Appeals court rules financial watchdog agency CFPB’s structure unconstitutional
A federal appeals court has ruled that the funding structure of the nation’s most powerful financial watchdog, the Consumer Financial Protection Bureau, is unconstitutional.
In a case brought by a payday lending group, a three-judge panel of the 5th U.S. Circuit Court of Appeals rejected a CFPB rule governing these high-interest lenders and ruled that the way the office is funded “violates the provisions of the Constitution”. structural separation of powers”.
“Three judges, all appointed by President Trump, decided to withdraw funding from this agency that Congress itself voted for,” says Chris Peterson, a law professor at the University of Utah and a former attorney-in-charge. law enforcement at the CFPB.
The bureau was created by the Obama administration and Congress in the wake of the financial crisis and the Great Recession to better protect ordinary Americans from scams by banks, student loan and credit card companies and other financial companies. He returned billions of dollars to consumers who he said were treated unfairly.
However, to protect it from political influence, the bureau receives its funding from the Federal Reserve, not Congress. It is this part of its structure which, according to the court, violates the Constitution.
“While the vast majority of executive agencies rely on annual appropriations for funding, the Bureau does not,” said the the judges wrote. “Where ever the line is between a constitutionally and unconstitutionally funded agency, this unprecedented arrangement crosses it.”
Peterson says the CFPB is not unique as an agency that does not receive its annual funding determined by Congress — both the Federal Reserve and the Federal Deposit Insurance Corporation are funded through other means.
“The CFPB is likely to seek a stay while it seeks to appeal to the entire 5th Circuit … and then likely to the Supreme Court of the United States after that,” Peterson said.
In the meantime, he says it raises doubts about all sorts of other rules the bureau has put in place, because at least in the 5th Circuit region — Texas, Louisiana and Mississippi — other CFPB rules could be challenged. by similar lawsuits.
“There’s going to be a lot of confusion about whether the rules associated with mortgages, debt collection, credit cards are still viable rules in the Fifth Circuit.”
If the decision is ultimately upheld, it could mean the bureau would have to get an annual budget approved by Congress, which Peterson said would leave it vulnerable to “banks, payday lenders and debt collection agencies that are incredibly good at pressure Congress to weaken consumers”. guards.”
In a statement, the CFPB said “there is nothing new or unusual about Congress’ decision to fund the CFPB outside of annual expense bills.” A spokesperson for the office said Medicare and Social Security are funded outside of the annual appropriations process. The agency says it “will continue to carry out its vital work enforcing the nation’s laws and protecting American consumers.”
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