News Release: Legal Experts: Payday Lender Arguments “Fell Flat”

FOR IMMEDIATE RELEASE

Oct. 3, 2023

CONTACT:
William Pierre-Louis, Jr.
william@ourfinancialsecurity.org

Legal Experts: Payday Lender Arguments “Fell Flat”

Washington, D.C. – This afternoon, Americans for Financial Reform held a virtual media briefing with the Constitutional Accountability Center and Democracy Forward to review the oral arguments in one of this term’s most important Supreme Court cases concerning the stability of the American financial system and the future of consumer protection: CFPB v. CFSA, a constitutional challenge to the funding structure of the Consumer Financial Protection Bureau (CFPB).

Our experts overwhelmingly agreed – as, it appeared, did the Supreme Court justices – that the counsel for the payday lenders, former Trump Solicitor General Noel Francisco, could offer no text or legal history that says Congress cannot appropriate funding for federal agencies how it sees fit, as it did when it established the CFPB.

“Today was a bad day for predatory payday lenders and the Wall Street lobby groups that lent their names to some very ridiculous claims,” said Elyse Hicks, consumer policy counsel at Americans for Financial Reform. “None of their legal arguments passed the red-face test, and even the questions from the conservative justices reflected that reality.”

As Rachel Fried, senior counsel at Democracy Forward said during the call: “Repeating an argument over and over again doesn’t make it right, and the Fifth Circuit got it wrong. That was clear in the oral arguments today.”

During this morning’s oral arguments, the payday lenders’ counsel also failed to articulate any kind of limiting principles for the Supreme Court to uphold the Fifth Circuit ruling and void the payday lending role, but be able to keep the rest of the CFPB’s work – and the work and authorities of similarly-funded agencies – intact.

Chris Peterson, the John J. Flynn Endowed Professor of Law at the University of Utah, said: “The payday loan companies were unable to identify any manageable standard or principle to limit this attack to only the CFPB. All of the regulations, audits, and law enforcement actions of the Federal Reserve, the FDIC, the National Credit Union Administration as well as Social Security and Medicare are going to be challenged next in a mud slide of cases if the Roberts Court strikes down CFPB funding.”

A recording of today’s press briefing is here.

Please feel free to quote from the recorded briefing or their opening remarks below. If you would like to arrange additional interviews with any of the following legal experts, please email william@ourfinancialsecurity.org.

Experts Available for Interviews:

Elyse Hicks, consumer policy counsel, Americans for Financial Reform
Brianne Gorod, chief counsel, Constitutional Accountability Center
Rachel Fried, senior counsel, Democracy Forward
Christopher Peterson, John J. Flynn Endowed Professor of Law at University of Utah

Excerpts from the Briefing

Elyse Hicks:
It’s hard to underplay the stakes of this case, brought by the predatory payday lending industry. The Consumer Financial Protection Bureau, since Congress created it in 2010, has been the vital institution policing financial services markets on behalf of American families. It has returned $17.5 billion in restitution and canceled debts to millions of consumers, many of them historically marginalized groups. A decision that hamstrings CFPB puts consumers at risk.

But it’s not only consumers. Honest businesses that need clear rules to serve their customers would lose if the CFPB cannot do its job. And, as the Mortgage Bankers Association has warned, housing finance, a key market that the CFPB helped revitalize after the 2008 financial crisis, could descend into chaos if the Supreme Court does not overturn the Fifth Circuit. What’s more, an adverse decision could put the secure, stable funding of the Federal Reserve, other bank regulators, and even Social Security and Medicare at risk.

Today was a bad day for predatory payday lenders and the Wall Street lobby groups that lent their names to some very ridiculous claims. None of their legal arguments passed the red-face test, and even the questions from the conservative justices reflected that reality. And at times, they were reaching so hard, it was laughable. None of the legal arguments presented by the payday lenders and their Wall Street supporters provide any legal cover for a High Court decision against the CFPB. A court majority that already faces accusations of being six politicians in robes would further damage its credibility by resorting to naked partisanship to destroy the CFPB.

Brianne Gorod:
Any justice who professes to follow the text and history of the Constitution should be incredibly skeptical of the payday lenders’ attack on the CFPB in this case, and that skepticism was definitely on display at the argument this morning.

Solicitor General Prelogar made clear throughout the argument that the CFPB is embracing constitutional text and history, noting in the opening minutes of her argument that the CFPB’s funding is “firmly grounded in constitutional text and historical practice.”

With respect to text, there are literally only 16 words in the Appropriations Clause, and as Justice Jackson noted, what those words do is give Congress the prerogative of the purse, and here Congress exercised that prerogative when it passed Dodd-Frank.

There is nothing in those 16 words that imposes the various rules and restrictions that the payday lenders seek to impose on Congress. Indeed, we heard Justice Barrett and others trying to figure out where in the text of the Appropriations Clause they could find those rules and restrictions. At one point, Justice Barrett even said to the payday lenders’ attorney, “There’s nothing in the Appropriations Clause itself that supports the limits you’re describing.”

And the simplicity and brevity of the Clause’s text makes sense in light of its history. As was noted repeatedly at argument, the Appropriations Clause is supposed to be a legislative check on executive power. That was true of the appropriations power in England, and it was true of the appropriations power as it later developed in America. It has never been understood to be a judicial check on legislative power.

And that understanding is reflected in longstanding constitutional practice. As Justice Kagan put it, the payday lenders’ argument is “flying in the face of 250 years of history,” and that was evidenced throughout this morning’s argument. When asked by the justices for historical examples that share the features of the Bureau’s funding that its opponents object to, the Solicitor General provided numerous examples dating back to the Founding and continuing to the present day.

As she noted when pressed by Justice Alito for her strongest historical example, the very first agency Congress created in July 1789, the U.S. Customs Service wielded authority over a vital component of the economy and was financed not with annual appropriations but with an indefinite revenue stream provided in the legislation creating it.

And while payday lending lobby’s lawyer tried to distinguish these historical examples, as well as contemporary ones, the fact is that he kept pointing to distinctions without a difference; there is no constitutionally material difference between the CFPB and the long line of federal agencies dating back to the Founding and continuing to the present day that have been funded outside of the annual appropriations process.

And, despite being pressed by the justices, he also could not offer a satisfying standard that would make the CFPB’s funding unconstitutional, but allow the funding of other federal financial regulators like the Federal Reserve and the FDIC to be untouched.

Rachel Fried:
What started as an attack on critical consumer protections against payday lending became a case challenging the constitutionality of how the CFPB is funded.

Today, we heard persuasive arguments from the Department of Justice showing that the challengers’ radical legal theory is without merit and the CFPB’s funding structure is constitutionally sound.

This case should have never reached the Supreme Court, and the payday lenders’ arguments fell flat today because, as the argument today reaffirmed, there is simply no text or legislative history supporting their position.

The Appropriations Clause requires only that Congress authorize expenditures of federal money; it does not place any of the limitations on Congress that the Fifth Circuit invented. As Justice Jackson’s questioning made clear, the Appropriations Clause does not hamstring Congress in those ways.

The payday lenders’ argument is not only incorrect as a legal matter; it is also dangerous for our economy. Their position, if accepted, threatens the existence of other crucial federal agencies that are funded outside of the annual appropriations process, such as the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Farm Credit Administration, which supplies much-needed loans to our nation’s farmers.

This case is the culmination of far-right actors pushing an extreme – and recently rejected – legal theory for more than a decade, until they found a federal appeals court willing to validate it. Repeating an argument over and over again doesn’t make it right, and the Fifth Circuit got it wrong. That was clear in the oral arguments today.

As Justice Kagan said, the payday lenders’ argument is “profoundly ahistorical” and “flying in the face of history.”

As today’s argument made clear, this case is about more than just the CFPB’s ability to hold payday lenders accountable, it’s about the ability of Congress—the most democratic branch of our government—to act on behalf of the American people, and thus it is about democracy itself.

Christopher Peterson:
It is hard to describe how extreme and, frankly, weird the Fifth Circuit’s case is. It is the only case in the history of the republic – ever – that has adopted this interpretation of the appropriations clause of the U.S. Constitution. Once again, the oral argument of the payday lenders’ trade association failed to point to any legal or historical precedent to justify their position.

I was particularly interested in Justice Coney Barrett and Justice Kavanaugh’s questions for Mr. Francisco.

Justice Coney Barrett asked about a textual hook for a limitation on the Appropriations Clause. In the past, she has espoused an originalist constitutional philosophy guided by the constitutional text and the intent of the Framers. If she goes along with the payday loan companies here, she risks burning her credibility as a jurist guided by the founders’ intentions. Her line questions seem to suggest she does not see a textual or historical basis for the Fifth Circuit’s decision.

Justice Kavanaugh’s questions pointed out that Congress can at any moment simply limit the CFPB’s funding and that the agency’s independence was already overturned in the Selia Law decision. Hamilton’s “sword and purse” are still separated because at any time congress can simply reduce funding to the executive branch. Together with Justices Sotomayor, Kagan, and Jackson—it looks like this was a bad day for payday lenders and folks who want to dismantle modern government.

The payday loan companies were unable to identify any manageable standard or principle to limit this attack to only the CFPB. All of the regulations, audits, and law enforcement actions of the Federal Reserve, the FDIC, the National Credit Union Administration as well as Social Security and Medicare are going to be challenged next in a mud slide of cases if the Roberts Court strikes down CFPB funding. The Fifth Circuit’s “double insulation” argument still does not make any sense because the Federal Reserve, by statute, has no discretion to limit CFPB transfer requests.

So, in conclusion, if you look at the law, the history, and the facts, there should be a solid majority to uphold over 200 years of precedent. The Fifth Circuit could only be upheld based on the politics of corporate power. Thankfully, I do not think the Supreme Court will take that step.

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