Last fall, a trio judges on the U.S. Court of Appeals for the 5th Circuit — all nominated by President Donald Trump — went further, saying the CFPB is unconstitutionally funded and jeopardizing enforcement actions by the agency, 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 an annual appropriation from Congress. Instead, it is funded from the operating reserves of the Federal Reserve, which itself is funded through bank assessments.
The 5th Circuit judges agreed with two financial associations who were challenging the CFPB’s regulations regarding payday lenders and argued that the agency’s structure was unconstitutional. They said the structure violated the constitutional command requiring congressional appropriation of any “Money … drawn from the Treasury.”
The appeals court vacated the payday lending rule and said it was taking that action not because the CFPB lacked authority over the issue but because of “the Bureau’s unconstitutional funding scheme.”
U.S. Solicitor General Elizabeth B. Prelogar told the Supreme Court that the 5th Circuit decision was in direct conflict with every other court that looked at the funding structure.
“The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent,” Prelogar wrote in a petition asking the justice for review. “And the court of appeals compounded its error by adopting a sweeping remedial approach that calls into question virtually 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.