CFPB Survives Supreme Court Challenge

The Consumer Financial Protection Bureau (“CFPB”) has survived a Supreme Court challenge that threatened to render its source of funding unconstitutional. In CFPB v. Community Financial Services Assoc. of America, the Supreme Court, by a ruling of 7-2, approved the ability of the Federal Reserve to provide operational funds to the CFPB. Opponents of the CFPB unsuccessfully argued that the only permissible means of funding should be a congressional appropriation.

Created in 2017, the CFPB is an independent agency of the federal government. According to its website, its mission is to provide a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace.

The legal challenge was brought by several trade associations representing the interests of payday lenders and credit-access businesses who were unhappy with regulations issued by the CFPB. Initially, a federal court in the Western District of Texas granted summary judgment in favor of the CFBP.  But in 2022, the Fifth Circuit Court of Appeals reversed that ruling, accepting the trade associations’ argument that the CFPB’s funding mechanism violated the Appropriations Clause of the United States Constitution, Article I, Section 9.

However, the Supreme Court reversed the Fifth Circuit’s ruling last month. The decision was issued by Justice Clarence Thomas, who wrote, “Congress authorized the [CFPB] to draw from the Federal Reserve System the amount its Director deems ‘reasonably necessary to carry out’ the [CFPB]’s duties, subject only to an inflation-adjusted cap.  In this case, we must decide the narrow question whether this funding mechanism complies with the Appropriations Clause. […] Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes.  The statute that provides the Bureau’s funding meets these requirements. We therefore conclude that the Bureau’s funding mechanism does not violate the Appropriations Clause.”

Among the nine justices, only Samuel Alito and Neil Gorsuch dissented.

The CFPB’s mandate includes rooting out unfair, deceptive or abusive practices, enforcing laws that prohibit discrimination in consumer finance, taking consumer complaints and monitoring financial markets for new risks to consumers. It was hailed for its efforts to reduce bank overdraft and non-sufficient fund fees. The CFPB claims to have imposed over $4.8 billion in civil penalties against both companies and individuals. Those penalties are deposited into the CFPB’s victims relief fund, which provides compensation to the harmed consumers.

The CFPB’s initial director was Elizabeth Warren, now a U.S. Senator from Massachusetts. The current director is Rohit Chopra, who has a bipartisan background: although appointed by President Biden to his current post, he was previously appointed by President Trump to sit on the Federal Trade Commission.

TAKEAWAY: The Supreme Court’s decision will allow the CFPB to continue to enforce federal consumer financial law without the fear of having its funding constrained by a constitutional challenge.  

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