The CFPB withstands another challenge to its constitutionality in federal court

The challenge from a higher education nonprofit against the Bureau’s funding mechanism was rejected by a federal court in Utah

The Consumer Financial Protection Bureau (CFPB) has withstood another challenge to its constitutionality, this time coming from a now largely-defunct higher education nonprofit that sought to prove that the Bureau’s leadership and funding structures violated the separation of powers.

“This matter arises from a petition by [the Bureau] to enforce a Civil Investigative Demand (CID) against Respondent, the Center for Excellence in Higher Education (CEHE) for potential violations of the Consumer Financial Protection Act,” the decision by U.S. Chief District Judge Robert Shelby reads.

The CID was challenged by CEHE on the basis of the funding mechanism for the Bureau under the U.S. Constitution. As a result of the Dodd–Frank Wall Street Reform and Consumer Protection Act passed by Congress in 2010 and signed into law by President Barack Obama, the CFPB was initially created and receives its funding from a request made by the Bureau’s Director to the Federal Reserve.

After the Bureau issued its CID to CEHE in April 2019 — which sought additional information about CEHE’s educational programs, availability for financial aid at institutions it managed and private financing options — the CEHE instead argued that the CID was invalid due to the structure of the Bureau’s funding, which they alleged violated the U.S. Constitution.

“[The CFPB] violates the separation of powers by conferring substantial executive powers on the Bureau’s director without subjecting the director to presidential control,” the CEHE complaint read.

However, the response to the CID was sent to the court while a U.S. Supreme Court case over that very question was in the process of being decided. By June 2020, the Court ruled that while the inability of the executive branch to dismiss the CFPB Director under its then-current structure violates the separation of powers, the Bureau itself would not be dismantled and that its authority would remain intact.

The president would gain the authority to dismiss the CFPB Director — which then-Director Kathleen Kraninger believed should be the case — and President Biden signaled that he would take advantage of that new power prior to his inauguration by naming a nominee to lead the Bureau during his administration. On Inauguration Day 2021, Kraninger resigned from her position and ultimately, Rohit Chopra would assume the reins at the agency after a protracted confirmation process.

However, after the decision by the Supreme Court was handed down, the CEHE instead pivoted to a different reason it believed the CFPB was unconstitutional: “[e]xempting the [Bureau] from the appropriations process improperly frees it from congressional control [and] violates the separation of powers,” according to Judge Shelby’s account of a revised CEHE complaint.

The decision ultimately settled on rejecting the CEHE’s position, the Judge said. Read the decision at the Consumer Finance Monitor.

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