A three-judge panel of the Fifth Circuit U.S. Court of Appeals decided this week that the Consumer Financial Protection Bureau’s (CFPB) financing source is unconstitutional.
According to a Politico report on the ruling, the panel determined that the CFPB’s structure was unconstitutional because it is funded by the Federal Reserve rather than through appropriations legislation approved by Congress. To protect the CFPB from political pressures that would affect its banking industry regulation, Democrats designed the structure when they adopted the law that would form the CFPB in the Dodd-Frank Act of 2010.
The panel also overturned a 2017 small-dollar lending rule that had come under opposition from payday lending proponents. The CFPB’s payday regulation, according to the plaintiffs, the Community Financial Services Association of America and Consumer Service Alliance of Texas, was enacted arbitrarily and capriciously and went beyond its statutory power.
The plaintiffs also disputed the CFPB’s organizational framework, its congressionally granted authority, and the director’s immunity from removal, asserting that each violated the Constitution.
The CFPB faced another challenge to its constitutionality in the middle of 2020, and the U.S. Supreme Court ruled that while the agency’s single-director structure protecting an appointed director from being fired by the president was unconstitutional, the agency itself would survive.
The CFPB has refrained from stating if it will try to appeal the ruling. A CFPB representative told Politico that the agency’s continuing operations wouldn’t be impacted for some time. CFPB Spokesperson Sam Gilford expressed that other federal financial regulators are also funded similarly. As such, there is nothing unusual about the agency’s funding being outside of annual spending bills. To read more on this, click here.