McGuireWoods Duo Assesses Fifth Circuit CFPB Ruling in Bloomberg Law

November 7, 2022

A recent appellate court ruling on the constitutionality of the Consumer Financial Protection Bureau’s funding structure will not necessarily create a more favorable enforcement environment for consumer financial services providers, McGuireWoods partners Jeff Ehrlich and Jonathan Ellis wrote in a Nov. 1, 2022, Bloomberg Law article.

In a case challenging the CFPB’s Payday Lending Rule — Community Financial Association of America v. CFPB — the Fifth U.S. Circuit Court of Appeals held on Oct. 19 that the bureau’s funding structure is unconstitutional and that the Payday Lending Rule must be vacated as a result. 

The CFPB provided its first extended response to the Fifth Circuit’s decision in a separate enforcement action in the U.S. District Court for the Northern District of California, Ehrlich and Ellis wrote in the article. 

“Unsurprisingly, the CFPB doesn’t appear to acquiesce in the Fifth Circuit’s view of the constitutionality of its funding structure, or the implications of the decision on the bureau’s actions,” they wrote. “Instead, as the bureau did when faced with prior constitutional challenges, it seems intent to continue, and vigorously defend, its work.”

“Even within the Fifth Circuit, the decision does not compel the CFPB to change its investigatory, regulatory, or enforcement operations — aside from efforts to enforce the Payday Lending Rule that the Fifth Circuit vacated,” they added.

The authors noted that the CFPB remains free for now to continue that work, as long as it is willing to risk having it eventually invalidated, and consumer financial services providers should not necessarily expect a more favorable enforcement environment. Depository institutions will continue being regulated by their prudential regulators and other institutions will still be regulated by states, they added.

Ehrlich, a partner in the firm’s Financial Services Litigation Department, is a former CFPB deputy enforcement director. Ellis, co-leader of the firm’s appellate team, is a former assistant to the U.S. solicitor general who represented the CFPB before the U.S. Supreme Court in 2020’s Seila Law v. CFPB regarding the constitutionality of the statutory restrictions on the president’s authority to remove the bureau’s director.

Bloomberg Law, S&P Global Market Intelligence and MarketWatch also quoted Ehrlich in recent news stories about the Fifth Circuit’s ruling.

Ehrlich told S&P Global Market Intelligence that the appellate court opinion may complicate the bureau's enforcement work in the near term, but won’t stop it.

"The career staff in enforcement are professionals,” Ehrlich said in the Oct. 28, 2022, story. “As they've dealt with similar challenges in the past, I expect that they'll keep their heads down, ignore the noise and move forward with their cases."

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