Last fall, a trio of judges on the US Court of Appeals for the 5th Circuit — all nominated by President Donald Trump — went ahead, saying the CFPB was unconstitutionally funded and jeopardized the agency’s enforcement actions. , which was created by Congress in response to the 2008 financial crisis.
The Dodd-Frank Wall Street Reform and Consumer Protection Act moved to insulate the CFPB from political influence by making the agency independent from annual appropriations from Congress. Instead, it is funded from the Federal Reserve’s operating reserves, which are themselves funded through bank assessments.
The 5th Circuit judges agreed with two financial associations that challenged the CFPB’s regulations on payday lenders and argued that the agency’s structure was unconstitutional. They say the structure violates the constitutional mandate that requires congressional appropriation of any “Money … taken from the Treasury.”
The appeals court vacated the payday lending rule and said this action was not because the CFPB lacked authority on the issue but because of the Bureau’s “unconstitutional funding scheme.”
US Solicitor General Elizabeth B. Prelogar told the Supreme Court that the 5th Circuit’s decision directly contradicts every court that has looked at the funding structure.
“The appeals court’s novel and vague limits on Congress’s spending authority are contrary to the text of the Constitution, historical practice, and this Court’s precedent,” Prelogar wrote in a petition demanding justice for to review. “And the appeals court compounded its error by adopting a well-remedied approach that calls into question almost every action the CFPB has taken in the 12 years since it was created.”
The case is Consumer Financial Protection Bureau v. Community Financial Services Association.
