When You’ve Lost Clarence Thomas …

The Fifth Circuit is wilding out. Again.

Last Thursday, the Supreme Court issued another withering smackdown of the Fifth Circuit. The 7-2 ruling, in a case called Consumer Financial Protection Bureau v. Community Financial Services Association of America, reversed a transparently terrible attack on the executive branch’s ability to govern. For now at least, the agency will be able to do its job policing predatory lenders. And as an added bonus, it made Sam Alito mad as hell!

Effective government? How novel!

In 2010, when Democrats retook the White House and both houses of Congress, they passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to undo some of the damage from a generation of unfettered deregulation. The law created the Consumer Financial Protection Bureau (CFPB), with the mandate to protect consumers from “unfair, deceptive, or abusive acts and practices.” As Senator Elizabeth Warren put it, the CFPB was meant to be a “cop on the beat to enforce the laws on credit cards, mortgages, student loans, prepaid cards, and other kinds of financial products and services.”

Democrats were understandably worried that, if Republicans took back Congress, they’d defund the financial police by slashing its budget. And if they won the White House, a Republican president would install some trickle-down dipshit as head of the agency to gut it from within. So the drafters of Dodd-Frank included provisions to protect the CFPB from both these eventualities.

First, the bill specified that the director would be appointed by the president, with the advice and consent of the Senate, for a five-year term and could only be removed for “inefficiency, neglect of duty, or malfeasance in office.” Second, legislators enacted an alternate funding structure under which the agency files a requisition with the Federal Reserve for “the amount determined by the Director to be reasonably necessary to carry out” its duties, subject to a statutory cap of 12 percent of the Federal Reserve System’s total operating expenses.

And it worked! Sort of.

In 2017, even with Donald Trump in the White House, the CFPB promulgated a bunch of rules designed to protect consumers from predatory lenders. These included the Payday Lenders Rule, which (among other things) prohibited those lenders from withdrawing funds from borrowers’ bank accounts without consent.

Howling that the rule was “a potential death sentence,” the industry set about attacking each of the two provisions designed to protect the CFPB from … exactly what these lenders were about to do.

The Empire strikes back

The first body blow to the CFPB was a successful challenge to the independence of its director. In 2017, Trump announced that he’d fired Director Richard Cordray and was replacing him with Mick Mulvaney, a founder of the House Freedom Caucus.

Mulvaney set about dismantling the agency, beginning by telling the Federal Reserve that the CFPB had plenty of cash on hand, thankyouverymuch, and would be requiring zero funding. As a state legislator in South Carolina, Mulvaney had voted to protect payday lenders. And yet, in his position as head of the CFPB, he insisted that protecting Americans from predatory lenders was a state problem.

“You have a place to go to address payday loans, and it’s not me,” he scoffed, according to an exhaustive (and exhausting) report in the New York Times of the Mulvaney’s efforts to kneecap the CFPB.

Three years later, the Supreme Court blessed Cordray’s removal in a decision called Seila Law, LLC v. CFPB. Chief Justice Roberts authored the 5-4 opinion, in which the Court held that requiring the director to be removed for cause violated some nebulous concept of separation of powers. Never mind that virtually identical “for cause” language has been used without controversy for the last hundred years with respect to the Federal Reserve Board, the Federal Trade Commission, and the National Labor Relations Board, among others.

Payday lenders come for the money

As Seila Law was wending its way through the courts, payday lenders set about challenging the provision which insulated the CFPB from having to rely on congressional largesse for its funding.

Their argument was that any alternative means of funding violated the Constitution’s Appropriations Clause, which says that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

Here on Planet Earth, Congress created and funded the Federal Reserve, and then Congress created and funded the CFPB, so it appears to have “appropriated” the funds by “law.” But the payday lenders rolled the dice and pitched their “nuh uh” theory in the Western District of Texas,

At first they landed on the docket of Judge Earl Leroy Yeakel, III, a George W. Bush appointee who granted summary judgment in favor of the CFPB, holding that “if a statute authorizes an agency to receive funds up to a certain cap, as the CFPA authorizes the Bureau to do, there is no Appropriations Clause issue.”

The payday lenders appealed to the Fifth Circuit, where no conservative argument is too dumb to credit. In an opinion that waxes hyperbolic even for the Fifth Circuit, the judges held that, if Congress were to be allowed to fund an agency it created with a mechanism it also created, we would somehow descend into “[a]n elective despotism.” To hear the Fifth Circuit tell it, when Congress constrains itself, it offends the separation of powers.

The Appropriations Clause thus does more than reinforce Congress's power over fiscal matters; it affirmatively obligates Congress to use that authority "to maintain the boundaries between the branches and preserve individual liberty from the encroachments of executive power." …  A law alone does not suffice—an appropriation is required.

This distinction between “a law” and “an appropriation” is found nowhere in the law. Indeed, that internal quotation is to dicta in a concurrence in the intermediate appellate proceedings in Seila Law, written by yet another judge of the Fifth Circuit. No court has ever held that the Appropriations Clause, which is clearly meant to constrain the Executive Branch, imposes an “affirmative obligation” on Congress.

Justice Clarence Thomas … the voice of sanity???

Which is essentially what the Supreme Court held, in a thumping opinion penned by Justice Thomas:

Based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification, we conclude that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause.

Case actually closed. Finally.

Justice Samuel Alito flipped his shit in dissent, huffing that the Framers of the Constitution “ would be shocked, even horrified” by funding the CFPB out of the Federal Reserve. He followed up with a 13-page exegesis on a dispute between King James I and the British Parliament over import taxes in the year 1621. What this has to do with protecting American consumers from predatory lenders is left as an exercise for the reader. Fortunately, only Neil Gorsuch signed on to Alito’s rant.

Justice Kagan penned a concurrence to point out that a little thing called precedent also compelled the Court’s result:

The founding-era practice that the Court relates became the 19th-century practice, which became the 20th century practice, which became today’s. For over 200 years now, Congress has exercised broad discretion in crafting appropriations. Sometimes it has authorized the expenditure of a sum certain for an itemized purpose on an annual basis. And sometimes it has departed from that model in one or more ways. All the flexibility and diversity evident in the founding period has thus continued unabated, making it ever more obvious that the CFPB’s funding accords with the Constitution.

And okay, we’re used to that kind of talk from Justice Kagan. But her opinion was joined, not only by Justice Sotomayor, but by Justices Kavanaugh and Barrett as well. If you’re the Fifth Circuit, and you’ve lost Clarence Thomas, Brett Kavanaugh, and Amy Coney Barrett, you might want to rethink things.

So, now what?

As legal reporter Chris Geidner predicted (including on our show) the ruling had an immediate effect on several pending cases where rapacious companies sought to block consumer protections on the theory that the CFPB’s funding structure is illegal.

These included a challenge to a rule limiting major credit card issuers to a maximum late fee of $8. That restriction was scheduled to go into effect on May 14, 2024, but in March, a consortium of plaintiffs, putatively led by the Fort Worth Chamber of Commerce, marched into the federal courthouse in Fort Worth, Texas and demanded a nationwide injunction blocking the rule.

The two judges who regularly hear cases in Fort Worth, Mark Pittman and Reed O’Connor, are both extremely Trump-y Trump appointees, making their division a popular destination for conservative litigants hoping to tee up a crazy decision for the Fifth Circuit. But Judge Pittman refused to play ball, ordering supplemental briefing on the question of venue, and remarking that “[t]he Court is weary that there appears to be an attenuated nexus to the Fort Worth Division, given only one plaintiff of the six in this matter has even a remote tie to the Fort Worth Division.”

The plaintiffs filed a motion to expedite briefing, assuring the judge that he didn’t need to worry his pretty little head about venue. Judge Pittman was not amused.

The very next day, he angrily denied the Chamber’s motion for expedited briefing, noting that “[w]hile the Court appreciates Plaintiffs’ efforts to educate the Court on what they believe the Court does and does not need, the undersigned Judge has been a federal district Judge for almost five years and a judge generally for nearly a decade.” For good measure, he then denied the motion to expedite because he’s too busy to listen to this shit: “[T]he Court does not have the luxury to give increased attention to certain cases just because a party to the case thinks their case is more important than the rest. There are simply too many cases that demand the Court’s full attention.”

At which point, the plaintiffs responded with the legal equivalent of a demand to speak to Judge Pittman’s manager, filing an interlocutory appeal to the Fifth Circuit, on the theory that the trial judge had “effectively denied” their motion for an injunction by refusing to expedite briefing.

Judge Pittman rolled his eyes and signed an order transferring the case to DC, noting that “[v]enue is not a continental breakfast; you cannot pick and choose on a Plaintiffs’ whim where and how a lawsuit is filed.” Except the Fifth Circuit, in its zeal to burn down the administrative state, invalidated the transfer order, all but ordering Judge Pittman to grant the injunction, which he grudgingly did on May 12.

But that injunction was predicated on the fact that the CFPB case was still pending before the Supreme Court. Two days later, when SCOTUS upheld the CFPB’s funding structure, the agency went back to Judge Pittman to ask him to dismiss the injunction. The Chamber took one last run at the Fifth Circuit, but even they had finally had enough, dismissing the Chamber’s appeal as moot on Friday, and returning the case to Judge Pittman, who will presumably transfer it to DC this week.

Clearly the Fifth Circuit is duly chastened and will restrain itself going forward.

HAHA. But at least for now the CFPB can hobble along, the one-legged cop on the beat, doing its best to hold payday lenders at bay.