CA Court Orders CFPB to Continue Requesting Funds to Operate
A California federal court recently granted the plaintiffs’, three nonprofit organizations relying on CFPB-provided information, summary judgment in a case filed against the CFPB and its director (CFPB) based on the director’s failure and refusal to properly request funds for operations from the Federal Reserve. The CFPB alleged, based on an Office of Legal Counsel (OLC) memo, that the CFPB director cannot request operational funds from the Federal Reserve unless the director first determines that the Federal Reserve has the “combined earnings” sufficient to fund the CFPB.
As threshold issues, the CFPB argued: (i) that the case was moot because the CFPB requested and received funding recently; (ii) that the plaintiffs lacked standing because “informational injury” is deficient; (iii) failure to join a required party, the Federal Reserve; and (iv) that the same issue is pending under NTEU v. Vought litigation in D.C. district court. The court did not find these to be barriers to this case moving forward. First, it found that this case presented a live controversy because there was a “reasonable expectation” that the CFPB would engage in the same conduct, not requesting funding, in the future. Second, the court found standing and noted that there was substantial risk that the CFPB would not fulfill its duties to produce the information that the plaintiffs would be injured without – HMDA data and consumer complaint process data. Third, the court did not find joinder of the Federal Reserve necessary to the plaintiffs’ relief. Fourth, it found that there was no “substantial overlap” between this litigation and the NTEU litigation.
As to the merits of the case, the court found that the CFPB’s failure to request funding was an “agency action,” and that this “agency action” was final because the OLC memo that the CFPB adopted was the CFPB’s “working law.” The court, then, interpreted 12 U.S.C. § 5497, the section of the Dodd-Frank Act (Act) detailing the CFPB’s funding. It found that, while the statute did not specify which party was to request funds for the CFPB – the CFPB or the Federal Reserve – the best reading of the statute requires the CFPB to request the funding from the Federal Reserve. The court also found that the CFPB director does not have the authority to decide the Federal Reserve’s “combined earnings.” Last, the court analyzed the meaning of “combined earnings” finding that, based on congressional intent and the Federal Reserve’s practices during the Act’s passage, the CFPB’s definition of “combined earnings” was incorrect.
Ultimately, the court found that the CFPB acted “arbitrarily, capriciously, and contrary to law” under the Administrative Procedures Act when it refused to request funding based on the OLC memo, and the court ordered the CFPB to continue to request funding from the Federal Reserve, as required under 12 U.S.C. § 5497.
