The Consumer Financial Protection Bureau (the agency) enacted the “Payday Lending Rule” to “regulate payday vehicle title and certain high-cost installment loans.” Cmty. Fin. Servs. Ass'n of Am. v. Consumer Fin. Prot. Bureau, 51 F.4th 616, 624 (5th Cir. 2022). At issue were the “Payment Provisions” of the Payday Lending Rule that “limit[ed] a lender’s ability to obtain loan repayments via preauthorized account access.” Id. at 625. Specifically, if two consecutive attempts at initiating payment transfers failed, the lender could no longer initiate transfers without consumer consent. Id. The association challenged the rule and sued the agency. Id. After the court granted summary judgment in favor of the agency, the association appealed, and the 5th Circuit considered four of the association’s arguments. Id. at 626. First, the association argued that under the Administrative Procedure Act (APA), the agency did not have the authority to determine that payment transfers were “‘unfair’ and ‘abusive’” and that the provisions themselves “are arbitrary and capricious.” Id. Second, the association contended that the agency director was “unconstitutionally shielded from removal.” Id. at 631. Third, the Supreme Court’s nondelegation doctrine prohibited Congress from delegating power to the agency to create the Payday Lending Rule. Id. at 633. Fourth, the lenders argued that the agency was impermissibly funded in violation of the Appropriations Clause of the Constitution. Id. at 635. The 5th Circuit dismissed the association’s first three arguments but held that the Payday Lending Rule violated the Appropriations clause and, thus, was invalid. Id. at 644. The Supreme Court reversed the 5th Circuit, holding that the agency’s funding did not violate the Appropriations Clause, and remanded the case. Consumer Fin. Prot. Bureau v. Cmty. Fin. Servs. Ass'n of Am., Ltd., 601 U.S. 416, 441 (2024).
In Cmty. Fin. Servs. Ass’n of Am., Ltd. v. Consumer Fin. Prot. Bureau, 104 F.4th 930 (5th Cir. 2024), the 5th Circuit reinstated its holdings on the association’s first three claims and rendered judgment that the agency’s funding was not in violation of the Appropriations Clause. First, the Court reinstated that the agency had not exceeded its authority in determining that the additional attempts at payment transfers were “unfair” and that the provisions were not “arbitrary and capricious.” Consumer Fin. Prot. Bureau, 51 F.4th at 629, 631. The court discussed that the APA gave the agency the authority to characterize a practice as “unfair” so long as they could reasonably decide that it “is likely to cause substantial injury…which is not reasonably avoidable… and such substantial injury is not outweighed by countervailing benefits to consumers or to competition." Id. at 627. The agency determined that practice was “unfair” because consumers would be susceptible to additional fees and were “at greater risk of having their accounts closed.” Id. The court found that “the [agency] had ‘a reasonable basis to conclude’ that the harms…are ‘not reasonably avoidable by consumers.’” Id. Additionally, the Payment Provisions were not “arbitrary and capricious” because the agency had made a “‘rational connection between the facts found and choice made.’” Id. at 630. Second, the court reinstated summary judgment in favor of the agency because the association had failed to establish that the agency director’s insulation from removal caused harm. Id. at 633. Pursuant to the Supreme Court’s holding in Collins v. Yellen, 594 U.S. 220, 260 (2021), the association must prove that the removal provision was unconstitutional and caused harm. Id. at 632. The Collins opinion required the association to “show a connection between the President’s frustrated desire to remove the actor and the agency action complained of.” Id. The court found that the only evidence the association could offer was “secondhand accounts of President Trump’s supposed intentions.” Id. at 633. Thus, the association failed to demonstrate harm, and the court granted summary judgment to the agency. Id. Third, the court found that the rule did not violate the nondelegation doctrine. Id. at 634. The court cited the rule in Gundy v. United States, 588 U.S. 128, 136 (2019), that an agency rulemaking authority is permissible so long as Congress has “supplied an intelligible principle to guide the [agency’s] discretion.” Id. The court found that “Congress’s grant of rulemaking authority to the [agency] was accompanied by a specific purpose, objectives, and definitions to guide the [agency’s] discretion.” Id. at 635. Finally, the court rendered judgment in compliance with the Supreme Court’s holding that the agency’s funding structure did not violate the Appropriations Clause.
By Hayden Mariott: [email protected]
Edited By Ashley Boyce [email protected]