Supreme Court to Hear Arguments on CFPB Funding in October 2023
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The Supreme Court agreed to hear arguments on October 11, 2023, regarding the constitutionality of the Consumer Financial Protection Bureau’s (CFPB) funding structure, a case wiht potentially far-reaching consequences for the agency and the financial industry.
Background on the CFPB Funding Challenge
The case, Consumer financial Protection Bureau v. Community Financial Services Association of America, Ltd. (Case No. 23-322), stems from a challenge to the CFPB’s rule restricting mandatory arbitration clauses in consumer financial contracts.The Community Financial Services Association of America (CFSA), a payday loan industry group, argued that the CFPB’s funding mechanism – receiving appropriations directly from the Federal Reserve, rather than through the annual congressional appropriations process – violates the Appropriations Clause of the U.S. Constitution.This clause grants Congress the power of the purse. The CFSA contends this independence shields the CFPB from typical congressional oversight and control.
fifth Circuit Ruling and Supreme Court Review
In October 2022, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of the CFSA, finding the CFPB’s funding scheme unconstitutional. The Fifth Circuit stayed its ruling pending appeal. This ruling raised concerns about the validity of all CFPB actions taken since its inception in 2011. The CFPB appealed the Fifth Circuit’s decision to the Supreme Court, which granted certiorari on June 30, 2023. The Supreme Court’s decision, expected by late spring 2024, could considerably curtail the CFPB’s authority or require a restructuring of its funding model.
Potential Impacts of a Ruling Against the CFPB
A Supreme Court ruling against the CFPB could have several meaningful effects:
- Invalidation of past Rules: All rules and regulations issued by the CFPB could be challenged as invalid if the agency’s funding was deemed unconstitutional from the start.
- Congressional Control: the CFPB would likely be subject to the annual appropriations process, making it more vulnerable to political pressure and potential funding cuts.
- Industry Response: Financial institutions could challenge existing enforcement actions and seek to overturn regulations.
According to a statement released by CFPB Director Rohit Chopra on June 30, 2023, the agency believes its funding structure is consistent with the Constitution and that the Supreme Court will uphold its independence. [CFPB Statement]
