Will Other CFPB Cases Be Argued After Supreme Court Decision on Funding?

Judges issued injunctions blocking CFPB rules to wait on the Supreme Court

Now that the Supreme Court has upheld the Consumer Financial Protection Bureau’s funding mechanism as constitutional, the fate of the agency’s credit card late fee rule and the small business reporting rule could soon be decided.

Federal judges in Texas and Kentucky have issued injunctions blocking implementation of a rule that would require many credit unions and banks to report to federal agencies about their lending activity to women-owned and minority-owned companies. Both judges cited the uncertainty surrounding the Supreme Court decision in issuing the injunctions.

In a separate case, a Texas federal judge has issued an injunction blocking implementation of a final rule lowering most credit card late fees to $8. That judge, Mark Pittman of the U.S. District Court for the Northern District of Texas, cited the pending Supreme Court decision in issuing an injunction blocking the rule, which was scheduled to go into effect on Tuesday.

On Thursday, the Supreme Court on a vote of 7-2, overruled the Fifth Circuit’s decision and upheld the CFPB’s funding mechanism, saying it did not violate the Constitution’s appropriations clause.

In the opinion, written by Justice Clarence Thomas, the justices said that “Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides the Bureau’s funding meets these requirements. We therefore conclude that the Bureau’s funding mechanism does not violate the Appropriations Clause.”

The Supreme Court’s decision also may lay to rest concerns about how other financial regulators are funded. Those agencies, including the National Credit Union Administration, are funded by fees paid by institutions they regulate. Indeed, in a concurring opinion Thursday, Justice Elena Kagan wrote that “flexible approaches to appropriations have been particularly common in the sphere of financial regulation.”

In dissenting from the majority opinion, Justice Samuel Alito, who was joined by Justice Neil Gorsuch, wrote that the framers of the Constitution would be “shocked, even horrified” by the CFPB’s funding mechanism.

“The Court upholds a novel statutory scheme under which the powerful Consumer Financial Protection Bureau (CFPB) may bankroll its own agenda without any congressional control or oversight,” Alito wrote. “In short, there is apparently nothing wrong with a law that empowers the Executive to draw as much money as it wants from any identified source for any permissible purpose until the end of time.”

Reaction to the decision was swift.

“America’s Credit Unions is disappointed with the ruling as we strongly believe that the CFPB’s current funding structure denies any accountability to Congress and ultimately the consumers it is tasked with serving,” America’s Credit Unions President/CEO Jim Nussle said.

Meanwhile, President Biden praised the decision. “In the face of years of attacks from extreme Republicans and special interests, the Court made clear that the CFPB’s funding authority is constitutional and that its strong record of consumer protection will not be undone,” he said

CFPB Director Rohit Chopra was blunt in his criticism of the effort through litigation to defund his agency. “For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement,” he said. “The Supreme Court has rejected their radical theory that would have devastated the American financial markets.”

House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C., said the ruling emphasizes the need for the House to consider H.R. 2798, legislation that was introduced by Rep. Andy Barr, R-Ky., chairman of the Financial Services Committee’s Financial Institutions and Monetary Policy Subcommittee. That legislation would convert the CFPB, which is run by a single director, into a five-member commission and make it subject to the appropriations process.

“This commonsense legislation will fix the mistakes of Dodd-Frank which set the dangerous precedent of tapping the central bank to fund partisan political objectives,” McHenry said. “It’s past time the CFPB is held accountable to the American people through their elected representatives.”

Currently, H.R. 2798 has no chance of passing the Democratic-controlled Senate, where Banking Committee Chairman Sherrod Brown, D-Ohio, is a staunch supporter of the CFPB. “Today’s decision protects workers and consumers who don’t have high-paid lobbyists and lawyers to fight their battles for them,” Brown said, discussing the court’s decision. “We created the CFPB to be their voice, and I will continue to ensure the agency is able to do its job protecting consumers from Wall Street greed.”