Appeals Court Rules CFPB’s Funding Structure is Unconstitutional

The Court of Appeals for the Fifth Circuit yesterday took a leg out from under the Consumer Financial Protection Bureau yesterday, ruling that the manner in which the agency is funded is unconstitutional and invalidating a rule on payday lending that was issued back in 2017 and was subsequently amended in 2020.

A copy of the ruling, in the case of Community Financial Services Association and Consumer Service Alliance of Texas v. Consumer Financial Protection Bureau can be accessed by clicking here.

The CFPB is not funding through the traditional Congressional appropriations process, like most other federal agencies. Instead, it asks for money from the Federal Reserve Board. This was an intentional decision when the CFPB was created a decade ago because the authors of the law that created the CFPB wanted the agency to be independent and not subject to the whims of whichever political party happened to be in control at the time.

But such a decision violates the Constitution’s doctrine on separation of powers, which puts control of the federal budget squarely on the shoulders of Congress.

“Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers,” the panel wrote in its ruling.

Each of the three judges involved in the decision were appointed to the Appeals Court by President Trump. The CFPB can ask the entire panel of judges from the Fifth Circuit for an en banc rehearing of the case or it can appeal the ruling to the Supreme Court.

A spokesman for the CFPB said that the agency “will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”

As can be expected, Republicans cheered the ruling while consumer advocates blasted it, saying it could jeopardize other rulings and enforcement actions. If allowed to stand, the ruling would make the CFPB vulnerable to “banks, payday lenders, and debt collection agencies who are incredibly effective at lobbying Congress to weaken consumer protections,” said Chris Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB.

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