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Justices to run the numbers on consumer protection agency funding

With a cloud hanging over 12 years of action by the consumer watchdog agency, the Biden administration is seeking a Supreme Court reversal. 

WASHINGTON (CN) — The Supreme Court agreed Monday to decide whether it is constitutional that the Consumer Financial Protection Bureau draws its funding through the Federal Reserve instead of congressional appropriations. 

After the Fifth Circuit ruled last year that the funding mechanism violated the appropriations clause, the government warned the justices that its intervention is needed to protect every action the CFPB has taken in the 12 years of its existence. 

The justices did not offer any comment Monday on the decision to take up the case — as is their custom — but consumer interest groups are eager to see the case resolved.

"The Fifth Circuit’s ruling, holding the CFPB’s appropriation mechanism unconstitutional, is legally wrong and threatens significant harm to both consumers and financial institutions," Lisa Gilbert, executive vice president of Public Citizen, said in a statement. "We are confident that the Supreme Court’s will reject the ruling.”

Consumer advocates point to the broader economic context of rising interest rates and record levels of inflation as well.

“This erroneous ruling has widespread consequences for consumers and the CFPB’s ability to do its critically important job,” said Rachel Gittleman, financial services outreach manager with the Consumer Federation of America, in a statement.  “It also creates an unprecedented amount of uncertainty in the marketplace and has the potential to destabilize other parts of the federal government that also rely on an independent funding structure, including Social Security, Medicare, and most federal financial regulators.

The two groups that brought the lawsuit took aim at the CFPB's funding mechanism to escape regulation from a rule that the agency passed that targets unfair and abusive practices.

Known as the rule on payday, vehicle title, and certain high-cost installment loans, or the Payday Lending Rule for short, the rule prevents lenders from withdrawing payments from bank accounts after two consecutive attempts failed due to lack of funds. 

Democrats created the CFPB by way of the 2010 Dodd-Frank law in the wake of the 2008 financial crisis, intending it to be protected from political pressures from the finance industry. As an independent bureau within the Federal Reserve, the agency was also endowed with certain consumer financial protection authorities. 

In their challenge, however, the Community Financial Services Association of America and the Consumer Service Alliance of Texas say the CFPB’s funding mechanism was unconstitutional because it was insulated from congressional supervision. 

A federal judge found no problem with CFPB’s funding since Congress authorized it to receive funds up to a certain cap. Though the Fifth Circuit affirmed the dismissal of the claims about the payday lending rule, it reversed against the agency as to its funding. 

The government said in its appeal to the Supreme Court that the appeals court relied on an unprecedented and erroneous reading of the Constitution. 

“Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes,” U.S. Solicitor General Elizabeth Prelogar wrote in the government’s brief. “The Appropriations Clause requires nothing more. The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent.” 

The payday lender advocates called CFPB’s spending cap illusory and tied its arguments to a case the justices heard in 2020. In Seila Law LLC v. CFPB, the court said limitations on when the president can remove the agency’s head violated the Constitution. The advocates claim this is another attempt to shield the agency from oversight — this time from Congress. 

“The 2010 Congress likewise violated Article I’s vesting of fiscal power in Congress because it shielded the CFPB from attempts by future Congresses to supervise the agency by overseeing its funding,” Noel Francisco, an attorney with Jones Day, wrote in a brief for the financial service groups. 

Monday's order list from the high court contains one other grant of certiorari, implicating a circuit divide concerning language in a criminal justice and sentencing reform law. A provision of the First Step Act’s federal sentencing statute known as the “safety valve” requires courts to sentence nonviolent drug offenders without any statutory minimum sentence if they meet certain criteria. Some courts have interpreted the law’s use of “and” to mean offenders have to meet all five sets of criteria, while others have interpreted “and” as “or,” only requiring offenders to meet one of the criteria. 

The case was brought by Mark Pulsifer, who pleaded guilty to distributing methamphetamine. Pulsifer was subject to a minimum sentence of 15 years because of a prior drug felony. Pulsifer claimed he qualified for the safety valve provision, however, because he did not meet all five criteria. 

Categories:Appeals, Financial, Government, Law

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