Ever since the Consumer Financial Protection Bureau was created in the wake of the financial crisis of 2008, Republicans and corporate lobbyists have sought to destroy it. Now the Supreme Court will take up a case that could do just that.
The case of CFPB v. Community Financial Services Association, et al., comes out of the 5th U.S. Circuit Court of Appeals, where a three-judge panel of far-right Trump-appointed judges ruled in October that the regulator’s funding mechanism is unconstitutional and the agency, and its regulations, should therefore be entirely voided. The Supreme Court took up an appeal by the Biden administration on Monday to judge whether to overrule this extreme decision.
First proposed by consumer financial law expert Elizabeth Warren in the summer of 2007, before she became a U.S. senator, the CFPB became a reality after Bear Stearns and Lehman Brothers went belly up and the global financial system ground to a halt. Included in the Dodd-Frank financial reform law passed in 2010, the agency was specifically protected from meddling by Republicans opposed to its creation by being housed in the Federal Reserve, where it receives funding in perpetuity. The agency has since instituted new regulations cracking down on practices, scams and fees of payday lenders, banks, mortgage lenders and insurers, among others.
In 2017, the agency issued a new rule to crack down on a common abuse by payday lenders to add fees to consumer accounts by repeatedly trying to overdraw their accounts when they have insufficient funds. The CFPB rule limited the number of attempted withdrawals by lenders to two. Those lenders then hired the law firm Jones Day, which helped staff the Trump administration with lawyers, and sued to challenge the CFPB’s existence.
This was the second lawsuit brought by Jones Day lawyers seeking to invalidate the entire agency. In 2020, the Supreme Court issued a 5-4 decision in Seila Law v. CFPB that found the rule preventing the president from firing the CFPB’s director for anything but cause unconstitutional. While the court’s five conservatives sided against the agency, they also rejected the preferred outcome of those challenging the agency: its abolition.
Now, a court with six conservatives will hear arguments again about whether to eliminate the agency entirely.
The 5th Circuit is the lone court to reach the conclusion that the agency must be abolished because of its funding mechanism. At least seven other courts have ruled otherwise, according to Slate’s Mark Joseph Stern. The 5th Circuit ruled that the agency is unconstitutional because it is funded outside the normal annual appropriations process and is therefore not accountable to Congress.
But the CFPB is not the only agency funded outside the normal appropriations process. The Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, Social Security and Medicare are all funded independently of the congressional appropriations process. In fact, the Supreme Court has previously ruled that program funding need not come from an annual appropriations bill for it to meet muster under the Constitution’s appropriations clause.
If the court were to side with the 5th Circuit’s outlandish argument and overturn its existing precedent, it could imperil important parts of the federal government. Yet again, the conservative Supreme Court will have to determine how far it wants to go along with the Trumpiest court in the nation. At least two conservative justices would need to disagree to void the 5th Circuit’s decision.