With a history rooted in the aftermath of the 2008 financial crisis, the task of enforcing federal consumer finance laws was consolidated into one agency, the Consumer Financial Protection Bureau (CFPB). The CFPB’s mandate was to safeguard consumers in the marketplace and, in part, regulate predatory financial products, akin to the high-risk mortgages that had played a significant role in the financial crash. A unique aspect of the CFPB’s structure was its funding model, which drew resources not from Congress’s annual appropriations process, but rather from the Federal Reserve, an entity funded through service fees charged to depositors. Amy Howe, SCOTUSblog
However, on Oct. 3, the Supreme Court is set to hear oral argument in a case put forward by groups representing the payday-lending industry, contending that this funding system is the CFPB’s fatal flaw. The escalations of this case could carry far-reaching implications – the Biden administration, on behalf of the CFPB, cautions that a ruling favoring the challengers could potentially challenge not only the central payday-lending rule of this case but also a wide array of other regulations established to protect consumers. This case is one among several others in this term’s court docket where the justices will adjudicate on the division of authority between the government’s three branches and the power of administrative agencies.
This case also brings forth the question of the boundaries of Congress’s authority to fund its created entities. The CFPB’s defense posits that according to the appropriations clause, the constraint is merely on money being paid out of the Treasury or federal officials spending public monies, barring a law authorizing that funding. Relying on this interpretation, the CFPB argues that Congress did precisely this for the CFPB, setting up a system where the CFPB would receive funding from the Federal Reserve up to a limit determined by Congress.
However, to the challengers, this case is fundamentally about checks and balances. They argue that in 2010, Congress “abdicated the power of the purse” by establishing the CFPB’s unique funding scheme, seeing it as a violation of the separation of powers. In their perspective, the current system provides an automatic funding for the CFPB, inverting the appropriations baseline, thereby rendering the agency unaccountable to regular congressional oversight and approval.
The judges’ ruling, due later this year, has the potential to redefine the division of power within the government and set significant precedents impacting the future of consumer finance laws.