The Supreme Court agreed Monday to take up a case next term against the Consumer Financial Protection Bureau, a brainchild of Sen. Elizabeth Warren (D-MA), which could determine the fate of its authority to regulate banking and lending agencies through federal rules.
In a brief, unsigned order, justices agreed to consider the constitutionality of how the CFPB is funded after banking industry parties alleged the agency is unconstitutional under the appropriations clause of the Constitution. As it stands, the financial watchdog sidesteps standard congressional appropriations by only requiring the CFPB director to make requests directly to the Treasury Department.
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Created following the 2008 financial crisis as a means to enforce consumer financial laws, a coalition of 16 Republican attorneys general now wants the justices to affirm an appeals court decision that found the funding scheme from the Treasury Department unconstitutional. Since its formation in 2010, the CFPB has recovered as much as $15 billion for customers.
Lower courts have been split on the issue, and a federal judge in 2021 sided with the agency. That decision was followed by a three-judge panel on the U.S. Court of Appeals for the 5th Circuit vacating a payday lending rule last October, finding a link between it and the agency's funding mechanism.
"For the most part, the Plaintiffs’ claims miss their mark," the appeals court held. "But one arrow has found its target: Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers."
The Biden administration is defending the CFPB's funding mechanism along with Democratic attorneys general in 21 states and Washington, D.C., who say the 5th Circuit's ruling should be reversed and argue the CFPB’s funding is a valid use of congressional appropriations power, citing the 2010 passage of the Dodd-Frank Act.
“The CFPB’s critical work administering and enforcing consumer financial protection laws will be frustrated,” the Biden administration wrote in its brief. “And because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well.”
Warren, whose credit for creating the CFPB was touted by former President Barack Obama as "Elizabeth's idea" in July 2011, has also defended the constitutionality of the CFPB's funding mechanism.
"Despite years of desperate attacks from Republicans and corporate lobbyists, the constitutionality of the CFPB and its funding structure have been upheld time and time again," Warren said in a statement. "If the Supreme Court follows more than a century of law and historical precedent, it will strike down the 5th Circuit's decision before it throws our financial markets and economy into chaos."
The Supreme Court's 6-3 conservative majority has been leery of expansive regulatory power in recent years, such as its 2022 decision that limited the Environmental Protection Agency’s authority to issue sweeping regulations to fight climate change by reducing carbon emissions from power plants.
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This term, the Supreme Court has already heard two cases surrounding the Federal Trade Commission and the Securities and Exchange Commission, further signaling a willingness to make it easier to challenge regulatory power of agencies.
The case, known as CFPB v. Community Financial Services of America, has not been scheduled but will likely be heard after the court's new term commences in October.