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Oral Arguments Begin in Constitutionality Case Against the CFPB

On Tuesday, the U.S. Supreme Court heard oral arguments challenging the constitutionality of Congress’s decision to provide funding for the Consumer Financial Protection Bureau (CFPB) through the Federal Reserve in the case of Consumer Financial Protection Bureau v. Community Financial Services Association of America.

Created in the wake of the Global Financial Crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB was designed by current U.S. Sen. Elizabeth Warren, then a professor at Harvard Law School.

At the center of CFPB v. Community Financial Services Association of America is whether or not the CFPB’s funding structure violates the Appropriations Clause of the U.S. Constitution, a clause that reads:

“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

Since the CFPB is not funded through the annual appropriations process, but through the Federal Reserve, the U.S. Court of Appeals for the Fifth Circuit ruled that Congress had run afoul the Appropriations Clause when it the CFPB was formed.

Back in March, a three-judge panel of the U.S. Supreme Court for the U.S. Court of Appeals for the Second Circuit ruled that the CPFB’s independent funding through the Federal Reserve was deemed constitutional.

However, despite the Bureau’s efforts to protect Americans from unscrupulous practices by banks and other financial institutions, the CFPB has been subject to scrutiny since its establishment, including a 2020 ruling by the Supreme Court that its leadership structure was unconstitutional.

“The future of Social Security, Medicare, and every federal banking regulator is under grave threat if payday lenders and Wall Street banks get the Supreme Court to undermine the CFPB,” said Sen. Warren. “Since 1863, national bank regulators like the CFPB have been independently funded to prevent an army of special interest lawyers and lobbyists from wrecking the economy. The CFPB is under attack because it’s an effective watchdog, returning over $17 billion back into the pockets of hard-working Americans who were cheated, and the Court should uphold more than a century of law and affirm the CFPB’s funding as constitutional.”

According to SCOTUS Blog, U.S. Solicitor General Elizabeth Prelogar told the Court justices Tuesday that the lower court’s decision was the first time that any court has held that Congress violated the appropriations clause by enacting a statute to fund an agency.

Solicitor General Prelogar continued that since the earliest days of the country’s history, Congress has regularly approved similar standing appropriations for agencies like the U.S. Customs Service, the U.S. Post Office, the U.S. Mint, and (in the 19th century) a national bank. In fact, she noted, when Congress wanted to limit standing appropriations, it knew how to do so–as evidenced by a separate provision of the Constitution, which requires Congress to appropriate money for the army at least every two years.

“As the Solicitor General made clear during oral arguments before the Supreme Court, Congress has broad authority to determine how federal agencies are funded," said Rep. Maxine Waters, the top Democrat on the House Financial Service Committee. "Gutting the CFPB’s funding would not only be unjustified but pose enormous harm to our nation’s consumers, create industry-wide levels of uncertainty that would destabilize financial markets, and have sweeping ramifications for government programs that millions of Americans count on every day, including Social Security. I urge the Justices to heed the significant consequences of constraining Congress’ authority to fund the government, which would hurt consumers, our financial system and economy by, among other things, undermining the independent funding of agencies like the Federal Reserve."

Harvard Law School Professor Howell Jackson, a federal budget expert, says that the case of the CFPB v. Community Financial Services Association of America poses a risk not only to the CFPB itself, but potentially to other agencies and programs not currently dependent upon Congress’ ability to annually approve federal spending by the beginning of the new fiscal year.

“The CFPB has been the subject of considerable litigation over the years. From the beginning, there were legal challenges, including constitutional claims, attacking its combination of powers and about its unique managerial structure,” said Howell in an interview with Harvard Law Today. “The Bureau has already been up to the Supreme Court once a few years ago in a case involving the capacity of the president to remove the bureau’s director. The case before the Court this term coming out of the Fifth Circuit focuses on the funding structure of the CFPB. The specific agency action at issue is the Bureau’s adoption of something known as a payday lending rule, which deals with companies that make short-term loans to borrowers. The litigation originally included a number of administrative law issues, and the Fifth Circuit upheld the rule on those grounds. But somewhat surprisingly and in a controversial decision, the Court of Appeals concluded that the funding structure for the CFPB violated the Appropriations Clause of the U.S. Constitution, and therefore both invalidated the funding structure and concluded that the payday lending rule was itself unlawful. The part of the case that is before the Supreme Court is this ruling on the Appropriations Clause and the proposition that Congress violated this provision of the Constitution in its passage of the Dodd-Frank Act.”

Three years ago, the Supreme Court decided in another case, ruling that Congress had improperly insulated the head of the CFPB from removal. The Supreme Court justices said the Director of the Bureau could be replaced by the President at will, but can allow the agency to continue to operate.

“We created the Consumer Financial Protection Bureau to give Americans a fighting chance against big banks, corporations, and predatory lenders. Wall Street and their lobbyists have been trying to kill the agency for 12 years, because the CFPB stands up to Wall Street and corporations and gives workers and consumers a fighting chance,” said Sen. Sherrod Brown, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs. “No other agency fights for consumers–or stands up to corporate power–like the CFPB does. That’s what’s at stake this week–the Supreme Court must rule in favor of consumers. Anything else would be disastrous for our economy.”

A decision from the Supreme Court is expected before the end of June 2024.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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