The Washington PostDemocracy Dies in Darkness

Supreme Court takes up challenge that threatens consumer watchdog agency

The U.S. Supreme Court in Washington, D.C. (Jonathan Newton/The Washington Post)
4 min

The Supreme Court on Monday said it will review another challenge to the structure of the Consumer Financial Protection Bureau, after the Biden administration said a lower court’s finding last fall “calls into question virtually every action the CFPB has taken in the 12 years since it was created.”

U.S. Solicitor General Elizabeth B. Prelogar requested the court step in. But conservatives also urged the court to act, hoping to use the case to advance their longtime goal of curbing the power and influence of independent government agencies.

The Supreme Court did not agree to Prelogar’s petition to hear the case on an expedited basis, which means it likely will be one of the first argued when the justices begin their new term in October.

Just three years ago, the justices ruled 5-4 that Congress violated the separation of powers when it placed the agency under the control of a single director who could be removed by the president only for good cause. But the court declined to invalidate the entire agency.

Last fall, a trio judges on the U.S. Court of Appeals for the 5th Circuit — all nominated by President Donald Trump — went further, saying the CFPB is unconstitutionally funded. The appeals panel overturned an agency action to regulate payday lenders; that remedy, Prelogar said, jeopardizes all enforcement actions by the agency, which was created by Congress in response to the 2008 financial crisis.

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Sen. Elizabeth Warren (D-Mass.), who was instrumental to the agency’s creation, said in a statement on Monday that the high court should uphold the CPFB’s funding and its mission.

“Despite years of desperate attacks from Republicans and corporate lobbyists, the constitutionality of the CFPB and its funding structure have been upheld time and time again,” the senator said. “If the Supreme Court follows more than a century of law and historical precedent, it will strike down the Fifth Circuit’s decision before it throws our financial markets and economy into chaos.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act moved to insulate the CFPB from political influence by making the agency independent from an annual appropriation from Congress. Instead, it is funded from the profits of the Federal Reserve, which itself is funded through bank assessments. The bureau’s budget may not exceed 12 percent of the Fed’s annual operating expenses.

The 5th Circuit judges agreed with two financial associations who were challenging the payday lending regulations that the agency’s structure was unconstitutional. They said the structure violated the constitutional command requiring congressional appropriation of any “Money … drawn from the Treasury” and that its insulation from congressional committees doubled the violation.

The appeals court vacated the payday lending rule, not because the CFPB lacked authority over the issue but because of “the Bureau’s unconstitutional funding scheme.”

“Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it,” the panel said in an opinion written by Judge Cory Wilson. He added, “The constitutional problem is more acute because of the Bureau’s capacious portfolio of authority.”

Conservative 5th Circuit appeals court not afraid to break with precedent

Wilson noted the panel’s “disagreement” with other courts who had examined and upheld the financial structure. In fact, Prelogar told the Supreme Court that the decision conflicted with one from the U.S. Court of Appeals for the D.C. Circuit and six district courts, which said the funding was not unusual.

The 5th Circuit’s “novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent,” Prelogar wrote in a petition asking the justice for review. “And the court of appeals compounded its error by adopting a sweeping remedial approach that calls into question virtually every action the CFPB has taken in the 12 years since it was created.”

Consumer advocates said upholding the 5th Circuit ruling could have repercussions beyond the financial protection agency.

“If the Supreme Court accepts this deeply flawed argument against CFPB funding, it would set a dangerous precedent that would be used to challenge agencies with legally indistinguishable funding, including the Federal Reserve, FDIC, Medicare, and Social Security,” Nadine Chabrier, senior policy counsel at the Center for Responsible Lending, said in a statement.

Even though the Biden administration brought the request to review the 5th Circuit decision, Republican attorneys general from 16 states agreed. But they want the court to take the opposite path.

“The Consumer Financial Protection Bureau is a failed experiment in administrative governance,” said a brief filed by West Virginia and other states. The bureau’s “toxic blend of broad power and unchecked autonomy has been a problem from the start.”

The case is Consumer Financial Protection Bureau v. Community Financial Services Association.