Cmty. Fin. Servs. Ass'n of Am., Ltd. v. Consumer Fin. Prot. Bureau

• Decision Date: 31 August 2021
• Docket Number: CAUSE NO. 1:18-CV-00295-LY
• Citation: 558 F.Supp.3d 350
• Parties: COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA, LTD., Consumer Service Alliance of Texas, Plaintiffs, v. CONSUMER FINANCIAL PROTECTION BUREAU, Kathleen Kraninger, In Her Official Capacity As Director, Consumer Financial Bureau, Defendants.
• Court: U.S. District Court — Western District of Texas

558 F.Supp.3d 350

COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA, LTD., Consumer Service Alliance of Texas, Plaintiffs,

v.CONSUMER FINANCIAL PROTECTION BUREAU, Kathleen Kraninger, In Her Official Capacity As Director, Consumer Financial Bureau, Defendants.

CAUSE NO. 1:18-CV-00295-LY

United States District Court, W.D. Texas, Austin Division.

Signed August 31, 2021

Christian G. Vergonis, Michael A. Carvin, Jones Day, Washington, DC, Laura Jane Durfee, Jones Day, Dallas, TX, for Plaintiffs.

Karen Sarah Bloom, Kevin Edward Friedl, Kristin Lee Bateman, U.S. Consumer Financial Protection Bureau, Washington, DC, for Defendants Consumer Financial Protection Bureau, Kathleen Kraninger.

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

LEE YEAKEL, UNITED STATES DISTRICT JUDGE

Before the court is the above-styled and numbered cause that arises in response to the "Payday, Vehicle Title, and Certain High-Cost Installment Loans" Rule ("the 2017 Rule"), issued by the Consumer Financial Protection Bureau ("the Bureau") on November 17, 2017. Payday, Vehicle Title, and Certain High-Cost Installment Loans, 82 Fed. Reg. 54,472 -01 (Nov. 17, 2017). The 2017 Rule limited certain practices by covered lenders deemed "unfair, deceptive, or abusive." Id. However, in 2020, the Supreme Court held that at the time of passing the 2017 Rule, the Bureau was unconstitutionally structured. Seila Law LLC v. Consumer Fin. Prot. Bureau , ––– U.S. ––––, 140 S.Ct. 2183, 2192, 207 L.Ed.2d 494 (2020). The Court did so because Congress improperly shielded the Director of the Bureau from at-will removal by the president, rendering the agency "accountable to no one," and violating the Separation of Powers Doctrine. Id. at 2203. Two weeks later, the Bureau—then led by a Director removable by the president—ratified a portion of the 2017 Rule known as the "Payment Provisions." Payday, Vehicle Title, and Certain High-Cost Installment Loans; Ratification of Payment Provisions, 85 Fed. Reg. 41,905 -02 (July 13, 2020) (the "Ratification").

Plaintiffs, two trade associations ("the Associations"), bring this action on behalf of certain payday lenders and credit-access businesses affected by the 2017 Rule and the Ratification. The Associations challenge the validity of the Ratification and ask the court to set aside the Payment Provisions Section of the 2017 Rule.¹ Before the court now are the parties’ cross-motions for summary judgment, responses, replies, exhibits, and supplemental authorities.² Having considered all of the parties’ filings and the applicable law, the court renders the following order.

I. LEGAL STANDARD

"Summary judgment is required when ‘the movant shows that there is no dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " Trent v. Wade , 776 F.3d 368, 376 (5th Cir. 2015) (quoting Fed. R. Civ. P. 56(a) ). "A genuine dispute of material fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " Nola Spice Designs, LLC v. Haydel Enters., Inc. , 783 F.3d 527, 536 (5th Cir. 2015) (quoting Anderson v. Liberty Lobby , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "The moving party ‘bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.’ " Id. (quoting EEOC v. LHC Grp., Inc. , 773 F.3d 688, 694 (5th Cir. 2014) ). A fact is material if "its resolution could affect the outcome of the action." Aly v. City of Lake Jackson , 605 Fed. App'x 260, 262 (5th Cir. 2015). "If the moving party fails to meet [its] burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response." Pioneer Expl., LLC v. Steadfast Ins. Co. , 767 F.3d 503 (5th Cir. 2014).

"When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings." Duffie v. United States , 600 F.3d 362, 371 (5th Cir. 2010). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Willis v. Cleco Corp. , 749 F.3d 314, 317 (5th Cir. 2014). "This burden will not be satisfied by ‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.’ " Boudreaux v. Swift Transp. Co., Inc. , 402 F.3d 536, 540 (5th Cir. 2005). In deciding a summary-judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Darden v. City of Fort Worth , 866 F.3d 698, 702 (5th Cir. 2017).

On cross motions for summary judgment, the court reviews each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party, determining for each side whether judgment may be rendered in accordance with the Rule 56 standard. Amerisure Ins. Co. v. Navigators Ins. Co. , 611 F.3d 299, 304 (5th Cir. 2010) (internal citation and quotation omitted); Shaw Constr. v. ICF Kaiser Eng'rs., Inc. , 395 F.3d 533 n.8, 9 (5th Cir. 2004).

In the context of a challenge to an agency action under the Administrative Procedure Act ("APA"), "[s]ummary judgment is the proper mechanism for deciding, as a matter of law, whether an agency's action is supported by the administrative record and consistent with the APA standard of review." American Stewards of Liberty v. United States Dept. of Interior , 370 F. Supp. 3d 711, 723 (W.D. Tex. 2019) (quoting Blue Ocean Inst. v. Gutierrez , 585 F. Supp. 2d 36, 41 (D.D.C. 2008) ). When a party seeks review of an agency action under the APA, the district judge sits as an appellate tribunal. See e.g., Redeemed Christian Church of God v. United States Citizenship & Immigr. Servs. , 331 Fed. Supp. 3d 684, 694 (S.D. Tex. 2018). The entire case on review is a question of law. Id. Under the APA, it is the role of the agency to resolve factual issues to arrive at a decision that is supported by the administrative record, whereas the function of the district court is to determine whether as a matter of law the evidence in the administrative record permitted the agency to make the decision it did. Id. Summary judgment serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review. Id.

II. BACKGROUND

The Bureau is charged with regulating individuals and entities that offer financial products or services. 12 U.S.C. § 5491. Congress authorized the Bureau to "prescribe rules ... identifying as unlawful, unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service." Id. at § 5531(b).

Pursuant to its rulemaking authority, the Bureau passed the 2017 Rule, which consisted of two parts: the "Underwriting Provisions" and the "Payment Provisions." See 12 C.F.R. § 1041.4. The Underwriting Provisions, inter alia , restricted lenders from making covered loans "without reasonably determining that the consumers will have the ability to repay the loans." 2017 Rule Official Interpretations, 82 Fed. Reg. at 54,826. Those provisions have since been revoked.

At issue here are the Payment Provisions. These provisions restrict lenders of certain loans from attempting to withdraw payments from a consumer's account after a second consecutive failed attempt to do so, without obtaining a new authorization for further withdrawals. 12 C.F.R. §§ 1041.7 – 8. The Payment Provisions also set limitations on such a new authorization, including requiring a new consumer-rights notice, and restricting when the lender may obtain the new authorization electronically or by telephone. Id. at §§ 1041.8(c)(3), 1041.9(c).

In 2020, the Supreme Court held in Seila Law that the Bureau's "leadership by a single [Director] removable only for inefficiency, neglect, or malfeasance violates the separation of powers." 140 S.Ct. 2183, 2197. The Court was then left with the question of whether "the Director's removal protection was severable from the other provisions of the ... Act that establish[es] the [Bureau]." Id. at 2207. "If so," the Court reasoned, "then the [Bureau] may continue to exist and operate notwithstanding Congress's unconstitutional attempt to insulate the agency's Director from removal." Id. at 2207-08. The Court found the provision was severable and remanded the case to the Ninth Circuit Court of Appeals for consideration of whether the Bureau's actions in that case were validly ratified. Id. at 2211.

Shortly after Seila Law , the Bureau's Director, now removable at will by the President, ratified the Payment Provisions of the 2017 Rule. Ratification, 85 Fed. Reg. at 41905-02.

III. ANALYSIS

a. The Associations’ motion for summary judgment

The Associations offer six arguments as to why the Payment Provisions should be set aside as a matter of law.

1. Payment provisions void ab initio due to Bureau's unconstitutional structure

The Associations contend that the 2017 Rule is void ab initio because the Bureau that promulgated it was unconstitutionally structured. The Associations further contend that the "appropriate remedy for this constitutional defect in the 2017 Rule is to set aside that rule and require the Bureau ... to conduct a new notice-and-comment rulemaking."

Since the Associations’ briefing was submitted, the Supreme Court clarified that the contention is an incorrect application of precedent:

What we said about standing in Seila Law should not be misunderstood as a holding on a party's entitlement to relief based on an unconstitutional removal restriction. We held that a plaintiff that challenges a statutory restriction on the President's power to remove an executive officer can

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