The Supreme Court announced Monday it would hear a challenge to the Consumer Financial Protection Bureau and weigh whether the agency was lawfully created and funded.
The Biden administration asked the high court to review an October ruling from the U.S. Court of Appeals for the 5th Circuit, which held that Congress ran afoul of the Constitution when it delegated its financial authority to an executive agency.
The CFPB gets funding directly from the Federal Reserve, not through Congress’ appropriations, which runs afoul of the separation of powers, a three-judge 5th Circuit panel said.
The ruling invalidated the Payday Lending Rule, which became effective in 2018. It restricted lenders’ ability to provide consumers with loans unless they have determined the potential borrowers have the ability to repay according to certain terms, and also restricted lenders’ account access to repay loans.
The three-judge panel reasoned that Congress appropriates funds via the Constitution’s Appropriations Clause but handed over that authority when it created the CFPB, giving the agency unchecked power.
The new ruling did not strike down the agency, but did strike down the Payday Lending Rule, which the CFPB issued in 2017. That policy was intended to curb what the bureau saw as predatory lending practices by payday lenders.
The 5th Circuit said that because that rule can be tied to the CFPB’s unconstitutional funding structure, the rule must be vacated.
The ruling, though, stood in contrast to other circuit courts that have upheld CFPB’s funding.
U.S. Solicitor General Elizabeth Preloger told the high court that Congress did authorize the CFPB to receive up to a capped amount per year, asking the justices to hear the case.
“The court of appeals relied on an unprecedented and erroneous understanding of the Appropriations Clause to hold the CFPB’s statutory funding mechanism unconstitutional,” Ms. Preloger wrote in her petition. “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The Appropriations Clause requires nothing more.”
Without comment, the high court decided to take on the case. It will likely be heard during the court’s next term, which begins in October.
It took at least four justices to vote in favor of taking up the appeal.
The CFPB was created during the Obama administration and has been a target of conservatives for years.
It was the brainchild of Sen. Elizabeth Warren, Massachusetts Democrat, who at the time was a Harvard University law professor.
It was intended to be shielded from political forces in order to give it the freedom to go after powerful financial interests.
In 2020, the Supreme Court ruled the CFPB’s structure outlined for removing the agency director ran afoul of the Constitution, because at the time it did not allow a president to remove the agency head without cause.
The justices already had ruled that the insulated director structure was unconstitutional, finding that a single director with so much regulatory power must be accountable to the president.
But the justices had not confronted the question of the bureau’s financial insulation.
