Against the CFPB’s 2017 payday lending rule, a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled in a case brought by a payday lending organization.
In a victory for lenders who have long sought to reduce regulation, an appeals court on Wednesday declared that the Consumer Financial Protection Bureau’s funding mechanism is unconstitutional.
The CFPB’s structure was found to be unconstitutional by a three-judge panel of the 5th U.S. Circuit Court of Appeals because it is funded by the Federal Reserve rather than by appropriations legislation approved by Congress. In order to protect the CFPB from political pressures that might affect its oversight of the finance industry, Democrats established the structure when they established the law that would create the CFPB in the Dodd-Frank Act of 2010.
What a mess this is going to be. “Appeals court finds CFPB funding unconstitutional” https://t.co/NlM7xd2Jj9 via @politico
— Peter (@Pdugas2000) October 20, 2022
The judges also overturned a 2017 small-dollar lending rule that was the target of the lawsuit, which was brought by the Community Financial Services Association of America and the Consumer Service Alliance of Texas, two organizations that support payday lending.
The judges concluded that “Congress’s decision to abdicate its constitutionally mandated appropriations power, i.e., to transfer its power of the purse to the Bureau, violates the Constitution’s structural separation of powers.”
The appeals court decision represented the finance industry’s most recent victory, as it has fought for years in Congress and the courts to restrict the CFPB’s authority and curtail its ability to regulate financial services. CFPB reform efforts have also been made for years by Republican lawmakers, who claim the organization lacks accountability.
Judge Cory Wilson opined on Wednesday that the Bureau is exceptional even among self-funded organizations. In comparison to the other agencies on offer, “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further.”
On Wednesday, the CFPB would not confirm whether it would appeal the ruling to the full 5th Circuit. There is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills, according to CFPB spokesperson Sam Gilford.
Gilford continued, “Other federal financial regulators, the entire Federal Reserve System, and programs like Medicare and Social Security are funded outside of the annual appropriations process. “The CFPB will continue to carry out its essential work protecting American consumers and upholding the law.”
In 2020, the Supreme Court ruled that another aspect of the agency’s design—a single director who could only be fired by the president for cause, as opposed to at-will—violated the Constitution’s separation of powers.
