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The
New Orleans-based 5th U.S. Circuit Court of Appeals ruled that
the CFPB's independent funding through the Federal Reserve
rather than budgets passed by Congress violated the separation
of powers principles in the U.S. Constitution.
That ruling, by a panel of three judges appointed by
then-President Donald Trump, a Republican, in the process
vacated a 2017 regulation the agency adopted aimed at combating
"unfair and abusive" practices in the payday lending industry.
The Community Financial Services Association of America sued in
2018 to challenge the rule, which barred lenders from making a
new attempt to withdraw funds from an account where two
consecutive attempts had failed unless consumers consented.
"Even among self-funded agencies, the Bureau is unique," U.S.
Circuit Judge Cory Wilson wrote. "The Bureau's perpetual
self-directed, double-insulated funding structure goes a
significant step further than that enjoyed by the other agencies
on offer."
A CFPB spokesperson said there was "nothing novel or unusual
about Congress's decision to fund the CFPB outside of annual
spending bills."
The bureau could ask the full 5th Circuit to reconsider the case
or take it to the U.S. Supreme Court.
Multiple other courts have deemed the CFPB's funding
constitutional, a point the 5th Circuit acknowledged but
disagreed with.
The ruling marked the latest in a series of legal challenges to
the CFPB, which Congress created in 2010 through the passage of
the Dodd-Frank Act during Democrat Barack Obama's presidency, in
response to the 2008 financial crisis.
Republicans have long opposed the agency. The Supreme Court in
2020 ruled in another case that the protection Congress
originally afforded the CFPB director, who could only be fired
for cause, was unconstitutional.
"Extreme right-wing judges are throwing into question every rule
the CFPB enforces to protect consumers and businesses alike,"
U.S. Senator Elizabeth Warren, the Massachusetts Democrat who
proposed the CFPB's creation, wrote on Twitter.
(Reporting by Nate Raymond in Boston; Editing by Stephen Coates
and William Mallard)
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