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CFPB Funding Decision Is Grist for Agency Enforcement Fights (1)

Oct. 24, 2022, 6:56 PMUpdated: Oct. 24, 2022, 9:30 PM

A Fifth Circuit ruling that the Consumer Financial Protection Bureau’s funding structure is unconstitutional is rapidly turning into an enforcement headache for the agency.

At least two companies targeted in CFPB enforcement actions have already pointed to the ruling to ask other courts to dismiss the actions on constitutional grounds. Others will wield the US Court of Appeals for the Fifth Circuit decision in settlement negotiations and battles over civil investigative demands until ruling appeals are exhausted, attorneys who represent companies say.

“Very few companies will settle with the CFPB, except for chump change,” said Alan Kaplinsky, a senior counsel at Ballard Spahr LLP, who represents companies battling the agency.

The CFPB has already signaled that the Fifth Circuit ruling—which isn’t the first such legal threat the agency has faced—won’t slow its efforts. Still, having to grapple with the ruling in enforcement actions will cause delays and stretch the bureau’s resources.

The CFPB said in a Monday statement that it “will continue to carry out its statutory mission enforcing federal law and protecting Americans from predatory financial institutions.”

“Illegal practices are still illegal, and the CFPB is going to hold companies accountable when they break the law,” the agency said.

TransUnion argued that a CFPB lawsuit over alleged violations of a 2017 consent order over deceptive marketing and sales practices, as well as the consent order itself, should be dismissed based on the Fifth Circuit’s ruling, in an Oct. 20 Chicago federal district court filing.

Online lender CashCall Inc., which has been locked in a court fight with the CFPB since 2013 in a case alleging the company issued illegal payday loans through a tribal lender, asked the US Court of Appeals for the Ninth Circuit for permission to challenge the CFPB’s ability to bring the case in an Oct. 21 filing.

The Fifth Circuit’s ruling shows “that there is a substantial, nonfrivolous issue of the most serious constitutional magnitude regarding the CFPB’s authority take official actions, including its prosecution of this enforcement action against CashCall,” the company said in the filing.

Pending investigations may get stymied by battles over document demands and civil subpoenas, potentially forcing the CFPB into courts where they will have to overcome constitutional challenges to get documents, Kaplinsky said.

Business as Usual

The bureau under its director, Rohit Chopra, isn’t expected to become less aggressive, despite the adverse ruling. Besides enforcement, the agency is moving ahead on several high-profile rules, including one on the sharing of consumers’ personal data and collecting data on small business lending.

“In fact, it may incentivize Director Chopra to move more quickly and take action on a wide range of issues sooner than anticipated,” Consumer Bankers Association president and CEO Lindsey Johnson said in an Oct. 21 note to member companies obtained by Bloomberg Law.

The CFPB has survived other major legal challenges since before it opened its doors in July 2011.

CFPB opponents initially challenged the validity of bureau actions following the recess appointment of Richard Cordray, the agency’s first director, in January 2012. Once Cordray was formally confirmed, agency opponents turned their attention to its single-director leadership structure, including for-cause removal protections.

That fight ultimately ended up at the Supreme Court, which ruled that the CFPB’s leadership structure was unconstitutional, but declined the opportunity to eliminate the agency. Instead, the Supreme Court eliminated the CFPB director’s for-cause removal protections.

Those fights didn’t stop agency enforcement efforts either, agency watchers said.

“They have a lot of muscle memory on how to function in the midst of existential threats,” said Jenny Lee, a Reed Smith LLP partner and former CFPB enforcement attorney.

The bureau will have the added work of defending its funding structure in enforcement investigations and actions, said Jeff Ehrlich, a former CFPB deputy enforcement director. Some companies, however, may deem the litigation risks as too great to mount a sustained fight, Ehrlich said.

“This may slow down the bureau’s work, as it did when the single director issue was being litigated in many cases,” Ehrlich, now a partner at McGuireWoods LLP. The earlier legal battles “didn’t stop us,” Ehrlich said.

(Updates with comment from CFPB in paragraphs 5 and 6. )

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editor responsible for this story: Keith Perine at; Maria Chutchian at