The Supreme Court Appears Poised to Uphold the Consumer Financial Protection Bureau
On Tuesday, the Supreme Court heard arguments in a case that could determine the fate of the Consumer Financial Protection Bureau (CFPB), an agency created in the aftermath of the 2008 financial crisis to regulate consumer finance. Despite some conservative skepticism, it seems likely that the court will uphold the work of the CFPB against a challenge claiming that the agency violates the Constitution in the way it is funded.
The CFPB, conceived by Democratic Senator Elizabeth Warren, has long been a target of Republicans and their financial supporters. However, even some conservative justices on the court seemed unwilling to support the sweeping arguments presented by payday lenders, who challenged a CFPB rule and brought the case to the Supreme Court. A ruling in favor of the agency would not only preserve its actions since its creation but also alleviate concerns about the validity of its funding structure.
Unlike most federal agencies, the CFPB does not rely on the annual budget process in Congress. Instead, it is directly funded by the Federal Reserve, with an annual limit of around $600 million. The federal appeals court in New Orleans ruled that this funding method violates the Constitution’s appropriations clause because it insulates the CFPB from congressional oversight.
Noel Francisco, the lawyer representing the lenders, argued that Congress cannot give so much power to an executive agency. He called it a “perpetual delegation to pick your own number.” However, several justices pushed back against this argument. Justice Brett Kavanaugh pointed out that Congress could change the funding method at any time, making it far from permanent or perpetual. Justice Elena Kagan also noted that Francisco’s arguments went against centuries of historical precedent.
Solicitor General Elizabeth Prelogar, representing the Biden administration, defended the CFPB during the hearing. Justice Samuel Alito was the most aggressive questioner, but other justices seemed inclined to support the agency’s position.
While some business interests, including the U.S. Chamber of Commerce, backed the payday lenders in the case, mortgage bankers and other sectors regulated by the CFPB cautioned against a broad ruling that could create market instability.
This case is one of several major challenges to federal regulatory agencies on the Supreme Court’s docket this term. Over the past decade, the court has shown a willingness to impose limits on the operations of these agencies. In a previous CFPB case three years ago, the court ruled that Congress had improperly insulated the agency’s director from removal by the president. However, it allowed the agency to continue operating.
The final decision in this case will have significant implications for the future of the CFPB and the scope of executive agencies’ power. If the court upholds the agency’s funding structure, it would be a victory for those who believe in strong consumer protection regulations. Moreover, it would reaffirm the court’s willingness to defer to the judgment of regulatory agencies in interpreting and enforcing laws.