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Supreme Court rules CFPB funding is legal

The Consumer Financial Protection Bureau headquarters in Washington, D.C., on May 14, 2021.

Andrew Kelly | Reuters

The Supreme Court ruled Thursday that the funding structure of the Consumer Financial Protection Bureau is legal.

The court in a 7-2 decision rejected an argument that the CFPB’s funding method violated the U.S. Constitution because Congress does not annually appropriate money for the agency as it does for other executive branch entities.

Instead, Congress authorized the CFPB to draw its funding from the Federal Reserve system.

Thursday’s ruling protects the CFPB from a potential death sentence, given the risk that Republicans in a bitterly divided Congress would block annual appropriations for the agency.

The decision is a major win for President Joe Biden. Biden, who is campaigning against former President Donald Trump for a second term in office, has used the CFPB to help enact key planks of his economic agenda.

“The statute that authorizes the Bureau to draw money from the combined earnings of the Federal Reserve System to carry out its duties satisfies the [Constitution’s] Appropriations Clause,” Justice Clarence Thomas, a conservative, wrote in the majority opinion.

“Although there may be other constitutional checks on Congress’ authority to create and fund an administrative agency, specifying the source and purpose is all the control the Appropriations Clause requires,” Thomas wrote.

He was joined in the ruling by three other conservatives, Chief Justice John Roberts and Justices Brett Kavanaugh and Amy Coney Barrett, and the court’s three liberal justices, Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson.

The court’s two remaining conservative justices, Samuel Alito and Neil Gorsuch, dissented.

Alito wrote in a dissent that the majority “upholds a novel statutory scheme” allowing the CFPB to “bankroll its own agenda without any congressional control or oversight.”

“In short, there is apparently nothing wrong with a law that empowers the Executive to draw as much money as it wants from any identified source for any permissible purpose until the end of time,” Alito wrote.

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The majority decision reversed a 2022 ruling by the 5th Circuit U.S. Court of Appeals that found the CFPB’s funding mechanism was unconstitutional.

A CFPB spokesperson in a statement said the Supreme Court’s decision is “a resounding victory for American families and honest businesses alike, ensuring that consumers are protected from predatory corporations and that markets are fair, transparent, and competitive.”

“The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay,” the spokesperson said.

The CFPB was created by Congress on the heels of the 2008 financial crisis to enforce consumer protection laws and ensure a fair market for consumer financial products and services.

Its funding structure was designed to insulate it from political pressure by not relying on an annual appropriation from Congress.

Two trade groups that represent lenders, the Community Financial Services Association of America and the Consumer Service Alliance of Texas, had challenged the funding structure of the CFPB in the case heard by the Supreme Court.

The agency during the Biden administration has been at the center of several high-profile political battles over its regulatory plans, including an effort to insulate Americans from credit card late fees.

The CFPB’s rule capping those late fees at $8 was set to go into effect Tuesday, but a federal judge in Texas put it on hold Friday.

Senate Banking Committee Chair Sherrod Brown, D-Ohio, celebrated Thursday’s ruling.

“Wall Street tried to use the courts to kill the Consumer Financial Protection Bureau, and they failed,” Brown said.

“Powerful corporate special interests know the CFPB stands up to them, which is why they have been trying to gut the agency for over a decade,” Brown said. “Today’s decision protects workers and consumers who don’t have high-paid lobbyists and lawyers to fight their battles for them.”

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