Supreme Court to Hear Arguments in CFPB Funding Case on March 3, 2024
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The Supreme Court of the United States will hear oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd. on March 3, 2024, concerning the constitutionality of the CFPB’s funding structure.The case challenges the agency’s independence by arguing its funding, derived from the Federal Reserve rather than congressional appropriations, violates the Appropriations Clause of the U.S. Constitution.
Background on the CFPB and its Funding
The Consumer Financial Protection Bureau (CFPB) was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The agency’s stated mission is to protect consumers in the financial sector. Unlike most federal agencies that rely on annual congressional appropriations, the CFPB is funded by a percentage of the Federal Reserve System’s earnings. Specifically, the CFPB receives funding up to a cap, which was $725 million in fiscal year 2023, as determined by the Federal Reserve Board of Governors. This funding mechanism was intended to insulate the CFPB from political pressure and ensure its consistent operation. The CFPB’s funding structure is outlined in 12 U.S. Code § 5493.
The Legal Challenge
The Community Financial Services Association of america (CFSA), a payday lending trade group, filed suit, arguing that the CFPB’s funding mechanism is unconstitutional. They contend that because the CFPB’s budget isn’t subject to the regular appropriations process,it circumvents Congress’s power of the purse,as outlined in Article I,Section 9,Clause 7 of the Constitution (the appropriations Clause).The CFSA initially challenged a CFPB rule regulating payday lending, but the funding challenge became the central issue. The U.S. Court of Appeals for the Fifth Circuit ruled in favor of the CFSA in October 2023, finding the CFPB’s funding scheme unconstitutional. This ruling prompted the CFPB to appeal to the Supreme Court.
Potential Implications
A supreme court ruling against the CFPB’s funding structure could have significant consequences. If the Court sides with the CFSA, the CFPB’s funding could be subject to congressional appropriations, perhaps limiting its resources and independence. This could impact the agency’s ability to enforce consumer financial protection laws and pursue enforcement actions against financial institutions. According to a report by the Congressional research Service dated November 21,2023,a ruling deeming the CFPB’s funding unconstitutional could invalidate past CFPB actions and create legal uncertainty for the agency’s future operations. The CFPB has stated it believes its funding structure is constitutional and is prepared to defend it before the Supreme Court.
Source: Congressional Research Service – The CFPB’s Funding: Legal challenges (November 21, 2023)
