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Companies hoping to evade the CFPB don’t get what they want from the Supreme Court
Companies hoping to escape Consumer Financial Protection Bureau didn’t get what they wanted Thursday as the Supreme Court rejected an attempt to undermine funding for Washington’s financial watchdog.
The highest court in the US issued a decision which leaves the CFPB intact and, more broadly, establishes Congress’s broad discretion over public funds.
In this case – CFPB v. Community Financial Services Association of America – the high court found in a 7-2 decision that the agency’s funding meets the requirements of the Constitution Appropriations Clause.
The CFPB’s fate was put in jeopardy when trade associations representing payday lenders and access-to-credit companies sued, alleging that the CFPB’s unusual financing structure was unconstitutional.
The CFPB, a consumer watchdog agency created by Senator Elizabeth Warren in the wake of the 2008 financial crisis, gets its funds through Federal Reserve profits rather than directly from the Treasury.
The seal of the Consumer Financial Protection Bureau (CFPB) is seen at its headquarters in Washington, DC, USA, on May 14, 2021. REUTERS/Andrew Kelly (REUTERS/Reuters)
Congress granted the agency permanent authority to use funds, outside of the annual appropriations process, in an amount that its director deems “reasonably necessary to carry out” the agency’s functions.
Creditors argued that this law could not satisfy the Appropriations Clause, which requires that when Congress designates Treasury funds it does so for a specific use.
In concluding that the CFPB’s funding mechanism met this standard, the court majority rejected the challengers’ claim that allowing it would give Congress the power to fund other agencies in the same way and would leave the executive branch “free from any meaningful fiscal control “.
History dating back to colonial times supports two basic requirements, Justice Clarence Thomas wrote in the majority opinion. One is that the legislature controls the allocation of public funds and the other is that the funds serve a specific purpose.
Senator Elizabeth Warren (D-MA) created the CFPB after the 2008 financial crisis. Photo: REUTERS/Andrew Kelly (REUTERS/Reuters)
Furthermore, the judges said, there were few limits.
Last October, Senator Warren told Yahoo Finance that a Supreme Court ruling finding the CFPB unconstitutional could upend other government-led agencies and systems that serve consumers.
This includes Social Security and Medicare, both of which are not funded by Congress.
The high court’s decision annuls a decision by the 5th Circuit Court of Appeals, which said Congress violated the appropriations clause by granting permanent statutory authority to obtain financing from the Federal Reserve.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Jennifer Schonberger of Yahoo Finance @Jenniferismos contributed to this report.
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