Supreme Court upholds CFPB’s constitutionality, reversing lower court

Justices rule that agency's funding mechanism doesn't violate Appropriations Clause

The Supreme Court on Thursday ruled that the funding structure of the Consumer Financial Protection Bureau (CFPB) does not violate the U.S. Constitution, reversing a decision by a lower court and keeping the federal watchdog agency intact.

Justices voted 7-2 in favor of the CFPB’s constitutionality, with Clarence Thomas writing the majority opinion. In doing so, Thomas split with dissenting judges and fellow conservative justices Samuel Alito and Neil Gorsuch.

The CFPB was authorized by the Dodd-Frank Act after the Global Financial Crisis as an independent agency to regulate depositories, mortgages, auto loans, credit cards and other types of consumer lending. At issue was the fact that the CFPB is funded directly by fees collected by the Federal Reserve, rather than via Congressional budgeting.

A trade group of payday lenders (many of which have been hit with billions in fines from the CFPB) sued in 2017 to have years of CFPB actions declared unconstitutional because of that funding structure, arguing that it violated the Constitution’s Appropriations Clause. That clause states that “no money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law.”

In a landmark ruling last year, the right-dominated 5th U.S. Circuit Court of Appeals agreed, leading to an appeal to the high court. But even with the Supreme Court’s current heavily conservative lean, this particular challenge to the CFPB — a frequent target of Republicans — was reversed.

“In addition to vesting the Bureau with sweeping authority, Congress shielded the Bureau from the influence of the political branches,” wrote Thomas in his opinion.

Thomas expounded on why the CFPB’s funding mechanism was not in violation of the Appropriations Clause further in the text.

“Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes,” Thomas wrote. “The statute that provides the Bureau’s funding meets these requirements.”

The Supreme Court’s decision was foreshadowed by arguments made in October last year, when the federal government asserted before the justices that many government agencies (like the Federal Deposit Insurance Corporation and the Postal Service, for example) operate with funding structures outside of Congress’ budget process. Several judges expressed skepticism then, with Justice Amy Coney Barrett noting that the Appropriations Clause did not impose any specific limits argued for within the payday lenders’ suit.

The CFPB issued a statement lauding the Supreme Court’s decision as “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.

“This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole.”

Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), expressed relief that the decision prevented further upheaval within residential lending.

“MBA is relieved that the Supreme Court avoided a ruling that would have disrupted the housing and mortgage markets and harmed the economy and consumers. While we frequently disagree with the Bureau on how they interpret or enforce particular rules, a decision that would have invalidated the Bureaus’ previous rules could have had severe consequences for single-family and multifamily mortgage markets.”


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