by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The Supreme Court will weigh arguments … in a case that challenges the funding design of the Consumer Financial Protection Bureau and seeks to effectively shut down the agency created during the Obama administration.
Formed amid the 2008 financial crisis, the CFPB’s purpose is to protect consumers from predatory behavior from banks and other institutions while enforcing consumer financial laws. Sen. Elizabeth Warren (D-MA) is credited with conceiving the agency and has been sounding alarms about the oral arguments.
A “bad decision by the Supreme Court could wreck the financial security of millions of families and turn our economy upside down,” the Massachusetts Democrat said Thursday during an event hosted by the Center for American Progress in the District of Columbia.
According to Warren and other Democrats aligned with the Biden administration’s defense of the CFPB, a ruling against the agency’s funding mechanism could jeopardize its future activity and may also raise questions about the regulations it created in the 13 years since its formation.
The lawsuit, Consumer Financial Protection Bureau v. Community Financial Services Association of America, was brought by key players in the payday lending industry who say the CFPB is unconstitutionally funded by the Federal Reserve, as most federal agencies receive appropriations from Congress.
Last year, the 5th Circuit Court of Appeals, considered one of the most conservative appellate courts in the nation, ruled that the CFPB’s funding structure is unconstitutional.
Plaintiffs in the case contend that the CFPB’s funding structure violates the Constitution’s appropriations clause because it falls outside of the annual congressional appropriations process, a claim that is backed by some pro-small business groups.
“Currently, the CFPB is funded without Congressional oversight through the appropriations process, which is unconstitutional and leads to the Bureau overstepping its bounds,” Beth Milito, executive director of the National Federation of Independent Business’s Small Business Legal Center, told the Washington Examiner in July, adding that “Small businesses are at risk of costly penalties and burdensome inspections.”