Ever since the Consumer Financial Protection Bureau was created during the 2008 financial crisis, Republicans and corporate lobbyists have sought to destroy it. Now the Supreme Court will take up the possible cases.
The case of CFPB v. Community Financial Services Association, et al., out of the 5th U.S. Circuit Court of Appeals, where a three-judge panel of right-leaning Trump appointees. rule in October that the regulatory funding mechanism is unconstitutional and the agency, and the law, therefore must be completely voided. The Supreme Court took up an appeal by the Biden administration on Monday to decide whether to reject this extreme decision.
First proposed by consumer financial lawyer Elizabeth Warren in the summer of 2007, before she became a US senator, the CFPB became a reality after Bear Stearns and Lehman Brothers went belly up and the global financial system stopped. Included in the Dodd-Frank financial reform law passed in 2010, the agency is specifically protected from interference by Republicans who oppose its creation by residing in the Federal Reserve, where it gets its funds forever. The agency has since created new regulations on the practices, fraud and charges of lenders, banks, mortgage lenders and insurers, and others.
In 2017, the agency issued new rules to address common abuses by payday lenders to add fees to consumer accounts by repeatedly trying to overdraw the account when they don’t have the funds. CFPB rules limit the number of withdrawals a lender can attempt to two. The lender then hired the law firm Jones Day, which helped Trump administration staff with lawyers, and sued to challenge the existence of the CFPB.
This is the second lawsuit brought by Jones Day’s attorneys seeking to defund the entire agency. In 2020, the Supreme Court issued a 5-4 decision on Seila Law v. United States CFPB that found the rules prevent the president from firing the CFPB director for anything but unconstitutional causes. While the court’s five conservatives opposed the agency, they also rejected the preferred outcome of challenging the agency: repeal.
Now, a court of six conservatives will hear arguments again on whether to defund the agency.
The 5th Circuit was the only court to conclude that the agency should be disbanded because of its funding mechanism. At least seven other courts have ordered it to be used, accordingly Slate’s Mark Joseph Stern. The 5th Circuit ruled that the agency was unconstitutional because it was funded outside of the normal annual appropriations process and therefore not accountable to Congress.
But the CFPB is not the only agency funded outside of the normal appropriations process. The Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, Social Security and Medicare are all funded independently of the congressional appropriations process. In fact, the Supreme Court has before ruling that program funding does not have to come from the annual appropriations bill to meet the muster according to the Constitution’s appropriations clause.
If the court were to side with the 5th Circuit’s strange question and overturn existing precedent, it could endanger an important part of the federal government. But again, the conservative Supreme Court will have to decide how far it wants to go with the Trumpiest court in the land. At least two conservative justices would have to dissent to overturn the 5th Circuit’s decision.