The Supreme Court agreed on Feb. 27 to hear a second challenge in three years to the constitutionality of the Consumer Financial Protection Bureau (CFPB).
The appeal gives the court’s 6–3 conservative majority an opportunity to continue its campaign to restrain the so-called administrative state by curtailing the authority of regulators and placing them under more stringent presidential control.
This new appeal challenges the means by which the CFPB is funded; the previous case dealt with the structure of the bureau.
The controversial federal agency, which regulates consumer financial products such as credit cards, mortgages, and car loans, was the brainchild of left-wing U.S. Sen. Elizabeth Warren (D-Mass.). Democrats fiercely defend the CFPB, formed in the wake of the 2008 financial crash, saying it serves a useful function as a check on corporate power.
Republicans accuse the agency of overreach. The CFPB was targeted by the Trump administration, which challenged its constitutionality.
Then-House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican who has since left Congress, called the CFPB “arguably the most powerful, least accountable agency in U.S. history,” in a 2017 Wall Street Journal op-ed.
“CFPB zealots have the power to determine the ‘fairness’ of virtually every financial transaction in America. The agency defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process,” he wrote.
The Supreme Court issued a ruling in June 2020 altering the bureau’s structure but upholding its constitutionality.
In Seila Law LLC v. CFPB, the court held 5–4 that the structure of the CFPB, was unconstitutional, because its director, who must be confirmed by the U.S. Senate, couldn’t be fired by the president at will and that the agency was therefore insulated from political accountability. The court held that the agency could continue to exist under new rules that allowed the president to fire the director at will.
The CFPB’s unusual funding mechanism was created to keep the agency independent. Although it may seek funding from Congress, the agency is excluded from the normal congressional appropriations process, and, instead, receives most of the money it needs to operate from the Federal Reserve System, which collects fees from member banks.
In the Seila Law ruling, the court noted the existence of the controversial funding system but didn’t topple it, as some critics had hoped.
In the new case, CFPB v. Community Financial Services Association of America Ltd., court file 22-448, the Biden administration is appealing a ruling of the U.S. Court of Appeals for the 5th Circuit.
The appeals court struck down the funding mechanism, finding that it violates the U.S. Constitution’s appropriations clause, which states, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”
The clause “ensures Congress’s exclusive power over the federal purse,” which is needed to make sure that other branches of government don’t exceed their authority, the appeals court stated.
“Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it,” the 5th Circuit stated.
The appeal came out of a challenge the payday-lending industry brought to a CFPB rule that prevented lenders from trying to withdraw payments from borrowers’ bank accounts after two consecutive attempts failed for insufficient funds.
The Biden administration urged the Supreme Court to take up the case, arguing that allowing the 5th Circuit ruling to stand could raise “grave concerns” for “the entire financial industry.” The ruling has affected more than half of the agency’s enforcement cases, providing defendants a justification for dismissal, the government said.
U.S. Department of Justice officials didn’t respond by press time to a request by The Epoch Times for comment.
New York filed a brief, which was joined by 20 other states and the District of Columbia, urging the court not to take the appeal.
Adam Chen, a press aide to New York Attorney General Letitia James, a Democrat, told The Epoch Times by email, “We decline to comment.”
The Community Financial Services Association said the Supreme Court’s decision to grant oral arguments “reflects the importance of the separation-of-powers issues at stake in this case.”
“As we have demonstrated, and the Fifth Circuit Court of Appeals has held, the CFPB’s self-funding mechanism lacks any contemporary or historical precedent, improperly shields the agency from congressional oversight and accountability, and unconstitutionally strips Congress of its power of the purse under the Appropriations Clause of the Constitution,” the group told The Epoch Times in an email.
Two consumer groups hailed the high court’s decision to move forward with the case.
The 5th Circuit’s “erroneous ruling has widespread consequences for consumers and the CFPB’s ability to do its critically important job,” said Rachel Gittleman, financial services outreach manager for the Consumer Federation of America.
“It also creates an unprecedented amount of uncertainty in the marketplace and has the potential to destabilize other parts of the federal government that also rely on an independent funding structure, including Social Security, Medicare, and most federal financial regulators,” Gittleman said in a statement provided to The Epoch Times.
The appeals court ruling “that the method of funding the CFPB authorized by Congress violates the Appropriations Clause is radical and unprecedented,” Lauren Saunders, associate director of the National Consumer Law Center, said.
Other financial regulators–including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Federal Housing Finance Agency—also don’t receive their funding through annual appropriations, Saunders told The Epoch Times in a statement.
“In addition to the radical and catastrophic impact of striking down Congress’s method of funding the CFPB, other implications of the Fifth Circuit’s ruling— potentially requiring invalidation of 11 years’ worth of CFPB rules and possibly enforcement actions, supervision examinations, and other actions undertaken with that funding—could cause chaos in the marketplace,” Saunders said.
The case isn’t likely to be heard by the Supreme Court until the fall of 2023 and decided until the spring of 2024.
This article by Matthew Vadum appeared Feb. 27, 2023, in The Epoch Times.
Photo: U.S. Sen. Elizabeth Warren (D-Mass.)