All American Check Cashing has filed its reply brief in its interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit from the district court’s ruling upholding the CFPB’s constitutionality.

All American and the other appellants sought the interlocutory appeal after the district court denied their motion for judgment on the pleadings in a lawsuit filed by the CFPB that alleges the appellants engaged in abusive, deceptive, and unfair conduct in connection with making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks.  Citing the D.C. Circuit’s en banc PHH decision, the district court rejected the defendants’ argument that the CFPB is unconstitutional based on its single-director-removable-only-for-cause structure.  It subsequently agreed to certify the constitutionality issue for interlocutory appeal to the Fifth Circuit which accepted the appeal.

In its opposition brief, the CFPB argued (1) because Acting Director Mulvaney is removable at will by the President and ratified the CFPB’s decision to bring the lawsuit against the appellants, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured, (2) the CFPB’s structure is constitutional under existing U.S. Supreme Court precedent, and (3) if the Fifth Circuit concludes that the CFPB’s structure is unconstitutional, the proper remedy is to strike the for-cause removal provision.

Responding to these arguments in its reply brief, All American makes the following principal arguments:

• Not only is the CFPB’s structure unconstitutional under existing U.S. Supreme Court precedent, it is also unconstitutional under “any reasonable reading” of the Fifth Circuit’s decision in Collins v. Mnuchin which found that the Federal Housing Finance Agency (FHFA) is unconstitutionally structured because it is excessively insulated from Executive Branch oversight.  To support this argument, All American applies to the CFPB each of the five factors used by the Fifth Circuit in Collins to determine whether an agency is excessively insulated.  In ruling that the FHFA is unconstitutionally structured, the Fifth Circuit acknowledged the D.C. Circuit’s en banc PHH decision finding the CFPB’s structure to be constitutional but distinguished the CFPB based on its view that the Financial Stability Oversight Council’s (FSOC) can directly control the CFPB’s actions because it holds veto-power over the CFPB’s policies.  All American observes that the Fifth Circuit’s discussion of FOSC was dicta and that the Fifth Circuit did not appear to have the benefit of adversarial briefing on the issue.  In addition, it  argues that FSOC “has very little influence over the CFPB,” noting that FSOC’s veto power requires a two-thirds vote and, because it only applies to formal regulations, that such “narrow authority has no relevance here, because no regulation is at issue.”
• Acting Director Mulvaney’s purported ratification did not cure the constitutional violation with the CFPB’s structure because the CFPB continues to be unconstitutionally structured (with All American noting that once Kathy Kraninger is confirmed as CFPB Director, “All American will undeniably be subject to an ongoing proceeding by an invalid entity.”)  It further contends that actions of an invalid agency (as distinguished from actions taken by an invalidly appointed officer) cannot be ratified and that even if the lawsuit could be ratified, the 3-year statute of limitations for bringing CFPB enforcement actions would have run by the time of the alleged ratification.
• Severing the for-cause removal provision is not the appropriate remedy for the CFPB’s unconstitutionality because Congress would not have wanted the CFPB’s Director to be removable at will while leaving the CFPB independent from congressional appropriations and oversight.  In support of their argument that the proper remedy is to strike the CFPA rather than sever the for-cause removal provision, All American cites the decision of Judge Preska of the Southern District of New York in RD Legal Funding.  Judge Preska ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and struck Title X of Dodd-Frank in its entirety.  The CFPB has filed an appeal with the Second Circuit.  (In Collins, the Fifth Circuit determined that the appropriate remedy for the constitutional violation was to sever the for-cause removal provision from the Housing and Economic Recovery Act of 2008, the statute that created the FHFA.  In its reply brief, All American notes that the severability analysis in Collins “was undertaken without the benefit of the adversarial process” because the appellants in Collins had conceded that severance might be appropriate.)

In August 2018, All American Check Cashing filed a petition asking the Fifth Circuit to hear their interlocutory appeal as an initial matter en banc.  The petition remains pending, with the Fifth Circuit perhaps having waited for briefing in the appeal to be concluded before ruling on the petition.  The Fifth Circuit is also considering petitions for rehearing en banc in Collins filed by both the plaintiffs and the FHFA.