).
While the Bureau engaged in rulemaking, President Trump
nominated and the Senate confirmed Kathleen Kraninger as Director,
replacing Acting Director Mulvaney. In early 2019, the Bureau issued a
proposed rule rescinding the Underwriting Provisions but leaving the
Payment Provisions intact. 84 Fed. Reg. 4252. In July 2020, following the
Supreme Court’s decision in Seila Law, the Bureau finalized its revised rule.
85 Fed. Reg. 44382. The Bureau simultaneously issued a separate
“Ratification,” in which it “affirm[ed] and ratifie[d] the [P]ayment
[P]rovisions of the 2017 [Payday Lending] Rule.” 85 Fed. Reg. 41905-02.
In August 2020, the district court lifted the stay, and the Plaintiffs
amended their complaint to challenge, among other things, the Bureau’s
ratification of the Payment Provisions. Thereafter, the parties filed cross-
motions for summary judgment. The district court granted summary
judgment for the Bureau on each of the Plaintiffs’ claims. Cmty. Fin. Servs.
Ass’n of Am., Ltd. v. CFPB, 558 F. Supp. 3d 350 (W.D. Tex. 2021). The court
concluded, inter alia, that: (1) the promulgating Director’s insulation from
removal did not render the Payment Provisions void ab initio, id. at 358;
(2) the Bureau’s “ratification of the Payment Provisions was a solution
tailored to the constitutional injury sustained by the [Plaintiffs],” id. at 365;
(3) the “Payment Provisions [were] consistent with the Bureau’s statutory
authority and not arbitrary and capricious,” id.; (4) the Bureau’s self-funding
mechanism did not violate the Appropriations Clause because it was
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expressly authorized by statute, id. at 367; and (5) there was no nondelegation
issue because the Bureau was vested with an “intelligible principle” to guide
its discretion, id.The Plaintiffs now appeal. We allowed the Third-Party Payment
Processors Association, a national non-profit association of payment
processors and their banks, to appear as amicus curiae in support of the
Plaintiffs’ arbitrary-and-capricious challenge.
II.
We “review a district court’s judgment on cross motions for summary
judgment de novo, addressing each party’s motion independently, viewing
the evidence and inferences in the light most favorable to the nonmoving
party.” Morgan v. Plano Indep. Sch. Dist., 589 F.3d 740, 745 (5th Cir. 2009).
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). Constitutional issues are also
reviewed de novo. Huawei Techs. USA, Inc. v. FCC, 2 F.4th 421, 434 (5th
Cir. 2021).
The Plaintiffs raise four overarching issues on appeal. They contend
that the Payment Provisions of the Payday Lending Rule are invalid because:
(1) the rule’s promulgation violated the APA; (2) the rule was promulgated
by a Director unconstitutionally insulated from presidential removal; (3) the
Bureau’s rulemaking authority violates the nondelegation doctrine; and
(4) the Bureau’s funding mechanism violates the Appropriations Clause of
the Constitution. We address each argument in turn.
A.
The APA instructs courts to “hold unlawful and set aside agency
action[s]” that are “arbitrary, capricious, an abuse of discretion, or otherwise
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not in accordance with law,” or “in excess of statutory jurisdiction,
authority, or limitations.” 5 U.S.C. § 706(2). The Plaintiffs lodge two
arguments under the APA. First, they contend that the Bureau exceeded its
statutory authority by declaring more than two successive preauthorized
withdrawals to be “unfair” and “abusive.” Second, they assert that the
Payment Provisions are arbitrary and capricious in their entirety or,
alternatively, as applied to two specific contexts—installment loans and debit
and prepaid card payments.
1.
The Act grants the Bureau broad authority to prescribe rules
prohibiting “unfair, deceptive, or abusive acts or practices in connection with
any transaction with a consumer for a consumer financial product or service,
or the offering of a consumer financial product or service.” 12 U.S.C.
§ 5531(b). This authority is not without limitation, however. Congress
included specific definitions that govern when an act or practice may be
deemed “unfair,” id. § 5531(c)(1), or “abusive,” id. § 5531(d). And unless
those definitions are met, the Bureau “shall have no authority” to regulate
conduct on either ground. See id. § 5531(c)–(d).
In devising the Payment Provisions, the Bureau assessed the statutory
definitions and determined that it was both “unfair” and “abusive” for
lenders to attempt additional withdrawals from consumers’ accounts after
two consecutive attempts failed due to insufficient funds unless the lender
acquired “new and specific authorization.” 12 C.F.R. § 1041.7; see also 82
Fed. Reg. at 54472. The Plaintiffs assert that the Bureau lacked authority to
regulate the number of unsuccessful withdrawal attempts because this
practice falls outside the Act’s definitions of “unfair” and “abusive.”
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Our review begins (and ends) with unfairness. 1 Under the Act, an act
or practice is “unfair” if “the Bureau has a reasonable basis to conclude that
[1] the act or practice causes or is likely to cause substantial injury to
consumers [2] which is not reasonably avoidable by consumers; and [3] such
substantial injury is not outweighed by the countervailing benefits to
consumers or to competition.” 12 U.S.C. § 5531(c)(1). The Bureau
evaluated each element in its 2017 rulemaking record and concluded that the
proscribed practice satisfied all three. The Plaintiffs challenge only the first
two elements on appeal.
As to the first, the Bureau determined that lenders’ excessive
withdrawal attempts cause or are likely to cause consumers substantial injury
in the form of repeated fees, including insufficient fund fees, overdraft fees,
and lender-imposed return fees. 82 Fed. Reg. at 54732–34. It also found that
“consumers who experience two or more consecutive failed lender payment
attempts appear to be at greater risk of having their accounts closed by their
account-holding institution.” Id. at 54734. The Plaintiffs do not dispute the
occurrence or substantiality of these injuries. Rather, they challenge the
Bureau’s finding that the proscribed practice either causes or is likely to
cause them. The Plaintiffs assert that “[c]onsumers’ banks—not lenders—
cause failed-payment fees or bank-account closures” because they are the
ones who “impose, collect, or otherwise control [them].”
We are unpersuaded. The presence of an “independent causal
agent[]” does not “erase the role” lenders play in bringing about the
contemplated harm. FTC v. Neovi, Inc., 604 F.3d 1150, 1155 (9th Cir. 2010).
1
Because we ultimately conclude that the Bureau acted within its statutory
authority in deeming the proscribed practice unfair, we do not address the alternative
ground of abusiveness. See 12 U.S.C. § 5531(b) (authorizing the Bureau to prescribe rules
regulating practices that are “unfair,” “abusive,” or both).
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Though not the “most proximate cause,” a lender’s repeated initiation of
unsuccessful payment transfers is both a but-for and a proximate cause of any
resulting fees or closures. FTC v. Wyndham Worldwide Corp., 799 F.3d 236,
246 (3d Cir. 2015) (“[The fact] that a company’s conduct was not the most
proximate cause of an injury generally does not immunize liability from
foreseeable harms.”).
The Plaintiffs also challenge the Bureau’s finding that these injuries
are not reasonably avoidable by consumers. Few courts have meaningfully
addressed this second element of “unfairness” under the Act. E.g., CFPB v.
Navient Corp., No. 3:17-CV-101, 2017 WL 3380530, at *20–21 (M.D. Pa.
Aug. 4, 2017); CFPB v. D & D Mktg., No. CV 15-9692, 2016 WL 8849698, at
*10 (C.D. Cal. Nov. 17, 2016); CFPB v. ITT Educ. Servs., Inc., 219 F. Supp.
3d 878, 916–17 (S.D. Ind. 2015). In doing so, these courts relied on our sister
circuits’ interpretations of “reasonably avoidable” from the analogous
standard in the Federal Trade Commission Act (FTCA). See 15 U.S.C.
§ 45(n). 2 We do the same. 3
To determine whether an injury was “reasonably avoidable” under
the FTCA, courts generally “look to whether the consumers had a free and
informed choice.” Neovi, 604 F.3d at 1158; accord Am. Fin. Servs. Ass’n v.
2
Section 45(n) provides that the Federal Trade Commission “shall have no
authority . . . to declare unlawful an act or practice on the grounds that such act or practice
is unfair unless the act or practice causes or is likely to cause substantial injury to consumers
which is not reasonably avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition.”
3
Looking to the FTCA for guidance, we remain mindful of one important
distinction: The Act requires only that the Bureau have “a reasonable basis to conclude
that” the proscribed practice “is not reasonably avoidable by consumers,” 12 U.S.C.
§ 5531(c)(1) (emphasis added), while the FTCA includes no such qualifier, see 15 U.S.C.
§ 45(n). In other words, while we find the standards to be analogous, the Bureau is perhaps
afforded more deference in its determination than would be afforded under the FTCA.
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FTC, 767 F.2d 957, 976 (D.C. Cir. 1985). “An injury is reasonably avoidable
if consumers ‘have reason to anticipate the impending harm and the means
to avoid it,’ or if consumers are aware of, and are reasonably capable of
pursuing, potential avenues toward mitigating the injury after the fact.”
Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168–69 (9th Cir. 2012)
(quoting Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1365–66 (11th Cir.
1988)). The Plaintiffs contend that consumers can reasonably avoid injury
associated with successive withdrawal attempts by (1) “not authorizing
automatic withdrawals,” (2) “sufficiently funding [their] account[s],”
(3) “negotiating revised payment options,” (4) “invoking [their] rights
under federal law to issue stop-payment orders or rescind account access,”
or (5) “declining to take out the loan” and “pursuing alternative[] sources of
credit.”
Each of these concerns was raised during the public comment period
of the Bureau’s rulemaking process. See, e.g., 82 Fed. Reg. at 54736–37. The
Bureau found none of them sufficient to constitute a reasonable means of
avoiding injury. Id. at 54737. The rulemaking record prefaces that many
borrowers resort to payday loans because they are in financial distress and
lack other viable options for financing. Id. at 54571, 54735. Addressing the
Plaintiffs’ first point, the Bureau explained that since “leveraged payment
mechanisms” are “a central feature of these loans,” borrowers typically do
not have the ability to shop for loans without them. Id. at 54737. The Bureau
also found that simply funding their accounts is not a reasonable means for
borrowers to avoid injury because “[m]any borrowers [do] not have the
funds” after two unsuccessful withdrawal attempts, and “subsequent
[withdrawals] can occur very quickly, often on the same day, making it
difficult to ensure funds are in the right account before the [next withdrawal]
hits.” Id. For the same reason, the Bureau found negotiating repayment
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options to be too slow a solution to mitigate against fees incurred on
additional withdrawal attempts. See id. at 54736–37.
Regarding the Plaintiffs’ fourth point, the Bureau explained that costs,
“[c]omplexities in payment processing systems[,] and the internal
procedures of consumers’ account-holding institutions, combined with
lender practices, often make it difficult for consumers to stop payment or
revoke authorization effectively.” Id. Finally, the Bureau concluded that
“the suggestion that a consumer can simply decide not to participate in the
market is not . . . a valid means of reasonably avoiding the injury.” Id. at
54737. By that logic, the Bureau reasoned, “no market practice could ever
be determined to be unfair.” Id.
The Bureau’s explanations are fully fleshed out in the Payday Lending
Rule’s 519-page rulemaking record, where they are supported by a variety of
data and industry-related studies. Reviewing that record as it undergirds the
Payment Provisions, we find the Bureau had “a reasonable basis to
conclude” that the harms associated with three or more unsuccessful
withdrawal attempts are “not reasonably avoidable by consumers.” 12
U.S.C. § 5531(c)(1). Because the proscribed practice thus satisfies the
elements of an “unfair” practice under the Act, we conclude that the Bureau
acted within its statutory authority in promulgating the Payment Provisions.
2.
Next, the Plaintiffs contend that the Payment Provisions are arbitrary
and capricious, either as a whole or as applied. “The APA’s arbitrary-and-
capricious standard requires that agency action be reasonable and reasonably
explained. Judicial review under that standard is deferential, and a court may
not substitute its own policy judgment for that of the agency.” FCC v.
Prometheus Radio Project, 141 S. Ct. 1150, 1158 (2021). Still, we must ensure
that an agency “examine[s] the relevant data and articulate[s] a satisfactory
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explanation for its action including a rational connection between the facts
found and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quotation omitted). A rule
is arbitrary and capricious if the agency relied on “impermissible factors,
failed to consider important aspects of the problem, offered an explanation
for its decision that is contrary to the record evidence, or is so irrational that
it could not be attributed to a difference in opinion or the result of agency
expertise.” BCCA Appeal Grp. v. U.S. EPA, 355 F.3d 817, 824 (5th Cir.
2003).
Here, the Plaintiffs first contend that the Payment Provisions are
arbitrary and capricious in their entirety because they rest on stale data from
four-to-five years prior to their promulgation, and the Bureau failed to
consider the provisions’ important countervailing effects. As to the first
point, the Plaintiffs forfeited their stale data argument by failing to raise it in
the district court. See Rollins v. Home Depot USA, Inc., 8 F.4th 393, 398 (5th
Cir. 2021). And forfeiture aside, the Bureau offered a reasoned explanation
in its 2017 rulemaking record for relying on data collected from 2011–2012.
See 82 Fed. Reg. at 54722, 54729.
As to the second point, the only countervailing effect the Plaintiffs
allege the Bureau failed to consider is “the increased likelihood that a loan
will enter into collections sooner than it would have (if it would have at all).”
But the Bureau persuasively responds that “[i]f the borrower is unable to
obtain the funds, it is unclear why the borrower (or the lender) would be
better off if the lender could initiate failed withdrawal attempts—and, in the
process, pile additional fees onto the borrower—before the loan enters
collections.” Even if the Payment Provisions’ limit on repeated withdrawal
attempts might send some loans to collections sooner, that possibility is not
so “important” that the Bureau had to consider it specifically. See Motor
Vehicle Mfrs., 463 U.S. at 43 (explaining “an agency rule would be arbitrary
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and capricious if the agency . . . entirely failed to consider an important
aspect of the problem”).
Turning to their as-applied challenge, the Plaintiffs assert that the
Payment Provisions are arbitrary and capricious as applied to debit and
prepaid card payments and as to separate installments of multi-payment
installment loans. Amicus joins them with respect to debit and prepaid cards.
Together, they contend that the Payment Provisions “arbitrarily treat[] debit
and prepaid card payments the same as check and [account clearinghouse]
payments, even though the former do not give rise to the fees that, in the
Bureau’s assessment, justify the Rule.”
The Bureau acknowledged in the rulemaking record that debit and
prepaid card transactions “present somewhat less risk of harm to
consumers,” but it declined to exclude them for several reasons. 82 Fed.
Reg. at 54750. For one, the Bureau found that though failed debit and prepaid
card transactions may not trigger insufficient fund fees, “some of them do
trigger overdraft fees, even after two failed attempts.” Id. And as with other
payment-transfer methods, consumers would still be subject to “return
payment fees and late fees charged by lenders.” Id. at 54723, 54734. The
Bureau also explained that a carve out for these transactions “would be
impracticable to comply with and enforce.” Id. at 54750. These
considerations suffice to establish a “rational connection between the facts
found and choice made.” Motor Vehicle Mfrs., 463 U.S. at 43 (quotation
omitted). Therefore, the Payment Provisions are not arbitrary and capricious
as applied to debit and prepaid card transfers. 4
4
The Plaintiffs also contend that “the denial of [Advance Financial’s] rulemaking
petition seeking amendment of the [Payday Lending] Rule to exclude debit and prepaid
card payments was arbitrary and capricious.” But just as it was not arbitrary and capricious
for the Bureau initially to include these payment types within the rule, it was not arbitrary
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Similarly, we cannot say that the Bureau acted arbitrarily and
capriciously by extending the Payment Provisions’ two-attempt limit across
all scheduled installment payments on the same loan. The Plaintiffs contend
that the Bureau failed to support its decision with “reasoned analysis or
record evidence.” But again, the rulemaking record proves otherwise. Citing
its own study, the Bureau explained that a third withdrawal attempt, even as
applied to a different scheduled payment, would still likely fail “even if two
weeks or a month has passed.” 82 Fed. Reg. at 54753. The Bureau also found
that “the tailoring of individualized requirements for each discrete payment
practice would add considerable complexity to the rule.” Id. Further, the
Bureau determined that distinguishing between re-presentments of the same
payment and new presentments for new installments would invite evasion by
lenders. The Bureau referenced a rule imposed by the National Automated
Clearinghouse Association (NACHA), a self-governing private
organization, that is similar to the Payment Provisions (except that it only
applies after three attempts). See id. at 54728–29. The Bureau noted that the
NACHA rule’s distinction between attempts to collect a new payment and
re-initiation of a prior one had led companies to manipulate data fields so that
it would appear as if a withdrawal attempt was for a new installment. See id.
at 54728 n.985 & 54729.
In sum, we conclude that the Payment Provisions are not arbitrary and
capricious, either in their entirety or in their two contested applications. As
Plaintiffs fail to show that the Payday Lending Rule’s promulgation violated
and capricious for the Bureau to deny a rulemaking petition asking for their exemption.
This is especially true considering the “extremely limited and highly deferential” standard
under which we review an agency’s “[r]efusal[] to promulgate rules.” Massachusetts v.
EPA, 549 U.S. 497, 527–28 (2007) (internal quotation marks omitted) (quoting Nat’l
Customs Brokers & Forwarders Ass’n. of Am., Inc. v. United States, 883 F.2d 93, 96 (D.C. Cir.
1989)).
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the APA, summary judgment in favor of the Bureau on this claim was
warranted.
B.
The Plaintiffs next contend that the Payment Provisions must be
invalidated because the Payday Lending Rule was initially promulgated by a
director who was unconstitutionally shielded from removal.
1.
The Act states that the Bureau’s Director may be removed only “for
inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C.
§ 5491(c)(3). In Seila Law, the Court held that this limitation on the
President’s removal power violated the Constitution’s separation of powers.
140 S. Ct. at 2197. But the Court declined to find that the Director’s
unconstitutional insulation from removal rendered the remainder of the Act
invalid. Id. at 2208–11. Instead, the Court concluded that the infirm removal
provision was severable and remanded the case for a determination of the
appropriate relief. Id. at 2211.
Like Seila Law, Collins v. Yellen, 141 S. Ct. 1761 (2021), involved a
challenge to actions taken by an independent agency, the Federal Housing
Finance Agency (FHFA), that was headed by a single officer removable only
for cause. See 141 S. Ct. at 1784. The Collins petitioners asserted that the
FHFA Director’s for-cause removal protection violated the separation of
powers, and therefore the agency actions at issue “must be completely
undone.” Id. at 1787. The Court agreed that the for-cause removal provision
was unconstitutional, finding Seila Law “all but dispositive.” Id. at 1783. But
it refused to hold that an officer’s insulation from removal, by itself, rendered
all agency action taken under that officer void. Id. at 1787–88. Unlike cases
“involv[ing] a Government actor’s exercise of power that the actor did not
lawfully possess,” the Court explained, a properly appointed officer’s
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insulation from removal “does not strip the [officer] of the power to
undertake the other responsibilities of his office.” Id. at 1788 & n.23. Thus,
to obtain a remedy, the challenging party must demonstrate not only that the
removal restriction violates the Constitution but also that “the
unconstitutional removal provision inflicted harm.” Id. at 1788–89.
While the Plaintiffs acknowledge Collins, they argue the case is
distinguishable on several grounds. None are persuasive.
First, they assert that Collins applies only to retrospective relief. But
Collins did not rest on a distinction between prospective and retrospective
relief. As the Sixth Circuit recently explained, Collins’s remedial inquiry
“focuse[d] on whether a ‘harm’ occurred that would create an entitlement
to a remedy, rather than the nature of the remedy, and our determination as
to whether an unconstitutional removal protection ‘inflicted harm’ remains
the same whether the petitioner seeks retrospective or prospective relief.”
Calcutt v. FDIC, 37 F.4th 293, 316 (6th Cir. 2022). 5
The Plaintiffs also contend that Collins “does not apply to rulemaking
challenges.” This distinction is similarly without a difference. To the
contrary, in Collins, the Court explicitly stated that “the unlawfulness of the
removal provision does not strip the Director of the power to undertake the
other responsibilities of his office.” 141 S. Ct. at 1788 n.23. Because the
Bureau’s Director’s “other responsibilities” include rulemaking, see 12
U.S.C. §§ 5511(a), 5512(b), Collins is directly on point, and the Plaintiffs
5
Collins originally involved claims for both prospective and retrospective relief.
141 S. Ct. at 1780. By the time the case reached the Supreme Court, the challengers’ claims
for prospective relief were moot. Id. Therefore, the Court articulated its remedial analysis
in terms of retrospective relief. See id. at 1788–89.
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must demonstrate that the unconstitutional removal provision caused them
harm.
2.
Joining the issue, the Plaintiffs assert that “even if Collins does inform
the analysis here, its framework plainly requires setting aside the [Payment
Provisions]” because the Plaintiffs have made a sufficient showing of harm.
As noted above, after Collins, 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. 141 S. Ct. at 1789. The Court chose to remand
Collins’s remedy question and stopped short of articulating a precise
statement as to how a party may prove harm. See id. at 1788–89. Instead, the
Collins majority concluded with several hypotheticals:
Although an unconstitutional provision is never really part of
the body of governing law (because the Constitution
automatically displaces any conflicting statutory provision
from the moment of the provision’s enactment), it is still
possible for an unconstitutional provision to inflict
compensable harm. And the possibility that the
unconstitutional restriction on the President’s power to
remove a Director . . . could have such an effect cannot be ruled
out. Suppose, for example, that the President had attempted to
remove a Director but was prevented from doing so by a lower
court decision holding that he did not have “cause” for
removal. Or suppose that the President had made a public
statement expressing displeasure with actions taken by a
Director and had asserted that he would remove the Director if
the statute did not stand in the way. In those situations, the
statutory provision would clearly cause harm.
Id.
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We distill from these hypotheticals three requisites for proving harm:
(1) a substantiated desire by the President to remove the unconstitutionally
insulated actor, (2) a perceived inability to remove the actor due to the infirm
provision, and (3) a nexus between the desire to remove and the challenged
actions taken by the insulated actor. This is borne out by the concurring
Justices’ opinions as well. See id. at 1792–93 (Thomas, J., concurring); id. at
1801 (Kagan, J., concurring in part); id. at 1803 n.1 (Sotomayor, J., concurring
in part and dissenting in part). As Justice Kagan emphasized, “plaintiffs
alleging a removal violation are entitled to injunctive relief—a rewinding of
agency action—only when the President’s inability to fire an agency head
affected the complained-of decision.” Id. at 1801 (Kagan, J., concurring in part)
(emphasis added).
It is thus not enough, as the Plaintiffs would have us hold, for a
challenger to obtain relief merely by establishing that the unconstitutional
removal provision prevented the President from removing a Director he
wished to replace. As we read Collins, to demonstrate harm, the Plaintiffs
must show a connection between the President’s frustrated desire to remove
the actor and the agency action complained of. See id. at 1789. Without this
showing, the Plaintiffs could put themselves in a better place than otherwise
warranted, by challenging decisions either with which the President agreed,
or of which he had no awareness at all. Id. at 1802 (Kagan, J., concurring in
part).
Applying Collins’s framework, we conclude the Plaintiffs fail to show
that the Act’s removal provision inflicted a constitutional harm. Though
they state “[i]t is uncontested that, but for the later-invalidated removal
restriction, President Trump would have replaced [Director] Cordray before
he finalized the [Payday Lending Rule],” their only support for this assertion
consists of a few carefully selected statements from Director Cordray’s book,
see, e.g., Richard Cordray, Watchdog: How Protecting
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Consumers Can Save Our Families, Our Economy, and
Our Democracy 185 (2020) (“[T]he threat that I would be fired as soon
as President Trump took office loomed over everything.”), and an online
article, see Kate Berry, In Tell-All, Ex-CFPB Chief Cordray Claims Trump
Nearly Fired Him, American Banker (Feb. 27, 2020) https://www.
americanbanker.com/news/in-tell-all-ex-cfpb-chief-cordrayclaims-trump-
nearly-fired-him (stating “President Trump was advised to hold off on firing
Corday because the Supreme Court had not yet weighed in on [the] ‘for
cause’ provision”).
These secondhand accounts of President Trump’s supposed
intentions are insufficient to establish harm. The Director’s subjective belief
that his firing might be imminent does not in itself substantiate that the
President would have removed the Director but for the unconstitutional
removal provision. Regardless, the record before us plainly fails to
demonstrate any nexus between the President’s purported desire to remove
Cordray and the promulgation of the Payday Lending Rule or, specifically,
the Payment Provisions. 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.
Because the Plaintiffs have failed to demonstrate harm, we need not
address the Bureau’s alternative argument that any alleged harm was cured
by Director Kraninger’s ratification of the Payment Provisions. See CFPB v.
CashCall, Inc., 35 F.4th 734, 743 (9th Cir. 2022) (finding “it unnecessary to
consider ratification” where the challenger could not establish harm).
Summary judgment in favor of the Bureau on this claim was proper.
C.
We next consider the Plaintiffs’ argument that the Bureau’s
rulemaking authority violates the Constitution’s separation of powers by
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running afoul of the nondelegation doctrine. 6 The Constitution provides that
“[a]ll legislative Powers herein granted shall be vested in a Congress of the
United States.” U.S. Const. art. I, § 1. Inherent in “that assignment of
power to Congress is a bar on its further delegation.” Gundy v. United States,
139 S. Ct. 2116, 2123 (2019) (plurality opinion). “Under the nondelegation
doctrine, Congress may not constitutionally delegate its legislative power to
another branch of government.” United States v. Jones, 132 F.3d 232, 239
(5th Cir. 1998) (citing Mistretta v. United States, 488 U.S. 361, 372 (1989)).
But the Supreme Court has long delimited this general principle: “So
long as Congress ‘lay[s] down by legislative act an intelligible principle to
which the person or body authorized to [act] is directed to conform, such
legislative action is not a forbidden delegation of legislative power.’” Touby
v. United States, 500 U.S. 160, 165 (1991) (quoting J.W. Hampton, Jr., & Co.
v. United States, 276 U.S. 394, 409 (1928)). It is “constitutionally sufficient
if Congress clearly delineates the general policy, the public agency which is
to apply it, and the boundaries of this delegated authority.” Am. Power &
Light Co. v. SEC, 329 U.S. 90, 105 (1946); see also Gundy, 139 S. Ct. at 2129(explaining that “[t]hose standards . . . are not demanding”).
Through the Act, Congress gave the Bureau authority “to prescribe
rules . . . identifying as unlawful unfair, deceptive, or abusive acts or
practices.” 12 U.S.C. § 5531(b). This constituted a delegation of legislative
power because “the lawmaking function belongs to Congress.” Loving v.
United States, 517 U.S. 748, 758 (1996). The question is whether Congress
6
For the first time on appeal, the Plaintiffs also argue that Congress violated the
nondelegation doctrine by delegating its appropriations power to the Bureau. This
argument is distinct from the Plaintiffs’ Appropriations Clause challenge, which was raised
in the district court and which we address infra in II.D. Because the Plaintiffs did not raise
their appropriations-based nondelegation argument in the district court, it is forfeited on
appeal. See Rollins, 8 F.4th at 398.
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also “supplied an intelligible principle to guide the [Bureau’s] discretion.”
Gundy, 139 S. Ct. at 2123.
The Plaintiffs assert that “[t]here is no intelligible principle” behind
the Bureau’s “vague and sweeping” rulemaking authority. We disagree. In
the Act, Congress articulated its general policy preferences, established the
Bureau as the agency to apply them, and set boundaries—albeit broad ones—
on the Bureau’s rulemaking authority. Am. Power & Light Co., 329 U.S. at
105. Given that the Supreme Court “has over and over upheld even very
broad delegations,” Gundy, 139 S. Ct. at 2129, the Act’s delegation of
rulemaking authority to the Bureau passes muster.
Congress’s general policy is distilled in the Bureau’s purpose and
objectives. 12 U.S.C. § 5511(a)–(b). The Bureau’s “purpose” is “to
implement and, where applicable, enforce Federal consumer financial law
consistently for the purpose of ensuring that all consumers have access to
markets for consumer financial products and services and that markets for
consumer financial products and services are fair, transparent, and
competitive.” Id. § 5511(a). That purpose is accompanied by five
“objectives” toward which “[t]he Bureau is authorized to exercise its
authorit[y.]” Id. § 5511(b). One of those is to “ensur[e] that . . . consumers
are protected from unfair, deceptive, or abusive acts and practices.” Id.
§ 5511(b)(2). In line with that objective, Congress empowered the Bureau to
“prescribe rules applicable to a covered person or service provider
identifying as unlawful unfair, deceptive, or abusive acts or practices in
connection with any transaction with a consumer for a consumer financial
product or service, or the offering of a consumer financial product or
service.” Id. § 5531(b). Congress then circumscribed that authority by
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including specific criteria that must be met before the Bureau can label a
practice “unfair” or “abusive.” See id. § 5531(c)–(d). 7
Far from an “open-ended delegation” that offers “no guidance
whatsoever,” Jarkesy v. SEC, 34 F.4th 446, 462 (5th Cir. 2022) (emphasis
omitted), Congress’s grant of rulemaking authority to the Bureau was
accompanied by a specific purpose, objectives, and definitions to guide the
Bureau’s discretion. This was more than sufficient to confer an “intelligible
principle.” See Whitman v. Am. Trucking Ass’n, 531 U.S. 457, 474–75 (2001)
(compiling the various directives the Supreme Court has deemed sufficient
to constitute an “intelligible principle”).
D.
Finally, the Plaintiffs contend that the Payday Lending Rule is invalid
because the Bureau’s funding structure violates the Appropriations Clause
of the Constitution and the separation of powers principles enshrined in it.
Though the constitutionality of the Bureau has been heavily litigated, this
issue has yet to be definitively resolved. In Seila Law, the Supreme Court
determined that the Act’s presidential removal restriction violated the
Constitution’s separation of powers, but the Court did not confront whether
7
We discussed the statutory elements of “unfairness” supra in II.A.1. It was
unnecessary to address “abusiveness” there. See supra n.1. For reference here, an act or
practice is “abusive” if it
(1) materially interferes with the ability of a consumer to understand a term
or condition of a consumer financial product or service; or (2) takes
unreasonable advantage of—(A) a lack of understanding on the part of the
consumer of the material risks, costs, or conditions of the product or
service; (B) the inability of the consumer to protect the interests of the
consumer in selecting or using a consumer financial product or service; or
(C) the reasonable reliance by the consumer on a covered person to act in
the interests of the consumer.
12 U.S.C. § 5531(d).
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the Bureau’s unique funding scheme does. 140 S. Ct. at 2197. And a majority
of this court recently concluded that the issue was not properly before us in
another case challenging the Bureau’s structure and authority. See CFPB v.
All Am. Check Cashing, Inc., 33 F.4th 218, 220 & n.2 (5th Cir. 2022) (en banc).
However, Judge Jones, in a magisterial separate opinion joined by several
of our colleagues, disagreed and addressed the parties’ Appropriations
Clause challenge. See id. at 221 (Jones, J., concurring). Methodically
analyzing the question, she concluded that the Bureau’s funding mechanism
contravenes the Constitution’s separation of powers. Id. at 242.
The issue is squarely raised here. We reach the same conclusion.
1.
Our “system of separated powers and checks and balances established
in the Constitution was regarded by the Framers as ‘a self-executing
safeguard against the encroachment or aggrandizement of one branch at the
expense of the other.’” Morrison v. Olson, 487 U.S. 654, 693 (1988) (quoting
Buckley v. Valeo, 424 U.S. 1, 122 (1976)). “If there is one aspect of the
doctrine of Separation of Powers that the Founding Fathers agreed upon, it
is the principle, as Montesquieu stated it: ‘To prevent the abuse of power, it
is necessary that by the very disposition of things, power should be a check to
power.’” United States v. Cox, 342 F.2d 167, 190 (5th Cir. 1965) (Wisdom,
J., concurring) (quoting Baron de Montesquieu, The Spirit of
the Laws bk. XI, ch. IV (1772)). On that foundation, the Framers erected
the three branches of government—legislative, executive, and judicial—and
endowed each with “the necessary constitutional means and personal
motives to resist encroachments of the others.” The Federalist No.
51 (J. Madison); see U.S. Const. art. I, § 1; id. art. II, § 1, cl. 1; id. art. III,
§ 1.
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Drawing on the British experience, the Framers “carefully
separate[d] the ‘purse’ from the ‘sword’ by assigning to Congress and
Congress alone the power of the purse.” Tex. Educ. Agency v. U.S. Dep’t of
Educ., 992 F.3d 350, 362 (5th Cir. 2021). 8 The Framers’ reasoning was
twofold. First, they viewed Congress’s exclusive “power over the purse” as
an indispensable check on “the overgrown prerogatives of the other branches
of the government.” The Federalist No. 58 (J. Madison). Indeed,
“the separation of purse and sword was the Federalists’ strongest rejoinder
to Anti-Federalist fears of a tyrannical president.” Josh Chafetz,
Congress’s Constitution, Legislative Authority and
the Separation of Powers 57 (2017).
The Framers also believed that vesting Congress with control over
fiscal matters was the best means of ensuring transparency and accountability
to the people. See The Federalist No. 48 (J. Madison) (“[T]he
legislative department alone has access to the pockets of the people.”). 9 As
8
As Alexander Hamilton explained, the powers of “the sword and the purse”
should never be placed
in either the Legislative or Executive, singly; neither one nor the other
shall have both; because this would destroy that division of powers on
which political liberty is founded, and would furnish one body with all the
means of tyranny. But when the purse is lodged in one branch, and the
sword in another, there can be no danger.
2 The Works of Alexander Hamilton 61 (Henry Cabot Lodge ed., 1904).
George Mason expressed the same sentiment, advising his colleagues at the Philadelphia
Convention that “[t]he purse & the sword ought never to get into the same hands.” 1 The
Records of the Federal Convention of 1787, at 139–40 (M. Farrand ed. 1937).
9
See also 3 The Records of the Federal Convention of 1787, at 149–
50 (M. Farrand ed. 1937) (statement of James McHenry) (“When the Public Money is
lodged in its Treasury there can be no regulation more consist[e]nt with the Spirit of
Economy and free Government that it shall only be drawn forth under appropriation by
Law and this part of the proposed Constitution could meet with no opposition as the People
who give their Money ought to know in what manner it is expended.”).
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James Madison explained, the “power over the purse may, in fact, be
regarded as the most complete and effectual weapon with which any
constitution can arm the immediate representatives of the people, for
obtaining a redress of every grievance, and for carrying into effect every just
and salutary measure.” The Federalist No. 58 (J. Madison). 10
The text of the Constitution reflects these foundational
considerations. First, even before enumerating how legislation becomes law
(i.e., passage by both houses of Congress and presentment to the President
for signature), the Constitution provides that “[a]ll Bills for raising Revenue
shall originate in the House of Representatives . . . .” U.S. Const. art. I,
§ 7, cl. 1. It then grants the general authority “[t]o lay and collect Taxes”
and spend public funds for various ends—the first power positively granted
to Congress by the Constitution. Id. art. I, § 8, cl. 1. Importantly though,
that general grant of spending power is cabined by the Appropriations Clause
and its follow-on, the Public Accounts Clause: “No money shall be drawn
from the Treasury, but in Consequence of Appropriations made by Law; and
a regular Statement and Account of the Receipts and Expenditures of all
public Money shall be published from time to time.” Id. art. I, § 9, cl. 7.
10
Indeed, popular accountability for the expenditure of public funds was so
important that an earlier draft of the Constitution restricted the power to originate
appropriations to the House of Representatives: “[A]ll Bills for raising or Appropriating
Money, and for fixing the Salaries of the Officers of the Government of the United States
shall originate in the first Branch of the Legislature of the United States, and shall not be
altered or amended by the second Branch; and that no money shall be drawn from the public
Treasury but in Pursuance of Appropriations to be originated by the first Branch.” 2 The
Records of the Federal Convention of 1787, at 129–34 (M. Farrand ed. 1937).
Although not carried forward in the Appropriations Clause as ratified, this procedure is
well-established in Congressional custom, which requires general appropriations bills to
originate in the House of Representatives. Clarence Cannon, Cannon’s
Procedure in the House of Representatives 20, § 834 (4th ed. 1944).
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The Appropriations Clause’s “straightforward and explicit
command” ensures Congress’s exclusive power over the federal purse. OPM
v. Richmond, 496 U.S. 414, 424 (1990). Critically, it makes clear that “[a]ny
exercise of a power granted by the Constitution to one of the other branches
of Government is limited by a valid reservation of congressional control over
funds in the Treasury.” Id. at 425. Of equal importance is what the clause
“takes away from Congress: the option not to require legislative
appropriations prior to expenditure.” Kate Stith, Congress’ Power of the
Purse, 97 Yale L.J. 1343, 1349 (1988). Given that the executive is forbidden
from unilaterally spending funds, the actual exercise by Congress of its power
of the purse is imperative to a functional government. The Appropriations
Clause thus does more than reinforce Congress’s power over fiscal matters;
it affirmatively obligates Congress to use that authority “to maintain the
boundaries between the branches and preserve individual liberty from the
encroachments of executive power.” All Am. Check Cashing, 33 F.4th at 231
(Jones, J., concurring).
The Appropriations Clause thus embodies the Framers’ objectives of
maintaining “the necessary partition among the several departments,” The
Federalist No. 51 (J. Madison), and ensuring transparency and
accountability between the people and their government. The clause’s role
as “a bulwark of the Constitution’s separation of powers” has been
repeatedly affirmed. U.S. Dep’t of Navy v. Fed. Lab. Rels. Auth., 665 F.3d
1339, 1347 (D.C. Cir. 2012) (Kavanaugh, J.); see id. (“The Appropriations
Clause prevents Executive Branch officers from even inadvertently
obligating the Government to pay money without statutory authority.”)
(citations omitted); see also, e.g., Sierra Club v. Trump, 929 F.3d 670, 704 (9th
Cir. 2019) (“The Appropriations Clause is a vital instrument of separation of
powers . . . .”); City of Chicago v. Sessions, 888 F.3d 272, 277 (7th Cir. 2018)
(discussing the power of the purse as an important aspect of the separation
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of powers created by “[t]he founders of our country”); United States v.
McIntosh, 833 F.3d 1163, 1175 (9th Cir. 2016) (“The Appropriations Clause
plays a critical role in the Constitution’s separation of powers among the
three branches of government and the checks and balances between them.”).
As Justice Story said:
The object is apparent upon the slightest examination. It is to
secure regularity, punctuality, and fidelity, in the
disbursements of the public money . . . . If it were otherwise,
the executive would possess an unbounded power over the
public purse of the nation; and might apply all its moneyed
resources at his pleasure. The power to control and direct the
appropriations, constitutes a most useful and salutary check
upon profusion and extravagance, as well as upon corrupt
influence and public peculation.
2 Joseph Story, Commentaries on the Constitution of
the United States § 1348 (3d ed. 1858). Justice Scalia similarly
observed that, while the requirement that funds be disbursed in accord with
Congress’s dictate and Congress’s alone may be inconvenient, “clumsy,” or
“inefficient,” it “reflect[s] ‘hard choices . . . consciously made by men who
had lived under a form of government that permitted arbitrary governmental
acts to go unchecked.’” NLRB v. Noel Canning, 573 U.S. 513, 601–02 (2014)
(Scalia, J., concurring) (quoting INS v. Chadha, 462 U.S. 919, 959 (1983)). In
short, the Appropriations Clause expressly “was intended as a restriction
upon the disbursing authority of the Executive department.” Cincinnati Soap
Co. v. United States, 301 U.S. 308, 321 (1937).
2.
All that in mind, we turn to the Bureau’s structure. The Bureau
“wields vast rulemaking, enforcement, and adjudicatory authority over a
significant portion of the U.S. economy.” Seila Law, 140 S. Ct. at 2191.
“The agency has the authority to conduct investigations, issue subpoenas
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and civil investigative demands, initiate administrative adjudications, and
prosecute civil actions in federal court.” Id. at 2193. The Bureau “may seek
restitution, disgorgement, and injunctive relief, as well as civil penalties of up
to $1,000,000 (inflation adjusted) for each day that a violation occurs.” Id.
Unlike nearly every other administrative agency, Congress placed this
“staggering amalgam of legislative, judicial, and executive power in the hands
of a single Director” rather than a multimember board or commission. All
Am. Check Cashing, 33 F.4th at 221–22 (Jones, J., concurring); see 12 U.S.C.
§ 5491(b).
Most anomalous is the Bureau’s self-actualizing, perpetual funding
mechanism. While the great majority of executive agencies rely on annual
appropriations for funding, the Bureau does not. See 12 U.S.C. § 5497(a).
Instead, each year, the Bureau simply requisitions from the Federal Reserve
an amount “determined by the Director to be reasonably necessary to carry
out” the Bureau’s functions. 11 Id. The Federal Reserve must grant that
request so long as it does not exceed 12% of the Federal Reserve’s “total
operating expenses.” 12 U.S.C. § 5497(a)(1)–(2). 12 The funds siphoned by
11
As noted, in addition to the funds it draws from the Federal Reserve, the Bureau
is empowered to impose significant monetary penalties through administrative
adjudications and civil actions. 12 U.S.C. § 5565(a)(2). Those penalties, when levied, are
deposited into a “Civil Penalty Fund,” expenditures from which are restricted “for
payments to the victims of activities for which civil penalties have been imposed under the
Federal consumer financial laws.” Id. § 5497(d)(1)–(2). “To the extent that such victims
cannot be located or such payments are otherwise not practicable, the Bureau may use such
funds for the purpose of consumer education and financial literacy programs.” Id.
§ 5497(d)(2). As Civil Penalty Fund balances cannot be used to defray the Bureau’s general
expenses, they do not factor into our analysis here.
12
This is no insubstantial amount. In fiscal year 2022, for example, the Bureau
could demand up to $734 million from the Federal Reserve. Consumer Financial
Protection Bureau, Annual performance plan and report, and budget overview (Feb. 2022),
https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-
report_fy22.pdf.
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the Bureau, in effect, reduce amounts that would otherwise flow to the
general fund of the Treasury, as the Federal Reserve is required to remit
surplus funds in excess of a limit set by Congress. See 12 U.S.C.
§ 289(a)(3)(B).
The Bureau thus “receives funding directly from the Federal Reserve,
which is itself outside the appropriations process through bank
assessments.” Seila Law, 140 S. Ct. at 2194; see 12 U.S.C. § 5497(a). 13 So
Congress did not merely cede direct control over the Bureau’s budget by
insulating it from annual or other time limited appropriations. It also ceded
indirect control by providing that the Bureau’s self-determined funding be
drawn from a source that is itself outside the appropriations process—a
double insulation from Congress’s purse strings that is “unprecedented”
across the government. All Am. Check Cashing, 33 F.4th at 225 (Jones, J.,
concurring). And where the Federal Reserve at least remains tethered to the
Treasury by the requirement that it remit funds above a statutory limit,
Congress cut that tether for the Bureau, such that the Treasury will never
regain one red cent of the funds unilaterally drawn by the Bureau.
This novel cession by Congress of its appropriations power—its very
obligation “to maintain the boundaries between the branches,” id. at 231—
is in itself enough to give grave pause. But Congress went to even greater
lengths to take the Bureau completely off the separation-of-powers books.
Indeed, it is literally off the books: Rather than hold funds in a Treasury
account, the Bureau maintains “a separate fund, . . . the ‘Bureau of
13
The Federal Reserve is funded through interest earned on the securities it owns
and assessments the agency levies on banks within the Federal Reserve system. Federal
Reserve, The Fed Explained: What the Central Bank Does, at 4 (2021),
https://www.federalreserve.gov/aboutthefed/files/the-fed-explained.pdf; see also 12
U.S.C. § 243.
30
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Consumer Financial Protection Fund,’” which “shall be maintained and
established at a Federal [R]eserve bank.” 12 U.S.C. § 5497(b)(1). This fund
is “under the control of the Director,” and the monies on deposit are
permanently available to him without any further act of Congress. Id.§ 5497(c)(1). Thus, contra the Federal Reserve, id. § 289(a)(3)(B), the
Bureau may “roll over” the self-determined funds it draws ad infinitum.
To underscore the point, the Act explicitly states that “[f]unds
obtained by or transferred to the Bureau Fund shall not be construed to be
Government funds or appropriated monies.” Id. § 5497(c)(2). To
underscore it again, Congress expressly renounced its check “as a restriction
upon the disbursing authority of the Executive department,” Cincinnati
Soap, 301 U.S. at 321, by legislating that “funds derived from the Federal
Reserve System . . . shall not be subject to review by the Committees on
Appropriations of the House of Representatives and the Senate.” Id.§ 5497(a)(2)(C).
So the Bureau’s funding is double-insulated on the front end from
Congress’s appropriations power. And Congress relinquished its jurisdiction
to review agency funding on the back end. In between, Congress gave the
Director its purse containing an off-books charge card that rings up
“[un]appropriated monies.” Wherever the line between a constitutionally
and unconstitutionally funded agency may be, this unprecedented
arrangement crosses it.14 The Bureau’s perpetual insulation from
14
JUDGE JONES emphasized the perpetual nature of the funding mechanism and
opined that an appropriation must be time-limited. See All Am. Check Cashing, 33 F.4th at
238 (“[T]he separation of powers idea underlying the Framers’ assignment of fiscal
matters to Congress requires a time limitation for appropriations to the executive
branch.”). We need not decide whether perpetuity of funding alone would be enough to
render the Bureau’s funding mechanism unconstitutional. Rather, the Bureau’s funding
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Congress’s appropriations power, including the express exemption from
congressional review of its funding, renders the Bureau “no longer
dependent and, as a result, no longer accountable” to Congress and,
ultimately, to the people. All Am. Check Cashing, 33 F.4th at 232 (Jones, J.,
concurring); see id. at 234 (detailing examples showing that the Bureau’s
“lack of accountability is not just a theoretical worry”). By abandoning its
“most complete and effectual” check on “the overgrown prerogatives of the
other branches of the government”—indeed, by enabling them in the
Bureau’s case—Congress ran afoul of the separation of powers embodied in
the Appropriations Clause. See The Federalist No. 58 (J. Madison).
The constitutional problem is more acute because of the Bureau’s
capacious portfolio of authority. “It acts as a mini legislature, prosecutor,
and court, responsible for creating substantive rules for a wide swath of
industries, prosecuting violations, and levying knee-buckling penalties
against private citizens.” Seila Law, 140 S. Ct. at 2202 n.8. And the
“Director’s newfound presidential subservience exacerbates the
constitutional problem[] arising from the [Bureau’s] budgetary
independence.” All Am. Check Cashing, 33 F.4th at 234 (Jones, J.,
concurring). An expansive executive agency insulated (no, double-insulated)
from Congress’s purse strings, expressly exempt from budgetary review, and
headed by a single Director removable at the President’s pleasure is the
epitome of the unification of the purse and the sword in the executive—an
abomination the Framers warned “would destroy that division of powers on
which political liberty is founded.” 2 The Works of Alexander
Hamilton 61 (Henry Cabot Lodge ed., 1904).
scheme—including the perpetual funding feature—is so egregious that it clearly runs afoul
of the Appropriations Clause’s requirements.
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The Bureau’s arguments to the contrary are unconvincing. First, it
contends that there is no constitutional infirmity because its funding scheme
was enacted by Congress. In essence, the Bureau contends that because
Congress spun the agency’s funding mechanism into motion when it passed
the Act, voila!—the Appropriations Clause is satisfied. The Bureau’s
argument misreads not only Supreme Court precedent but also the plain text
of the Appropriations Clause.
Start with the clause’s text: “No money shall be drawn from the
Treasury, but in Consequence of Appropriations made by law.” U.S. Const.
art I, § 9, cl. 7 (emphasis added). A law alone does not suffice—an
appropriation is required. Otherwise, why not simply travel under the general
procedures for enacting legislation provided elsewhere in Article I? The
answer is that spending only “in Consequence of Appropriations made by
law” is additive to mere enabling legislation; appropriations are required to
meet the Framers’ salutary aims of separating and checking powers and
preserving accountability to the people. The Act itself tacitly admits such a
distinction in its decree that “[f]unds obtained by or transferred to the
Bureau Fund shall not be construed to be . . . appropriated monies.” 12
U.S.C. § 5497(c)(2). We take Congress at its word. But that is the rub.
The Bureau relies on the Supreme Court’s statement that the
Appropriations Clause “means simply that no money can be paid out of the
Treasury unless it has been appropriated by an act of Congress.” Richmond,
496 U.S. at 424 (quoting Cincinnati Soap, 301 U.S. at 321). But neither
Richmond nor Cincinnati Soap purported definitively to map the contours of
the Appropriations Clause. Regardless, Congress’s mere enactment of a law,
by itself, does not satisfy the clause’s requirements. Otherwise, the Bureau’s
position means that no federal statute could ever violate the Appropriations
Clause because Congress, by definition, enacts them. As discussed supra, our
Constitution’s structural separation of powers teaches us that cannot be so.
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Cf. New York v. United States, 505 U.S. 144, 182 (1992) (“The Constitution’s
division of power among the three branches is violated where one branch
invades the territory of another, whether or not the encroached-upon branch
approves the encroachment.”).
The converse argument, that Congress can alter the Bureau’s
perpetual self-funding scheme anytime it wants, curing any infirmity, is
likewise unavailing. “Congress is always capable of fixing statutes that
impinge on its own authority, but that possibility does not excuse the
underlying constitutional problems. Otherwise, no law could run afoul of
Article I.” All Am. Check Cashing, 33 F.4th at 238 (Jones, J. concurring); cf.
PHH Corp. v. CFPB, 881 F.3d 75, 158 (D.C. Cir. 2018) (en banc) (Henderson,
J., dissenting) (“[A]n otherwise invalid agency is no less invalid merely
because the Congress can fix it at some undetermined point in the future.”),
abrogated on other grounds by Seila Law, 140 S. Ct. 2183.
The Bureau also contends that because every court to consider its
funding structure has deemed it constitutionally sound, we should too. 15 But
carefully considering those decisions, we must respectfully disagree with
their conclusion. Those courts found the constitutional scale tipped in the
Bureau’s favor based largely on one factor: a handful of other agencies are
also self-funded. For instance, the D.C. Circuit emphasized that “Congress
has consistently exempted financial regulators from appropriations: The
Federal Reserve, the Federal Deposit Insurance Corporation, the Office of
15
See, e.g., PHH Corp., 881 F.3d at 95–96; CFPB v. Citizens Bank, N.A., 504 F.
Supp. 3d 39, 57 (D.R.I. 2020); CFPB v. Fair Collections & Outsourcing, Inc., No. 8:19-cv-
2817, 2020 WL 7043847, at *7-9 (D. Md. Nov. 30, 2020); CFPB v. Think Finance LLC, No.
17-cv-127, 2018 WL 3707911, at *1-2 (D. Mont. Aug. 3, 2018); CFPB v. Navient Corp., No.
3:17-cv-101, 2017 WL 3380530, at *16 (M.D. Pa. Aug. 4, 2017); CFPB v. ITT Educ. Services,
Inc., 219 F. Supp. 3d 878, 896-97 (S.D. Ind. 2015); CFPB v. Morgan Drexen, Inc., 60 F. Supp.
3d 1082, 1089 (C.D. Cal. 2014).
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the Comptroller of the Currency, the National Credit Union Administration,
and the Federal Housing Finance Agency all have complete, uncapped
budgetary autonomy.” PHH Corp., 881 F.3d at 95.
Such a comparison, focused only on whether other agencies possess a
degree of budgetary autonomy, mixes apples with oranges. Or, more
accurately, with a grapefruit. Even among self-funded agencies, the Bureau
is unique. The Bureau’s perpetual self-directed, double-insulated funding
structure goes a significant step further than that enjoyed by the other
agencies on offer. And none of the agencies cited above “wields enforcement
or regulatory authority remotely comparable to the authority the [Bureau]
may exercise throughout the economy.” All Am. Check Cashing, 33 F.4th at
237 (Jones, J., concurring); see also William Simpson, Above Reproach: How
the Consumer Financial Protection Bureau Escapes Constitutional Checks &
Balances, 36 Rev. Banking & Fin. L. 343, 367–69 (2016). 16 Taken
together, the Bureau’s express insulation from congressional budgetary
review, single Director answerable to the President, and plenary regulatory
authority combine to render the Bureau “an innovation with no foothold in
16
Neither is the Bureau’s structure comparable to mandatory spending programs
such as Social Security. The Bureau self-directs how much money to draw from the
Federal Reserve; the Social Security Administration (SSA) exercises no similar discretion.
Compare 12 U.S.C. § 5497(a)(1) (creating Bureau funding mechanism) with 42 U.S.C. § 415(setting parameters for Social Security benefit levels). Quite to the contrary, SSA pays
amounts Congress has determined to beneficiaries whom Congress has identified. See 42
U.S.C. § 415 (identifying amounts); 42 U.S.C. § 402 (identifying eligible individuals). The
Executive Branch’s power over “automatic” Social Security spending is therefore purely
ministerial. Furthermore, Congress retains control over the SSA via the agency’s annual
appropriations. See, e.g., Social Security Administration, Justification
of Estimates for Appropriations Committees | Fiscal Year 2023
(2022), https://www.ssa.gov/budget/FY23Files/FY23-JEAC.pdf. Other benefits
payments, including Medicare and Medicaid, the Supplemental Nutrition Assistance
Program, and Temporary Assistance for Needy Families, are administered similarly by
agencies subject to annual appropriations set by Congress.
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history or tradition.” Seila Law, 140 S. Ct. at 2202. It is thus no surprise that
the Bureau “brought to the forefront the subject of agency self-funding, a
topic previously relegated to passing scholarly references rather than front-
page news.” Charles Kruly, Self-Funding and Agency Independence, 81 Geo.
Wash. L. Rev. 1733, 1735 (2013).
We cannot sum up better than Judge Jones did:
[T]he [Bureau]’s argument for upholding its funding
mechanism admits no limiting principle. Indeed, if the
[Bureau]’s funding mechanism is constitutional, then what
would stop Congress from similarly divorcing other agencies
from the hurly burly of the appropriations process? . . . [T]he
general threat to the Constitution’s separation of powers and
the particular threat to Congress’s supremacy over fiscal
matters are obvious. Congress may no more lawfully chip away
at its own obligation to regularly appropriate money than it may
abdicate that obligation entirely. If the [Bureau]’s funding
mechanism survives this litigation, the camel’s nose is in the
tent. When conditions are right, the rest will follow.
All Am. Check Cashing, 33 F.4th at 241 (Jones, J., concurring). The Bureau’s
funding apparatus cannot be reconciled with the Appropriations Clause and
the clause’s underpinning, the constitutional separation of powers.
3.
That leaves the question of remedy. Though Collins is not precisely
on point, we follow its framework because, though that case involved an
unconstitutional removal provision, we read its analysis as instructive for
separation-of-powers cases more generally. See Collins, 141 S. Ct. at 1787–
88; cf. All Am. Check Cashing, 33 F.4th at 241 (Jones, J., concurring) (finding
Collins “inapt” for determining a remedy for the Bureau’s “budgetary
independence”).
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Collins clarified a dichotomy between agency actions that involve “a
Government actor’s exercise of power that the actor did not lawfully
possess” and those that do not. 141 S. Ct. at 1787–88. Examples of the
former include actions taken by an unlawfully appointed official, see Lucia v.
SEC, 138 S. Ct. 2044, 2055 (2018); a legislative officer’s exercise of executive
power, see Bowsher v. Synar, 478 U.S. 714, 727–36 (1986); and the President’s
exercise of legislative power, see Clinton v. City of New York, 524 U.S. 417,
438 (1998). The remedy in those cases, invalidation of the unlawful actions,
flows “directly from the government actor’s lack of authority to take the
challenged action in the first place.” All Am. Check Cashing, 33 F.4th at 241
(Jones, J., concurring).
In contrast, the Court found the separation of powers problem posed
by an official’s unlawful insulation from removal to be different. Collins, 141
S. Ct. 1787–88. Unlike the above examples, such a provision “does not strip”
a lawfully appointed government actor “of the power to undertake the other
responsibilities of his office.” Id. at 1788. Thus, as discussed supra in II.B.,
to obtain a remedy, a plaintiff must prove more than the existence of an
unconstitutional provision; she must prove that the challenged action
actually “inflicted harm.” Id. at 1789.
Into which category does the Bureau’s promulgation of the Payday
Lending Rule fall, given the agency’s unconstitutional self-funding scheme?
The answer turns on the distinction between the Bureau’s power to take the
challenged action and the funding that would enable the exercise of that
power. Put differently, Congress plainly (and properly) authorized the
Bureau to promulgate the Payday Lending Rule, see 12 U.S.C. §§ 5511(a),
5512(b), as discussed supra in II.A–C. But the agency lacked the
wherewithal to exercise that power via constitutionally appropriated funds.
Framed that way, the Bureau’s unconstitutional funding mechanism “[did]
not strip the [Director] of the power to undertake the other responsibilities
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of his office,” Collins, 141 S. Ct. at 1788 & n.23, but it deprived the Bureau of
the lawful money necessary to fulfill those responsibilities. This is a
distinction with more than a semantical difference, as it leads us to conclude
that, consistent with Collins, the Plaintiffs are not entitled to per se
invalidation of the Payday Lending Rule, but rather must show that “the
unconstitutional . . . [funding] provision inflicted harm.” Id. at 1788–89.
However, making that showing is straightforward in this case.
Because the funding employed by the Bureau to promulgate the Payday
Lending Rule was wholly drawn through the agency’s unconstitutional
funding scheme, 17 there is a linear nexus between the infirm provision (the
Bureau’s funding mechanism) and the challenged action (promulgation of
the rule). In other words, without its unconstitutional funding, the Bureau
lacked any other means to promulgate the rule. Plaintiffs were thus harmed
by the Bureau’s improper use of unappropriated funds to engage in the
rulemaking at issue. Indeed, the Bureau’s unconstitutional funding structure
not only “affected the complained-of decision,” id. at 1801 (Kagan, J.,
concurring in part), it literally effected the promulgation of the rule. Plaintiffs
are therefore entitled to “a rewinding of [the Bureau’s] action.” Id.
In considering other violations of the Constitution’s separation of
powers, the Supreme Court has rewound the unlawful action by granting a
new hearing, see Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018), or invalidating
17
It is fairly apparent that the Bureau financed its rulemaking efforts with funds
requisitioned via its unconstitutional funding mechanism. Cf. supra n.11. A Bureau report
indicates that it spent over $9 million for “Research, Markets & Regulations” during the
fiscal quarter in which the rule was issued. See Consumer Protection Financial
Bureau, CFO update for the first quarter of fiscal year 2018 (2018),
https://files.consumerfinance.gov/f/documents/cfpb_cfo-update_fy2018Q1.pdf. More
granular information does not appear to be publicly available, perhaps a direct consequence
of the Bureau’s unprecedented budgetary independence and lack of Congressional
oversight.
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an order, see NLRB v. Noel Canning, 573 U.S. 513, 521, 557 (2014); see also 5
U.S.C. § 706(2)(A) (providing that, under the APA, a “reviewing court
shall . . . hold unlawful and set aside agency action . . . found to be . . . not in
accordance with law”). In like manner, we conclude that the district court
erred in granting summary judgment to the Bureau and in denying the
Plaintiffs a summary judgment “holding unlawful, enjoining and setting
aside” the challenged rule. Accordingly, we render judgment in favor of the
Plaintiffs on this claim and vacate the Payday Lending Rule as the product of
the Bureau’s unconstitutional funding scheme.
III.
The Bureau did not exceed its authority under either the Act or the
APA in promulgating its 2017 Payday Lending Rule. The issuing Director’s
unconstitutional insulation from removal does not in itself invalidate the rule,
and the Plaintiffs fail to demonstrate cognizable harm from that injury. Nor
does the Bureau’s rulemaking authority transgress the nondelegation
doctrine. We therefore AFFIRM the district court’s entry of summary
judgment in favor of the Bureau in part.
But Congress’s cession of its power of the purse to the Bureau violates
the Appropriations Clause and the Constitution’s underlying structural
separation of powers. The district court accordingly erred in granting
summary judgment in favor of the Bureau and denying judgment in favor of
the Plaintiffs. We therefore REVERSE the judgment of the district court
on that issue, RENDER judgment in favor of the Plaintiffs, and VACATE
the Bureau’s Payday Lending Rule.
AFFIRMED in part; REVERSED in part; and RENDERED.
39