Supreme Court Will Decide This Controversial Federal Agency’s Fate

United States Supreme Court Justices

( – The United States Supreme Court has agreed to take up a case under which it would decide the fate of the Consumer Financial Protection Bureau (CFPB), a controversial federal body set up by the first Obama administration.

The nation’s highest court will have to rule if the funding structure of the CFPB violates the Constitution in a case which, according to the Biden administration, could threaten the bureau’s operation and cause market disruption.

The CFPB was established as an independent agency in charge of consumer protection in finance. Its status has been challenged in lawsuits. In 2020, the US Supreme Court already ruled that its governor structure with a director removable with cause only was unconstitutional – but allowed it to continue to exist.

The CFPB’s funding comes from the earnings of the Federal Reserve and not from annual budgets passed by the US Congress. In 2022, the US central bank transferred $642 million to the agency.

With its new decision, the US Supreme Court has now taken up a lawsuit in which payday loan industry groups argue the bureau’s funding scheme violated the constitutional provision in which the power of the purse rests with Congress.

The Supreme Court will tackle the case in its next term, which starts in October, even though the Biden administration had asked it to do so in the current term, Newsmax reported.

The report notes the development is part of the Supreme Court’s quest to “rein in” the powers of federal agencies as recent rulings have revealed the conservative majority’s “skepticism toward expansive regulatory power.”

Thus, in 2022, the Supreme Court limited the Environmental Protection Agency’s authority to issue “sweeping regulations” for slashing power plant emissions.

The Obama administration created the Consumer Financial Protection Bureau after the 2008 global financial crisis under the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act.

The lawsuit against the CFPB was filed by the Community Financial Services Association of America and the Consumer Service Alliance of Texas, payday loan industry trade groups, in 2018.

They have insisted that the CFPB’s “perpetual budget” was improperly exempted from congressional supervision in violation of the principle of separation of powers in the US government.

The same lawsuit also attacked a 2017 CFPB regulation against “unfair” and “abusive” payday lending practices.

The rule prohibited lenders from taking loan repayments from a borrower’s bank account after two consecutive failed attempts because of insufficient funds – unless the borrower agreed.

In 2021, a federal judge ruled in favor of the CFPB, and in October 2022, the New Orleans-based 5th US Circuit Court of Appeals declared the body’s funding structure unlawful.

According to the 5th Circuit, it violated the Constitution’s “appropriations clause,” under which the US Congress exercises spending powers.

The Biden administration, however, has pointed out that the US Court of Appeals for the District of Columbia Circuit and at least six federal district courts have found the CFPB’s funding arrangement not to violate the US Constitution.