It appears that this upcoming Supreme Court case could have drastic implications for the Consumer Financial Protection Bureau (CFPB). Starting Tuesday, October 3, the court will be hearing oral arguments that will likely have major ramifications for the regulator’s funding mechanism.
This case has been brought forward by trade groups suing the CFPB over a 2017 payday lending rule. They allege that this funding structure is unconstitutional which has created a stir of apprehension and uncertainty in the financial community.
Supreme Court To Hear Case That Could Be The Undoing Of Major Financial Regulator: by Katelynn Richardson at CDN –
— Conservative Daily News (@CDNPosts) October 3, 2023
In 2010, Congress established the CFPB and specified that it would receive its funding from the Federal Reserve in an amount deemed “reasonably necessary” up to an inflation-adjusted cap. The Fifth Circuit ruled against most of the payday lender’s other claims but did state that one point was valid – Congress had abdicated its appropriations power under the Constitution, therefore violating structural separation of powers outlined in said document.
Pacific Legal Foundation Director Steve Simpson believes that conservative justices will be very skeptical towards this funding mechanism and will be left with two questions: does this invalidate all actions taken by CFPB thus far or can this just be fixed without causing disruption?
Democratic Senator Elizabeth Warren warned that this ruling could also impact banking regulators like the Federal Deposit Insurance Corporation (FDIC). Additionally, Social Security and Medicare are funded outside annual appropriations process as well so they may be affected too.
She noted how ironic it was for this case to arise as Congress attempted to avoid potential government shutdowns.
Furthermore, unlike other agencies such as FDIC who only have limited enforcement authority, CFPB can control activities throughout economy due to its near-limitless funds sourced from Federal Reserve System.
If CFPB’s funding measure were invalidated then we could see a “mini government shutdown” as described by Simpson until Congress takes action.
It would also mean further trouble for Townstone Financial who are being sued by CFPB for a handful of statements made regarding Chicago crime without any tangible examples of individuals being discouraged from applying for loan because of these statements.
Unfortunately if these issues remain unresolved then small businesses like Moroney’s Law Offices will suffer since there are no limitations on investigations conducted by CFPB leading to potentially devastating consequences for them.