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Supreme Court Dismisses Challenge to Funding of Consumer Protection Agency

S.J. Steinhardt
Published Date:
May 16, 2024

iStock-922171778 SCOTUS United States US Supreme Court

The U.S. Supreme Court, by a 7-2 margin, rejected a challenge to the way that the Consumer Financial Protection Bureau (CFPB) is funded, multiple news organizations reported.

The central question in the case, Consumer Financial Protection Bureau v. Community Financial Services Association of America, was whether the way Congress chose to fund the bureau violated the appropriations clause of the Constitution, which provides that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law,” The New York Times reported.

The case was brought by two trade groups representing payday lenders. They challenged a regulation limiting the number of times lenders can try to withdraw funds from borrowers’ bank accounts. The Fifth Circuit struck down the regulation, holding that it was “wholly drawn through the agency’s unconstitutional funding scheme.”

Justice Clarence Thomas, writing for the majority, said the mechanism was constitutional.

“Under the appropriations clause,” he wrote, “an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides the bureau’s funding meets these requirements. We therefore conclude that the bureau’s funding mechanism does not violate the appropriations clause.”

Justices Samuel A. Alito, Jr. and Neil M. Gorsuch dissented.

The CFPB, created as part of the 2010 Dodd-Frank Act, is not funded by an annual appropriation but rather through an arrangement in which it draws resources, up to an annual cap, from the Federal Reserve system, according to the Times. That system, in turn, does not receive congressional appropriations but is financed by interest on securities it holds, gains from securities transactions and various fees.

Republicans and business groups have argued that the bureau enjoys unchecked power.

An adverse ruling could have raised broader questions about how Congress funds the Federal Reserve—and even Social Security and payments to the national debt, The Washington Post reported. It might have also opened challenges to more than a decade of enforcement actions and more than $20 billion recovered by the CFPB on behalf of consumers.

“This is likely the last of the existential threats to the CFPB,” said John Coleman, an attorney who specializes in regulation of the financial industry and was formerly the deputy general counsel for the CFPB, in an interview with the Post. “Those who disagree with CFPB’s exercise of its authority will now have to resort to typical means to check that exercise, including the courts, Congress and the ballot box.”

“This decision marks an alarming failure by the court to police the proper exercise of Congress’s constitutional powers,” Dan Greenberg, the general counsel of the Competitive Enterprise Institute, a free-market public policy organization, told the Times in response to the ruling.

Chris Vergonis, a lawyer who represented the lenders, said to The Wall Street Journal, “Though the court has upheld the constitutionality of the bureau’s funding, we continue to believe that the challenged CFPB rule is legally flawed, threatens access to credit, and harms the millions of American consumers who rely on small-dollar loans to manage budget shortfalls and unexpected expenses."