Supreme Court to Hear arguments in CFPB Funding Case on March 3, 2024
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The Supreme Court will hear oral arguments on March 3, 2024, in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd., a case challenging the constitutionality of the CFPB’s funding structure. The case centers on whether the CFPB’s autonomous funding mechanism, which doesn’t rely on annual congressional appropriations, violates the Appropriations Clause of the U.S. Constitution.
Background of the Case
The lawsuit originated from a challenge to the CFPB’s 2017 rule regulating payday lending.The Community Financial services Association of America (CFSA), a payday loan industry group, argued that the CFPB’s funding structure was unconstitutional as it shielded the agency from typical congressional oversight of spending. The CFSA initially challenged the payday lending rule in the U.S. District Court for the Western District of Texas,but the case quickly pivoted to focus on the CFPB’s funding.
The CFPB’s Funding Mechanism
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the CFPB and granted it unique funding authority. Unlike most federal agencies, the CFPB is funded by the Federal Reserve System, receiving a percentage of the Fed’s earnings, capped at a certain amount. For fiscal year 2023, the CFPB received approximately $744.8 million from the Federal Reserve, as stated in their annual report (https://www.consumerfinance.gov/about-us/annual-reports/).
Lower Court Rulings
In February 2022, the Fifth Circuit Court of Appeals ruled that the CFPB’s funding mechanism was indeed unconstitutional. the court stayed its decision pending appeal, meaning the CFPB could continue operating while the case moved to the Supreme Court. The Fifth Circuit’s ruling raised concerns about the validity of all CFPB actions taken as its inception in 2011.
Potential Implications
A Supreme Court ruling against the CFPB’s funding structure could have far-reaching consequences. It could invalidate existing CFPB rules and possibly require the agency to seek annual appropriations from Congress, significantly diminishing its independence. Conversely, a ruling upholding the funding mechanism woudl affirm the CFPB’s authority and ensure its continued operation without direct congressional control over its budget.The case is being closely watched by consumer advocates, financial institutions, and legal experts alike.
“This case presents a fundamental question about the structure of our government and the independence of agencies charged with protecting consumers,” said Rohit Chopra, Director of the CFPB, in a statement released on January 12, 2024 (https://www.cfpb.gov/newsroom/press-releases/cfpb-statement-supreme-court-argument-cfpbs-funding/).
