Signage at the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C.
Andrew Kelly | Reuters
The Supreme Court on Monday agreed to hear arguments in a case challenging the constitutionality of funding for the Consumer Financial Protection Bureau.
The order taking the case came four months after a federal appeals court panel unanimously ruled that the CFPB’s funding mechanism was unconstitutional.
That ruling, which tossed out a CFPB regulation targeting payday lenders, had called into question every order and other action issued by the consumer watchdog in its history.
That includes a recent record $1.7 billion civil fine, in addition to $2 billion in mandated customer reimbursements, imposed by the agency on Wells Fargo for abuses related to customer accounts.
The CFPB, which was created by the Dodd-Frank Act on the heels of the 2008 global financial crisis, is funded by the Federal Reserve, not Congress.
That mechanism was adopted by a Democratic-controlled Congress to protect the CFPB from political pressure, particularly since Republicans were opposed to the existence of the agency, which oversees consumer markets such as credit cards and home mortgages.
In its ruling in October, a three-judge panel on the U.S. Court of Appeals for the 5th Circuit said that the mechanism violated the Constitution and that the funding instead should be appropriated by Congress from the U.S. Treasury.
“The Bureau’s funding scheme is unique across the myriad independent executive agencies across the federal government,” the panel noted in its ruling, written by Judge Cory Wilson. “It is not funded with periodic congressional appropriations.”
The Biden administration had asked the Supreme Court to hear its appeal of that ruling.
The court agreed to do so, but said it will hear arguments in the case during its next term, which starts in October, not during the current term as the Biden administration had requested.
The Supreme Court in a 2020 ruling allowed the CFPB to continue operating but also said that a provision of the law that created the agency was unconstitutional because it violated the separations of powers rule.
That provision had said that the director of the CFPB could be removed from that position “only for cause.”
The court, in its 5-4 ruling that year, said that the director must be removable by the will of the president, for any reason.
Since its creation in 2010, the CFPB has recovered more than $15 billion for customers.
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