The Supreme Courtroom is contemplating a case difficult the constitutionality of the CFPB
The Supreme Court on Monday agreed to hear arguments in a case challenging the constitutionality of the Consumer Finance Protection Bureau’s funding.
The decision to open the case came four months after a federal appeals court unanimously ruled that the CFPB’s funding mechanism was unconstitutional.
That ruling, which overturned a CFPB order against payday lenders, had challenged every order and other action by the Consumer Protection Agency in its history, the Biden administration said.
Those actions include a recent record $1.7 billion fine, in addition to $2 billion in mandatory customer refunds imposed by the agency Wells Fargo for abuse related to customer accounts.
The CFPB, created by the Dodd-Frank Act after the 2008 global financial crisis, is funded by the Federal Reserve, not Congress.
This funding decision was made by a Democrat-controlled Congress to protect the CFPB from political pressure. Republicans have opposed the existence of the agency, which oversees consumer markets like credit cards and home mortgages.
In its October ruling, a three-judge panel of the US Circuit Court of Appeals for the 5th Circuit said the funding mechanism was unconstitutional and that the agency’s funding should instead be authorized by Congress from the US Treasury Department.
“The Bureau’s funding system is unique among the myriad independent executive agencies of the federal government,” the panel noted in its decision, authored by Justice Cory Wilson. “It will not be funded with periodic funds from Congress.”
The Biden administration had asked the Supreme Court to hear its appeal of that ruling, which the court agreed to do in Monday’s ruling.
But the Supreme Court also said it will hear arguments in the case during his next term, which begins in October, rather than during the current term, as the Biden administration had requested. That means a final decision on the case could be delayed until June 2024.
Sen. Elizabeth Warren, D-Mass., who first proposed the creation of the CFPB, said in a statement, “Despite years of desperate attacks from Republicans and corporate lobbyists, the CFPB’s constitutionality and its funding structure have been upheld time and time again.”
“If the Supreme Court follows more than a century of law and historical precedent, it will strike down the Fifth Circuit’s decision before it wreaks havoc on our financial markets and our economy,” Warren said.
However, an attorney for the two payday loan advocacy groups that are the plaintiffs in the case said the court’s decision to hear the dispute “reflects the importance of the separation of powers issues at stake in this case.”
“As we have shown, and the Fifth Circuit Court of Appeals has ruled, the CFPB’s self-financing mechanism lacks any contemporary or historical precedent, unduly protects the agency from Congressional oversight and accountability, and unconstitutionally deprives Congress of its power over the purse.” middle clause of the Constitution,” said attorney Christian Vergonis of the law firm Jones Day.
Vergonis said his clients, the Community Financial Services Association of America and the Consumer Service Alliance of Texas, “look forward to bringing these arguments to the Supreme Court.”
Private state watchdog group Accountable.US called the payday plaintiffs’ lawsuit “baseless” in a statement and said it was “the crown jewel of a long-standing, highly organized effort by greedy industries and right-wing politicians in their pockets to take out the CFPB because it’s so.” works well to protect consumers from abuse.”
“It’s fitting that predatory lenders are leading this latest onslaught, as no industry has a bigger ax to grind against the CFPB after facing numerous fines for consumer abuse,” said Liz Zelnick, director of economic security and corporate power at Accountable.US.
The Supreme Court, in a 2020 ruling, allowed the CFPB to continue operating but also said a provision of the statute that created the agency was unconstitutional because it violated the separation of powers rule.
This provision had stated that the Director of the CFPB could be removed from that position “only for cause”.
The court said in its 5-4 ruling this year that the director must be removed for some reason by the will of the president.
Since its inception in 2010, the CFPB has recovered more than $15 billion for clients.
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