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Supreme Court to Consider Fate of CFPB Tuesday

For the Consumer Financial Protection Bureau (CFPB), Tuesday (Oct. 3) looms as the beginning of an existential showdown.

The challenge to the bureau’s very constitutionality will be heard by the Supreme Court, where oral arguments will focus on how the organization is funded and whether the ways and means the agency gets its operational monies — which exist beyond the traditional congressional appropriations processes — will continue.

What’s at Issue

The CFPB was created through the 2010 Dodd-Frank Act. The bureau gets its money from the Federal Reserve. The CFPB’s own materials and budget details revealed that transfers from the Fed topped $750 million in fiscal year 2023.

The Opponents — and What Started It All

The original case that started the march to the top court’s marbled halls began with the filing of the case “CFPB v. Community Financial Services Association of America.” About a year ago, the U.S. Court of Appeals for the Fifth Circuit ruled that the bureau’s funding setup violates the U.S. Constitution’s appropriations clause.

The plaintiffs alleged the constitutionality of the agency’s 2017 payday lending rule was unconstitutional. While the court of appeals did not agree with that challenge, it did state that Congress violated the appropriations clause by passing legislation that dictated spending and thus was, and is, unconstitutional.

What Could Happen

While the legal jousting in the august setting of the Supreme Court may seemingly center on constitutional determinants of just where the funding should come from, if the structure of the agency is ruled unconstitutional, then it’s conceivable that the CFPB could be severely hobbled or restructured. In doing so — and by extension ruling that the payday rules were unconstitutional and should be vacated — the entire roster of past activities and actions by the CFPB, touching on everything from consumer complaints to fines levied on companies, may be called into question — and conceivably even struck down entirely.

The Counter Argument

In the wake of the appeals court ruling, a petition filed last fall by the President Joe Biden administration on behalf of the CFPB said, “the court of appeals’ unprecedented understanding of the appropriations clause threatens the ability of the CFPB to function and risks severe market disruption.” Elsewhere, the petition asserts that “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The appropriations clause requires nothing more.”

Where We Are Now

The filings and wrangling have continued since then, mounting a series of amicus briefs as businesses — dozens of them through the past several months — academics and trade groups have weighed in on both sides of the issues. They’re not explicitly parties to the case, but they help crystallize the issues.

A brief filed in May by the National Treasury Employees Union, for example, said, “If the fifth circuit’s ruling stands, the bureau’s important work will grind to a halt. Its dedicated workforce will no longer be able to pursue enforcement actions against those who violate federal law, issue guidance to industry, or respond to consumer complaints. The American people, in other words, would be the ultimate losers of this litigation.”

Elsewhere, as asserted by the Third Party Payment Processors Association in a July brief, a finding of appropriations clause violations should vacate the payday lending rule and any other CFPB actions that have been challenged in courts, deeming such an action a “measured approach.”