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REGular Blog: SCOTUS finds CFPB's Funding Structure Constitutional

Authored By: JT Blau on 5/17/2024

In a 7-2 opinion released Thursday, the Supreme Court ruled that the CFPB's funding structure did not violate the U.S. Constitution, overturning a decision from the 5th Circuit Court of Appeals.

Unlike many federal agencies that receive funding through the congressional appropriations process, the CFPB is funded directly by the Federal Reserve. Critics of the CFPB's funding structure argued that this setup insulated the agency from congressional oversight and accountability, raising constitutional concerns. A lawsuit was brought by a group of payday lender associations, and it reached the Supreme Court after the 5th Circuit Court of Appeals found that the Bureau's funding structure violated the Appropriations Clause.

In yesterday's decision, the Court ruled that "Congress’ statutory authorization allowing the Bureau to draw money from the earnings of the Federal Reserve System to carry out the Bureau’s duties satisfies the Appropriations Clause." The decision was widely expected by many in the industry who listened to the oral arguments last year, when it was clear from questions posed by many of the justices that they had a fair amount of skepticism of the associations' case.

In a statement released after the opinion was released, the CFPB wrote: “For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement. The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”

As for implications of the rule, the most immediate impact will be on the number of active court cases involving the CFPB where the courts have issued injunctions waiting for the Supreme Court to rule in this case. For example, just last week, a U.S. District Court in Texas granted a preliminary injunction to Plaintiffs challenging the CFPB's new credit card late fee rule. The rule was set to take effect on May 14th until the Court granted their injunction on May 10th. In it's order, the Court found that the Plaintiffs showed a "substantial likelihood of success on the merits" in their case by arguing the CFPB's double-insulated funding scheme is unconstitutional, and by extensions any regulations promulgates under that regime are likely unconstitutional as well. Now, this Court and others will decide whether those injunctions should remain in place or be removed.

We'll post continued developments on this and related cases as they play out here in the REGular blog.

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