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Supreme Court To Decide Fate Of Key Financial Regulator: ‘Constitutional Defects’

The Supreme Court announced Monday it would take up a case challenging the Consumer Financial Protection Bureau’s (CFPB) funding mechanism on constitutional grounds.

On Oct. 19, 2022, the U.S. Court of Appeals for the 5th Circuit ruled that funding the CFPB through the Federal Reserve violates the Constitution’s Appropriations Clause, which gives Congress the “power of the purse” in appropriating government funds. The CFPB filed a petition for a writ of certiorari on Nov. 14, 2022, which the Supreme Court granted Monday morning.

The plaintiffs in Consumer Financial Protection Bureau v. Community Financial Services Association of America initially sued over the CFPB’s Payday Lending Rule, which required payday and vehicle title lenders to obtain permission to withdraw from a consumer’s bank account after two attempts to collect the loan have failed.

“We agree that, for the most part, the Plaintiffs’ claims miss their mark,” Judge Cory T. Wilson wrote in the 5th Circuit opinion. “But one arrow has found its target: Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers.”

“The Bureau’s funding scheme is unique across the myriad independent executive agencies across the federal government,” Wilson continued. “It is not funded with periodic congressional appropriations.”

This isn’t the first time a case dealing with the CFPB has made it to the Supreme Court. In 2020, the court heard Seila Law v. Consumer Financial Protection Bureau, ruling in a 5-4 decision that the CFPB’s control by a single director violated the separation of powers.

“Seila Law addressed just one of the CFPB’s many constitutional defects—the fact that it was designed to have a single director removable only for inefficiency, neglect, or malfeasance,” Jessica Thompson, an attorney at Pacific Legal Foundation, told the Daily Caller News Foundation. “The Court determined the removal protections that violated the separation of powers but could be severed from the rest of the act, but other constitutional defects remain. This current case takes up another defect: the Bureau’s funding mechanism.”

Thompson told the DCNF that the CFPB is “shot through with constitutional defects.”

“CFPB’s exemption from the appropriations process has been lurking in the shadows since the creation of the Bureau,” Thompson said. “The constitutional defects in the structure of the CFPB compound the problem and multiply the risk to individual liberty and businesses. It seems like SCOTUS will finally address this important constitutional issue. If it does, the agency will have to undergo substantial reforms.”

A CFPB spokesperson told the DCNF that the agency is “pleased” the Supreme Court will review the Fifth Circuit’s decision.

“We are confident in the constitutionality of the CFPB’s funding mechanism, which is not novel or unusual,” the spokesperson said. “As it did for the Federal Reserve Board and other federal banking regulators, Congress authorized the CFPB’s funding through legislation other than annual spending bills. This type of funding is a vital part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole.”

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