October 11, 2023

CFPB in Court

“The justices were divided at oral argument [last] Tuesday in a challenge to the constitutionality of Congress’s decision to provide funding for the Consumer Financial Protection Bureau through the Federal Reserve, rather than the normal annual appropriations process…

“Congress created the CFPB in the wake of the 2008 financial crisis, giving it the power to enforce a range of federal consumer finance laws. To help ensure the agency’s independence from political control, the CFPB receives its funding from the Federal Reserve.” SCOTUSblog

See past issues

From the Left

The left urges the Court not to strike down the CFPB, arguing that its funding is constitutional.

“[The plaintiffs] claim that an entire federal agency, the Consumer Financial Protection Bureau (CFPB), is unconstitutional. And they do so based on an interpretation of the Constitution that would invalidate Social Security, Medicaid, Medicare, and countless other federal programs. As the Justice Department notes in one of its briefs, the 2022 legislation funding the federal government contains more than 400 provisions that are invalid under these plaintiffs’ reading of the Constitution…

“Much of the Fifth Circuit’s decision rests on the fact that, while Congress did pass a law funding the CFPB, the specific funding mechanism laid out in this law is unusual. Rather than passing a law giving CFPB a lump sum that it can use to fund its operations for a set period of time — as Congress does with some but not all federal agencies — Congress instead provided that the Federal Reserve shall transfer up to 12 percent of its ‘total operating expenses’ to the CFPB each year, upon the CFPB’s request…

“This funding mechanism, where the CFPB’s operating budget first passes through the Federal Reserve before being allocated to the CFPB, is unusual. But laws do not magically become unconstitutional just because they are atypical. Under the Appropriations Clause, Congress may fund a federal agency however it chooses. [Plaintiff’s lawyer Noel] Francisco’s brief, meanwhile, asks the justices to impose two new limits on federal spending that are not mentioned anywhere in the Constitution.”

Ian Millhiser, Vox

“[Justice Ketanji Brown Jackson asked] Francisco how he could glean an unstated congressional obligation to fund government in fixed, time-limited increments from the single word ‘Appropriations,’ and [castigated] him for manufacturing a constitutional problem by imagining a constitutional provision that does not actually exist. ‘We can’t just suddenly decide that things are ‘troubling’ without some kind of legal reference point,’ Jackson told him…

“Justice Brett Kavanaugh sounded even more baffled at oral argument than he usually does, suggesting that a congressional appropriation that Congress could change at any time simpy by passing a new law is by definition not ‘perpetual,’ ‘entrenched,’ or ‘permanent.’ These adjectives, he said, are ‘a little strong here.’…

“This decision, if ratified by the Supreme Court, would devastate the bureau’s ongoing efforts to protect veterans, farmers, rural Americans, and people of color from the most predatory products the financial services industry can dream up… In an amicus brief, a mortgage trade group diplomatically acknowledges that it has ‘disagreed with some of the CFPB’s past actions,’ but warns of ‘catastrophic’ consequences for the housing market, which could ‘grind to a halt’ if the CFSA gets its way.”

Jay Willis, Slate

“Over a little more than a decade, the bureau has levied more than $4 billion in civil penalties and returned more than $17.5 billion to hard-done-by Americans. It has shed sunlight on financial misconduct; established tougher rules for payday lending, debt collection, and credit reporting; required banks to speak plainly about mortgages, overdraft rules, and more; and demanded transparency from companies across the consumer-finance industry… The Supreme Court may well invalidate the financial watchdog’s funding. Congress must ensure it can still function.”

Editorial Board, Bloomberg

From the Right

The right urges the Court to strike down the CFPB, arguing that its funding is unconstitutional.

The right urges the Court to strike down the CFPB, arguing that its funding is unconstitutional.

“The Dodd-Frank Act created the CFPB in 2010 and granted it vast regulatory authority over consumer finance. To exercise this authority, the CFPB's director—a single individual—was given powers that should belong to the legislative, executive, and judiciary. The agency makes its own rules, enforces them, and then adjudicates them in its own courts with its own prosecutors. Dodd-Frank also hyper-insulated the CFPB from accountability by circumventing the congressional appropriations process…

“The CFPB argued before the Supreme Court that there are other government agencies not funded through congressional appropriations. There are indeed a rare few. However, all of them are funded though some type of user fee or assessment. The CFPB stands alone in its ability to extract funds from the Federal Reserve at will and even squirrel some away for a rainy day.”

Jeb Hensarling and Brian Johnson, Newsweek

“‘No Money shall be drawn from the Treasury,’ the Constitution states, ‘but in Consequence of Appropriations made by Law.’ With Dodd-Frank, the 112th Congress and President Obama empowered the CFPB to determine its own budget and fund itself with hundreds of millions of dollars from the Fed—up to 12% of the operating expenses of the Fed Board of Governors. Congress delegated this power to the CFPB permanently and completely

“Sen. Elizabeth Warren said a ruling against the CFPB would cause the Fed’s independence to ‘evaporate.’ But the Fed and the CFPB are profoundly different. The Federal Reserve Banks earn revenue from their own open market operations and from priced services, and in turn they pay assessments to the Fed’s Board of Governors. Other agencies, such as the Federal Communications Commission, often earn revenue by charging user fees for services. The Supreme Court has long recognized the constitutionality of such fees…

“The CFPB does none of those things. It is a law-enforcement agency, and it is simply reaching into the Fed’s wallet and spending money that belongs in the Treasury, all without the trouble of congressional appropriations. The real threat to the Fed isn’t that the Supreme Court will somehow undermine its monetary independence but that future Congresses will increasingly mistreat the Fed as their favored agencies’ source for perpetual, automatic, independent funding.”

Adam J. White, Wall Street Journal

“[The CFPB has] taken more than 300 actions against American companies since it opened — many of which have harmed American consumers. It’s made small short-term loans extremely difficult to get…

“It’s trying to ban arbitration agreements, even though the Treasury Department found a previous, more limited CFPB attempt to do so would ‘impose extraordinary costs — generating and transferring $330 million to plaintiffs’ lawyers.’ And it has unilaterally decided to extend the Equal Credit Opportunity Act’s anti-discrimination provisions to companies that don’t even extend credit…

“[In 2020 Chief Justice] Roberts noted the agency ‘acts like a mini legislature, prosecutor, and court, responsible for creating substantive rules for a wide swath of industries’ and ‘levying knee-buckling penalties against private citizens,’ with ‘no basis in history and no place in our constitutional structure.’”

Thomas M. Boyd, New York Post

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