Supreme Court to Decide CFPB’s Future and Funding

The ultimate fate of the Consumer Financial Protection Bureau rests in the hands of nine individuals.

The Supreme Court agreed on Monday (Feb. 27) to hear arguments challenging the constitutionality of the funding of the CFPB.

As widely reported Monday, the nine justices have agreed to hear the case that hinges on the financing of the Bureau itself, but that would have far-reaching impact on the regulations, fines — and indeed, authoritative reach — of the CFPB. But the agency has been Ground Zero on Capitol Hill in the eternal debate over regulation of financial services.

The CFPB traces its genesis back to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, started operations the following year and, per the Federal Register, is designed to “promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.”

What’s at Stake

The Supreme Court will be examining an October 2022 decision from the U.S. Court of Appeals for the 5th Circuit, which ruled that the CFPB’s funding from the Federal Reserve is unconstitutional.

In the petition filed last fall by the Biden administration on behalf of the CFPB asking the high court to hear the case, the government states that “the Court of Appeals’ unprecedented understanding of the Appropriations Clause threatens the ability of the CFPB to function and risks severe market disruption.”

The Appeals court, for its part, said in its October ruling that the funding should be drawn from Congress (where the funds are taken from the U.S. Treasury). The case is captioned Consumer Financial Protection Bureau v. Community Financial Services Association of America.

The CFPB has faced legal challenges — and, as a result, changes — to its operating structure before. And the Supreme Court was the ultimate arbiter, here, too. Back in 2020, the court ruled the CFPB’s director could be removed “at will” by the U.S. president rather than solely “for cause.”

Opponents of the agency had argued that if the original directorship construct was a violation of the Constitution (under the separation of powers rule) then the agency itself was and is unconstitutional. The Supreme Court ruled back then that the CFPB could keep operating.

This time around, at least some critics are charging that the CFPB itself is unconstitutional (as an extension of the argument that its funding is unconstitutional). House Financial Services Committee Chairman Rep. Patrick McHenry (R-N.C.) said in a statement Monday in response to the Supreme Court news, “As Republicans have said for years, the CFPB’s unconstitutional funding structure improperly insulates it from Americans’ representatives in Congress.”

Separately, in comments provided to PYMNTS via email, Jenny Lee, partner at Reed Smith LLP, who has also served as a former federal banking regulator and as a former enforcement attorney at the CFPB, noted that “the CFPB issues are not black and white. Much ink has been spilled about how regulated entities opposed to the CFPB (or their trade associations) are quick to point out the CFPB’s flaws or the need to “undo” previously promulgated rules or rescind actions. But in reality, a huge swath of the financial services markets operate today in reliance upon CFPB pronouncements.”

As to the timing of it all, the funding case will be heard next term, which begins in October, and a decision from the Supreme Court would not come until 2024.