Andrew Harnick/The Associated Press
A federal appeals court has ruled that the funding structure of the Consumer Financial Protection Bureau, the nation’s most powerful financial regulator, is unconstitutional.
In a case brought by a payday loan syndicate, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit rejected the CFPB’s rules governing these high-interest lenders and ruled that the bureau’s funding methods “violate the provisions of the Constitution.” Structural separation of powers. ”
“The three justices, all appointed by President Trump, decided to defund the agency that Congress itself voted to support,” said Chris Peterson, a University of Utah law professor and former CFPB law enforcement attorney.
The bureau was created by the Obama administration and Congress in the wake of the financial crisis and the Great Recession to better protect ordinary Americans from deception by banks, student loan and credit card companies, and other financial firms. It has returned billions of dollars to consumers it believes have been treated unfairly.
To protect it from political influence, though, the bureau gets funding from the Federal Reserve rather than Congress. The court found it was that part of its structure that violated the constitution.
“While the vast majority of executive agencies rely on annual appropriations for funding, the Bureau does not,” the justices wrote. “Regardless of the line between constitutional funding agencies and unconstitutional funding agencies, this unprecedented arrangement crosses the line. .”
Peterson said the CFPB is not unique as an agency that does not receive annual funding determined by Congress — both the Fed and the FDIC receive funding in other ways.
“The CFPB may ask for a stay when it seeks an appeal to the entire 5th Circuit Court of Appeals … and then likely to the U.S. Supreme Court,” Peterson said.
At the same time, he said it raises doubts about the various other rules the bureau has made because at least in the Fifth Circuit area — Texas, Louisiana and Mississippi — other CFPB rules could be subject to Litigation-like challenges.
“There’s going to be a lot of confusion about whether rules related to mortgages, debt collection, credit cards are still viable rules in the Fifth Circuit.”
If the ruling ultimately stands, it could mean the bureau needs an annual budget approved by Congress, which Peterson said would leave it vulnerable to “banks, payday lenders and debt collectors who are lobbying Congress to undercut consumption. Very effective protection on the part of the people.”
The CFPB did not immediately respond to a request for comment.