Payday lending groups, led by the Community Financial Services Association (CFSA), are challenging the constitutionality of the CFPB’s funding structure in a case that could have existential consequences for the consumer bureau stood up in 2011, and which maintains regulatory enforcement authority over a wide swath of U.S. financial services, including the mortgage and real estate industries.
Arguments in the Supreme Court chamber were held with Noel Francisco on behalf of CFSA, and Elizabeth Prelogar, the U.S. Solicitor General, on behalf of the CFPB. Francisco himself was Prelogar’s predecessor during the Trump administration.
Vigorous questioning by the justices, particularly for Francisco and the premises of CFSA’s arguments in the suit, seemed to suggest that the high court is unwilling to upend the structure of the CFPB in its ultimate ruling. However, with the decision not expected until early next year, public-facing oral arguments and final decisions by the court are not always in alignment.
Justices on both the “liberal” and “conservative” wings of the court expressed doubts about the premise of CFSA’s argument in light of existing constitutional precedent going back to the days of the George Washington administration when the relationship between the executive branch and the congressional appropriations process was first established.
“I get your point that this is different, that it’s unique, that it’s odd, that they’ve never gone this far,” said Justice Clarence Thomas to Francisco, according to Bloomberg. “But not having gone this far is not a constitutional problem.”
Other justices including Brett Kavanaugh and Amy Coney Barrett offered responses that appeared skeptical of the underlying arguments, while Justices Ketanji Brown Jackson, Elena Kagan and Sonia Sotomayor were particularly blunt in their assessment of the CFSA’s arguments.
“You’re flying in the face of 250 years of history,” Kagan told Francisco at one point.
One legal expert said that the Supreme Court will aim to intervene in as minimal a way as possible. Jay Beitel, a real estate and mortgage attorney and principal at mortgage law firm Polunsky Beitel Green, interpreted the statements of the justices as indications of caution regardless of the final ruling.
“Persuasive arguments were made on both sides, but the prevailing sentiment seems to be to not destroy what has been done in the past seven years,” Beitel said. “Based upon the oral arguments and the questions from the court, I expect the court will ‘do the least harm’ and either uphold the funding structure or require the legislature to reform it in a way that is constitutionally sound. In either event, the consumer financing industry should take comfort that its day-to-day operations and adherence to existing regulations will remain unchanged.”
Shortly after the oral arguments concluded, Community Home Lenders Association (CHLA) Executive Director Scott Olson warned of the ramifications a decision against the CFPB could bring.
“If the Court finds that CFPB funding is unconstitutional, it is critical for both consumers and smaller IMBs (independent mortgage banks) that existing rules and regulations for mortgage statutes are not thrown out with it,” Olson said. “This is imperative to protect against mega lenders using their market power to take advantage of having no clear rules of the road.”
In February, the high court agreed to hear the case involving CFSA roughly four months after a Fifth Circuit Court of Appeals panel ruled that the funding structure of the CFPB was unconstitutional. The Biden administration had hoped to fast-track the proceeding, but that request was denied.
This past March, the Second Circuit Court of Appeals conflicted with the prior Fifth Circuit ruling, holding that it could find no basis in Supreme Court precedent for its decision and that the Constitution itself does not support the Fifth Circuit ruling declaring the Bureau’s funding source unconstitutional.
The plaintiffs in the original case, Community Financial Services Association of America and Consumer Service Alliance of Texas, challenged the CFPB’s structure, its powers granted by Congress and the director’s protections from removal, claiming all were unconstitutional.
A lower court agreed, causing the CFPB to appeal the ruling to the Supreme Court, arguing in its certiorari petition that the previous decision relied on an erroneous understanding of the Appropriations Clause.
Editor’s note: A prior version of this article referred to the CFSA incorrectly as the CHLA in select instances. These errors have been corrected.