U.S. Supreme Court Sides with CFPB in Critical Funding Case
The U.S. Supreme Court ruled that the way the Consumer Financial Protection Bureau (CFPB) receives its funding is constitutional.
The 7-2 decision reversed a ruling by a court of appeals in Louisiana, upholding the way the CFPB, which regulates mortgages, auto loans, and other consumer finance products, is funded.
CFPB was authorized in 2010 by the Dodd-Frank Act, in the aftermath of the great financial crisis of 2008.
Case Details
In the case, Consumer Financial Protection Bureau v. Community Financial Services Assn. of America, Ltd., plaintiffs argued that CFPB’s funding was unconstitutional because it comes from the Federal Reserve rather than the congressional appropriations process, improperly shielding CFPB from congressional supervision.
Plaintiffs, who are payday lenders and maintain the CFPB prevents them from withdrawing funds from directly from borrowers, said the agency’s funding mechanism violates Article I, Section 9 of the Constitution, which states that “[n]o money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law.”
However, the Supreme Court saw it different. Writing for the majority in an opinion that drew heavily on both text of the Constitution and early English and U.S. history, Justice Clarence Thomas wrote, “the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice.”
Justice Thomas noted that in the 18th century, “appropriations were understood as a legislative means of authorizing expenditure from a source of public funds for designated purposes” and that legislatures in that era “exercised a wide range of discretion.”
In the dissent, in which he was joined by Justice Neil Gorsuch, Justice Samuel Alito wrote that the CFPB’s funding mechanism “affords it the very kind of financial independence that the Appropriations Clause was designed to prevent.”
Reaction Pours In
In a statement, CFPB said, “For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement. The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”
Legal experts said a decision against the CFPB would have had far-reaching consequences.
“Had the lower court’s ruling stood, I can imagine an argument for striking down the mechanism whereby the Federal Reserve gets its funding,” University of Chicago Law School professor Aziz Huq told the FT. “If the CFPB is struck down, that has repercussions in one policy area. If the Federal Reserve is hobbled, that has not just American but global repercussions.”
However, some Republicans were critical of the decision.
House Financial Services Committee Chairman Patrick McHenry (R-NC) said it’s time for Congress to “fix the mistakes of Dodd-Frank which set the dangerous precedent of tapping the central bank to fund partisan political objectives”.
