Consumer Financial Services, Data, and Technology (CFS+) Partner Nora Rigby in Washington, D.C. recently authored an article for Law360 titled, “5^thCircuit Decision Could Validate CFPB In The Long Run." The article explains a recent court opinion that held the Consumer Financial Protection Bureau's funding structure violated the Constitution's separation of powers doctrine. In Community Financial Services Association of America Ltd. v. Consumer Financial Protection Bureau, the Fifth Circuit considered a challenge to a 2017 CFPB regulation covering payday lending and vacated the regulation because it was promulgated by an unconstitutionally funded agency. 

The court's holding "is a blow to the agency's autonomy and raises many questions about the validity of past and future agency actions," Rigby wrote. "There is more to the opinion than just the constitutional headline, though…."  Rigby explains that before reaching the constitutional issue, the court held that the 2017 regulation was a valid exercise of the agency's rulemaking authority and neither arbitrary nor capricious as alleged by the plaintiffs. Courts must generally avoid constitutional issues if possible; thus Rigby argues that the Fifth Circuit would have invalidated the regulation on the merits if there was any plausible way to do so. The fact that it did not validates the agency's payday lending rule and its rulemaking authority more broadly.

Rigby predicts that the Supreme Court will likely agree that the agency is unconstitutionally funded and that Congress will ultimately step in to revise the agency's structure. When that happens, the Fifth Circuit decision may prove to be a victory for the CFPB.