Consumer Financial Protection Bureau funding case to be heard by the Supreme Court

The Supreme Court on Monday agreed to hear arguments in a dispute challenging the constitutionality of funding for the Consumer Financial Protection Bureau.

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Four months after a federal appeals court panel unanimously declared that the CFPB's funding structure was illegal, the court issued the order considering the case.

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According to the Biden administration, the decision, which invalidated a CFPB regulation targeting payday lenders, called into doubt every order and other action the consumer watchdog had ever taken.

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Included in those proceedings is a recent record $1.7 billion civil punishment, in addition to $2 billion in required customer reimbursements, issued by the government on Wells Fargo for violations linked to client accounts.

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During the 2008 global financial crisis, the Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB), which is funded by the Federal Reserve rather than by Congress.

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A Democratic-controlled Congress made that financial decision in order to protect the CFPB from political pressure. Republicans are opposed to the agency's existence, which regulates consumer markets including credit cards and mortgages.

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A three-judge panel on the U.S. Supreme Court ruled in October. The Court of Appeals for the Fifth Circuit ruled that the funding system was unconstitutional and that Congress should instead appropriate money from the U.S. for the organization. Treasury.

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The panel noted in its decision, penned by Judge Cory Wilson, that "The Bureau's funding arrangement is unique among the various independent executive agencies across the Federal Government." It receives no recurring congressional appropriations.

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The high court granted the Biden administration's request to hear its appeal of that decision in its opinion on Monday.

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However, the Supreme Court also stated that it will not consider the issue during the current term as the Biden administration had sought, but rather during its upcoming term, which begins in October. That suggests that the case's resolution may not be reached until June 2024.

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"Despite years of desperate attacks from Republicans and corporate lobbyists, the constitutionality of the CFPB and its funding system have been maintained time and time again," said Sen. Elizabeth Warren, D-Mass., who was the original author of the CFPB proposal.

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"Before it throws our financial markets and economy into chaos," Warren said, "the Supreme Court will strike down the Fifth Circuit's decision if it follows more than a century of law and historical precedent."

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The court's decision to consider the case, however, "reflects the seriousness of the separation-of-powers concerns at play in this case," according to an attorney for the two payday lending advocacy groups who are the plaintiffs in the case.

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The CFPB's self-funding mechanism, as we have shown and the Fifth Circuit Court of Appeals has determined, lacks any recent or historical precedent, improperly shields the agency from congressional oversight and accountability, and unconstitutionally deprives Congress of its power of the purse under the Constitution's Appropriations Clause, according to the lawyer Christian Vergonis of the firm Jones Day.

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According to Vergonis, his clients, the Consumer Service Alliance of Texas and the Community Financial Services Association of America, "look forward to bringing these views to the Supreme Court."

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According to a statement from the private government watchdog group Accountable.US, the payday plaintiffs' lawsuit is "baseless" and is the "crown jewel in a long-running, highly organized effort by greedy industries and right-wing politicians in their pockets to take out the CFPB because it works so well to protect consumers from abuse."

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According to Liz Zelnick, director of economic security and corporate power at Accountable.US, "It's fitting that predatory lenders are leading this current assault as no industry has a stronger ax to grind against the CFPB after incurring countless fines for mistreating consumers."

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In a judgement from 2020, the Supreme Court permitted the CFPB to continue its operations but simultaneously declaring that a part of the law that established the agency was unconstitutional because it broke the principle of separation of powers.

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In accordance with that clause, the director of the CFPB could only be fired "for reason."

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In a 5-4 decision that year, the court ruled that the president must have the authority to remove the director for any cause.

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The CFPB has collected more over $15 billion for clients since it was established in 2010.