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Supreme Court to decide case over consumer agency funding

Lower court ruling calls into question ‘virtually every action’ taken by the Consumer Financial Protection Bureau, government says

The Supreme Court in October.
The Supreme Court in October. (Tom Williams/CQ Roll Call)

The Supreme Court will decide a case that challenges the way Congress chose to fund the Consumer Financial Protection Bureau, a watchdog agency set up as a key part of the response to the 2008 financial crisis.

The Biden administration appealed a lower court ruling from October that found CFPB’s funding model unconstitutional. To make sure the CFPB would be independent, Congress put the agency outside the appropriations process and instead gave it automatic funding from the Federal Reserve. The U.S. Court of Appeals for the 5th Circuit ruled that violated the Appropriations Clause of the Constitution, a ruling the Biden administration called “unprecedented and erroneous” in a Supreme Court petition less than a month later.

That ruling, the Biden administration said, calls into question “virtually every action” taken by the agency since its creation in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The agency aims to enforce consumer financial statutes and protect consumers against “unfair, deceptive, or abusive practices.”

The justices likely will hear oral arguments and decide the case during the next term, which starts in October.

Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending, said in a press release that a ruling to strike down the CFPB’s funding would “set a dangerous precedent that would be used to challenge agencies with legally indistinguishable funding, including the Federal Reserve, FDIC, Medicare, and Social Security.”

Massachusetts Democratic Sen. Elizabeth Warren, who pushed for the creation of the CFPB and worked to set up the agency, issued a statement that the constitutionality of the agency and its funding structure have been upheld repeatedly.

“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 throws our financial markets and economy into chaos,” Warren said.

The Supreme Court previously ruled on the structure of the CFPB in a 2020 case, when it found the Congress violated the separation of powers when it put a single director in charge of enforcing consumer protection laws while the president could only fire that director for cause.

Latest challenge

The funding mechanism case started when two trade associations questioned the CFPB’s structure in a challenge to an agency rule related to lenders that try to withdraw from a person’s bank account when there was a lack of funds, according to a Biden administration brief.

The 5th Circuit found the agency acted within its authority in issuing the rule, yet the bureau’s funding mechanism was unconstitutional because Congress abdicated its appropriations power, ceding its power of the purse to the bureau. That decision breached the Constitution’s separation of powers, the court ruled.

“Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it,” the appellate court stated.

The bureau is insulated from federal lawmakers’ appropriations authority, the court argued, making them not accountable to Congress.

Solicitor General Elizabeth Prelogar, in a petition to the court from the federal government, said Congress approved a law that authorized the agency to “use a specified amount of funds from a specified source for specified purposes.”

“The Appropriations Clause requires nothing more. The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent,” the government wrote.

The provision, by listing the source, duration and purpose of the funding, “more than satisfies the classic elements,” of an appropriation, the government wrote. And Congress previously has permitted federal entities to be funded through different ways other than the appropriation bills.

“Neither the court of appeals nor respondents have cited any decision, by any court, holding that an Act of Congress violated the Appropriations Clause,” the government wrote.

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