Since its inception by leftist Sen. Elizabeth Warren (D-Mass.), the Consumer Financial Protection Bureau (CFPB) has always been rife with controversy. Last month, the U.S. Supreme Court announced it will hear a challenge to the constitutionality of the CFPB’s funding structure.
CFPB gets its money from the Federal Reserve, which also gets its own funding separate from congressional appropriations, via income from its own financial portfolio. The Wall Street Journal reported about a previous separate 2020 SCOTUS ruling on CFPB’s governance structure.
The Court ruled that the Dodd-Frank Act’s limit on the President’s ability to remove the director at will was unconstitutional in Seila Law (2020). Justices Clarence Thomas and Neil Gorsuch separately argued that ‘multiple provisions of law combine to cause a constitutional injury.’
A Fifth Circuit Court of Appeals panel held in October that ‘this double insulation from Congress’s purse strings’ violates the Constitution’s Article I spending power that rests with Congress. As Alexander Hamilton warned, uniting Congress’s power of the purse with the executive’s enforcement power would ‘destroy that division of powers on which political liberty is founded, and would furnish one body with all the means of tyranny.’ The CFPB ‘is the epitome of the unification of the purse and the sword in the executive,’ Judge Cory Wilson wrote for the Fifth Circuit panel.
SCOTUS’ agreeing to hear the case is important because the CFPB’s unconstitutional funding structure improperly insulates it from congressional oversight, as House Financial Services Committee, Rep. Patrick McHenry (R-N.C.) recently noted:
This problem is compounded when the Bureau is led by a rogue regulator, as it is now. Director Chopra is returning the CFPB to its Obama-era regulation by enforcement approach that harms both consumers and our economy. Republicans promised the American people we would restore accountability to the federal bureaucracy. The House Financial Services Committee is committed to delivering transparency with legislation like Congressman Barr’s TABS Act to bring the unaccountable CFPB under the annual appropriations process.
Jessica Thompson, an attorney at Pacific Legal Foundation, wrote about an additional federal court blow against CFPB’s equity-fueled overreach in a case where the CFPB accused a mortgage company, Townstone, of allegedly violating the Equal Credit Opportunity Act (ECOA), which bans discrimination against credit applicants on the basis of prohibited characteristics, including race. Without any evidence, the CFPB accused the company of racial redlining—of refusing to lend to African Americans.
“But Townstone never discriminated against any applicants for credit — and the CFPB didn’t allege it had,” Thompson writes. “And nearly six years after the CFPB kicked off the saga, a federal judge dismissed the case on Feb. 3. The court ruled that the ECOA prohibits discrimination against applicants for credit, not the discouragement of prospective applicants, as the CFPB had claimed. In short, the CFPB overreached and lacked statutory authority to bring a lawsuit against Townstone.
The district court’s decision represents a significant win for the separation of powers. Under the U.S. Constitution, Congress makes the law—not administrative agencies. The judiciary must interpret the laws and guard against one branch encroaching on the constitutional role of another branch.”
Under the Trump administration, there was serious talk of dissolving the CFPB. That idea still has merit; but if the Supreme Court rules accurately, at least CFPB will have more oversight.