Court Hears Challenge of CFPB’s Constitutionality

Inside Subprime: April 26, 2019

By Grace Austin

A payday loan firm’s ongoing legal dispute with the Consumer Financial Protection Bureau continues as debate persists over the agency’s legality to exist.

In March 2019, the U.S. Court of Appeals for the Fifth Circuit heard oral arguments in a payday loan firm’s appeal to its lawsuit. That’s after a federal district court in Mississippi upheld the bureau’s constitutionality.

The payday loan firm, founded in 1999, offered payday loans and title loans in Mississippi, Alabama and Louisiana. It once had dozens of storefronts in those states.

Its licenses were revoked in Mississippi after the CFPB sued the payday loan firm. It’s still operating a handful of stores in the state, but has shut down its locations in Alabama and Louisiana amid the ongoing legal battles between state and federal authorities.

The CFPB originally filed a lawsuit in May 2016 claiming the payday loan firm engaged in bad practices in its check cashing services and when handing out payday loans. The company allegedly failed to accurately disclosing how high fees were to customers, and even after loans were given out, failed to let customers know when they overpaid and neglected to refund those overpayments.

All American responded to that suit with a motion to dismiss.

The payday loan firm has used the constitutionality of the bureau as the basis of its legal argument during the ongoing case, saying the CFPB doesn’t have the authority to even pursue legal action. Critics have long said that the CFPB has too much power under a single director, and doesn’t have any overarching authority to answer to, which proponents have argued keeps the bureau independent from outside influence.

In its latest legal briefs, the CFPB said that it is answerable to a greater authority since its director can be removed from office by the president. The bureau also previously stated in legal documents that there’s a long precedent of independent bureaus with similar structures in the federal government.

Among the three other grounds stated in its motion for judgment, the payday loan firm has said that “deceptive” and “abusive” practices is language far too vague for the CFPB to use as precedent for legal action. The bureau refutes this, saying that what bad practices are is clear under the laws the CFPB uses to pursue bad actors, like the Fair Debt Collection Practices Act.

A three-judge panel heard the arguments. The case is still pending.

But it’s not the only current legal case questioning the bureau’s constitutionality. There are currently two other legal challenges in federal circuit courts across the country. Legal experts say this could complicate any U.S. Supreme Court decision to hear a CFPB constitutionality case. The U.S. Supreme Court has declined to hear such a case so far.

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