U.S. Supreme Court Questions Legality of CFPB Funding Structure in Key Predatory Lending Case

This case has significant implications for the agency, established post the 2008 financial crisis to curb predatory lending.

On Tuesday, the U.S. Supreme Court showed skepticism towards the payday lending industry’s objections to the Consumer Financial Protection Bureau’s (CFPB) funding structure.

This case has significant implications for the agency, established post the 2008 financial crisis to curb predatory lending.

The issue at hand is the CFPB’s unique funding mechanism. Unlike most agencies, which are funded by Congress’s budgetary decisions, the CFPB receives its funds directly from the U.S. Federal Reserve.

This arrangement was called into question when a lower court deemed it unconstitutional, arguing it sidestepped Congress’s spending power.

As the new term began for the Supreme Court, justices delved into this and other cases that could potentially reduce the influence of federal agencies.

At least five justices, including liberals and conservatives like Brett Kavanaugh and Amy Coney Barrett, questioned the claim that the CFPB’s funding approach breaches the Constitution’s “appropriations clause”.

Justice Kavanaugh dismissed the notion that the CFPB’s mechanism was indefinite and without congressional influence.

Justice Barrett probed for clarity on the solution the challengers propose to the funding dilemma.

Defending the Biden administration’s stance, U.S. Solicitor General Elizabeth Prelogar argued that the CFPB’s funding strategy was legitimate.

She highlighted that similar systems were in place for other financial regulators, such as the Federal Reserve Board.

However, there’s a growing sentiment among the court’s conservative majority to curtail the authority of U.S. agencies.

Justice Clarence Thomas and Chief Justice John Roberts raised concerns about congressional oversight and potential power imbalances that could threaten the constitutional separation of powers.

Liberal Justice Elena Kagan pointed out the potential fallout of declaring the CFPB’s funding system unconstitutional, hinting that it could question the Federal Reserve’s constitutionality as well.

Established under President Barack Obama, the CFPB was created to prevent predatory lending, a major factor in the financial crisis. Between 2012-22, it has granted $16 billion in relief to consumers.

Previously, the 5th U.S. Circuit Court of Appeals found the CFPB’s funding system in violation of the appropriations clause.

This same court also disapproved a CFPB regulation, affecting payday lenders.

The CFPB has faced criticism from conservatives who view it as an excessive regulatory entity. Conversely, supporters believe that undermining the CFPB could endanger consumers.

A final ruling from the Supreme Court is anticipated by June’s end.

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