Recently, a Texas-based payday lender (the defendant) filed a motion to dismiss in the U.S. District Court for the Northern District of Dallas, challenging the legality of the CFPB’s funding structure. As previously covered by InfoBytes, in July 2022, the CFPB filed a complaint against the defendant for allegedly engaging in illegal debt collection practices; the Bureau alleged the respondent generated $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA.
While this case was not the first challenge to the CFPB’s funding structure, the defendant’s argument hinges on the U.S. Supreme Court’s recent ruling (covered by InfoBytes here) that the CFPB’s funding structure was deemed constitutional since it came from the surplus funds of the Fed that would otherwise be deposited into the general fund of the Treasury. The motion emphasized that the Fed has been operating at a deficit since 2022, accumulating a deferred asset of $184.4 billion, which the defendant argued this deficit would prevent making any surplus available for the CFPB — yet the CFPB continues to receive hundreds of millions of dollars. Furthermore, the defendant argued the CFPB’s funding from sources other than the Fed’s combined earnings violates both the Dodd-Frank Act and the Appropriations Clause of the U.S. Constitution.
The defendant urged the court to dismiss the action on the basis that the CFPB’s method of funding violates the Appropriations Clause and the statutory limitations set by Congress, rendering the CFPB’s actions, including the prosecution of the current lawsuit, invalid.
