In a major legal win for consumers, the U.S. Supreme Court on Thursday rejected an existential challenge to the Consumer Financial Protection Bureau (CFPB), ruling that the consumer watchdog does, indeed, have a legal funding structure.
The Justices ruled 7-2, with Samuel Alito and Neil Gorsuch dissenting. The ruling reverses a previous ruling from the 5th Circuit U.S. Court of Appeals in New Orleans, which decided that the CFPB’s structure violated the Appropriations Clause of the Constitution.
Specifically, the two trade groups that brought the initial suit—the Community Financial Services Association of America (CFSA) and the Consumer Service Alliance of Texas, which represent payday lenders and others—argued that the CFPB’s funding was unconstitutional because it’s not based on an annual appropriation like other federal agencies. Instead, it’s funded from Federal Reserve profits. But the Supreme Court rejected that notion, as Congress authorized the CFPB to receive funding from the Fed.
“The Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice,” wrote Justice Clarence Thomas, as a part of the majority opinion. “In design, the Bureau’s authorization to draw an amount that the Director deems reasonably necessary to carry out the agency’s responsibilities, subject to a cap, is similar to the First Congress’ lump-sum appropriations.”
The CFPB, which was created in the wake of the financial crisis in 2008 as a part of the Dodd-Frank reforms, has long been a target of conservative lawmakers and special-interest groups. The agency called Thursday’s ruling a “resounding victory for American families and honest businesses.”
This particular case posed an existential threat to the CFPB, however, and we’ll likely see others in the years ahead.
Some experts say that this case was flimsy on the merits anyway, and likely should have never gotten past the 5th Circuit.
“It was hard to imagine the Supreme Court’s decision going any other way because it’s clear in the Constitution’s Appropriations Clause that Congress has the power to fund the CFPB the way it did,” said Mike Litt, consumer campaign director for U.S. PIRG, in a statement provided to Fast Company.
Christian G. Vergonis, a partner with Jones Day, which represents the CFSA, said the group was disappointed by the decision. “Though the Court has upheld the constitutionality of the Bureau’s funding, we continue to believe that the challenged CFPB rule is legally flawed, threatens access to credit, and harms the millions of American consumers who rely on small-dollar loans to manage budget shortfalls and unexpected expenses,” he said in an emailed statement.
This story has been updated with the CFSA’s response to our inquiry.