Supreme Court to hear case challenging the CFPB funding structure

This is the second time in three years that the high court will hear a case regarding the CFPB’s constitutionality

The United States Supreme Court has agreed to hear arguments in a case that will ultimately decide the constitutionality of the funding structure for the Consumer Financial Protection Bureau (CFPB), according to a list of orders released Monday.

The Supreme Court issued the order to take the case about four months after a Fifth Circuit Court of Appeals panel ruled that the funding structure of the CFPB was unconstitutional.

In its brief ruling, the Supreme Court agreed to hear the case, but did not commit to fast-tracking the proceeding, which was requested by the Biden administration in its appeal. The Supreme Court will instead wait until its next term, which starts in October, to hear arguments in the case. A final decision in the case is not expected until 2024.

The lawsuit was originally filed by payday lending industry trade groups as a challenge to a 2017 small-dollar lending rule that barred lenders from making additional attempts to collect money for loan payments from borrowers’ bank accounts following a maximum of two unsuccessful attempts to withdraw the funds owed.

The plaintiffs in the original case, Community Financial Services Association of America and Consumer Service Alliance of Texas, argued that the CFPB’s payday rule was made arbitrarily and capriciously, and exceeded its statutory authority. The trade groups also challenged the CFPB’s structure, its powers granted by Congress and the director’s protections from removal, claiming all were unconstitutional.

The appeals court opted to reject the majority of the challenges made by the trade groups, but the panel ultimately determined that the CFPB’s design was violating the Constitution because it received funding from the Federal Reserve and not the appropriations legislation passed by Congress.

The panel also vacated the the small-dollar lending rule.

In its ruling, the panel stated that the CFPB’s funding mechanism violated the Constitution — and that its funding should not come from the Federal Reserve, but should instead come from Congress and the U.S. Treasury.

“The Bureau’s funding scheme is unique across the myriad independent executive agencies across the federal government,” the panel stated in the ruling. “It is not funded with periodic congressional appropriations.”

The CFPB then appealed the ruling to the Supreme Court, arguing in its certiorari petition that the Fifth Circuit decision relied on an erroneous understanding of the Appropriations Clause.

The Supreme Court heard another challenge to the CFPB’s constitutionality in mid-2020, when Seila Law LLC v. Consumer Financial Protection Bureau asked the Court to determine whether the CFPB’s substantial executive authority violates the Constitutional principle of the separation of powers between the branches of the federal government.

In that case, the Supreme Court ruled that the appointed director of the CFPB is not insulated from being fired by the President of the United States, but stopped short of invalidating the agency’s structure.

This led President Biden to seek the appointment of his own CFPB director after entering office. A similar decision followed from the Supreme Court related to the Federal Housing Finance Agency.

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