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Supreme Court: CFPB funding does not violate the Constitution
WASHINGTON (AP) – The Supreme Court on Thursday rejected a conservative-led attack that could have undermined the Consumer Financial Protection Bureau.
The justices ruled 7-2 that the way the CFPB is funded does not violate the Constitution, reversing a lower court and drawing praise from consumers. Justice Clarence Thomas wrote the majority opinion, splitting with his frequent allies, Justices Samuel Alito and Neil Gorsuch, who dissented.
The CFPB was created after the 2008 financial crisis to regulate mortgages, auto loans and other consumer finance. The case was brought by payday lenders opposing an agency rule that limits its ability to withdraw funds directly from borrowers’ bank accounts. This is one of several important challenges for federal regulatory agencies on the agenda this term for a court that has been open to limits on its operations for more than a decade.
The CFPB, the brainchild of Democratic Senator Elizabeth Warren of Massachusetts, has long been opposed by Republicans and their funders. The agency says it has returned $19 billion to consumers since its inception.
Outside the Supreme Court after the ruling, Warren said, “The Supreme Court followed the law and the CFPB is here to stay.”
President Joe Biden, a fellow Democrat who has taken steps to strengthen the agency, called the decision “an unequivocal victory for American consumers.”
Unlike most federal agencies, the consumer bureau is not dependent on the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve, with a current annual cap of about $600 million.
The federal appeals court in New Orleans, in a new ruling, found that the funding violated the Constitution’s appropriations clause because it improperly protects the CFPB from congressional oversight.
Thomas went back to the early days of the Constitution in his majority opinion to note that “the Bureau’s funding mechanism fits comfortably with the appropriations practice of the First Congress.”
In dissent, Alito wrote: “The Court upholds a new legal regime under which the powerful Consumer Financial Protection Bureau (CFPB) can finance its own agenda without any control or oversight from Congress.”
The CFPB case was discussed more than seven months ago, during the first week of the court’s term. Lofty decisions like Thursday’s 7-2 vote typically don’t take that long, but Alito’s dissent was longer than the majority opinion, and two other justices, Elena Kagan and Ketanji Brown Jackson, wrote separate opinions, although both were part of the majority. .
Consumer groups applauded the decision, as did an agency spokesperson.
“For years, rogue companies and Wall Street lobbyists have conspired to defund essential consumer protection enforcement,” department spokesman Sam Gilford said in a statement. “The Supreme Court rejected his radical theory that would have devastated American financial markets. The Court repudiated the payday loan lobby’s arguments and made clear that the CFPB is here to stay.”
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said the decision to maintain the consumer bureau’s financing structure would have positive effects across the U.S. economy.
“It’s always good to see the courts get something right – especially in this tawdry circumstance where payday loan predators have attempted to evade basic oversight by using absurd distortions of the law and facts,” Van Tol said in a statement.
While the U.S. Chamber of Commerce and some other business interests have supported payday lenders, mortgage bankers and other industries regulated by the CFPB have warned the court to avoid a broad ruling that could disrupt markets.
In 2020, the court decided another CFPB case, ruling that Congress improperly insulated the agency head from removal. The judges said the director could be replaced by the president at will, but allowed the agency to continue operating.
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This story has been corrected to show that the agency spokesman’s last name is Gilford, not Goldford or Gifford.
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