Charles Krupa/Associated Press
- The Supreme Court will take on a lower court's decision that the Consumer Financial Protection Bureau's federal funding is unconstitutional.
- Senator Elizabeth Warren advocated for the Supreme Court to strike down that decision.
- She warned that endangering the CFPB as a watchdog could throw the economy into "chaos."
A federal watchdog championed by Sen. Elizabeth Warren that takes on student-loan companies and challenges corporate fraud is facing a major challenge from the Supreme Court.
The majority-conservative court announced on Monday that it would adjudicate whether the Consumer Financial Protection Bureau (CFPB) should continue to receive federal funding, which it has for more than a decade.
In October, a three-judge panel in the Fifth Circuit — all appointed by former President Donald Trump — ruled that the funding for the CFPB is unconstitutional because the Federal Reserve funds the agency, rather than getting funding approval from Congress. Warren, who helped create the CFPB, said at the time that the lower court's decision was "lawless and reckless," and she urged the nation's highest court to preserve the agency's funding mechanism in a Monday statement.
"Despite years of desperate attacks from Republicans and corporate lobbyists, the constitutionality of the CFPB and its funding structure have been upheld time and time again," Warren said. "If the Supreme Court follows more than a century of law and historical precedent, it will strike down the Fifth Circuit's decision before it throws our financial markets and economy into chaos."
The Fifth Circuit's October ruling said that "Congress did not merely cede direct control over the Bureau's budget by insulating it from annual or other time limited appropriations."
"It also ceded indirect control by providing that the Bureau's self-determined funding be drawn from a source that is itself outside the appropriations process – a double insulation from Congress's purse strings that is 'unprecedented' across the government," the ruling said.
In other words, the court found it unconstitutional that the CFPB derived funding straight from the Federal Reserve, rather than via a congressional allotment.
The court's October decision also tackled specific decisions made by the CFPB: namely, it overturned the CFPB's recent regulation of payday lenders. Payday lenders advocated for the decision in the first place, and it was a big win for them, given the CFPB's scrutiny of the industry. Payday loans often feature onerously high interest rates and harsh repayment terms and are criticized for trapping borrowers in debt, which is why they're illegal in some states.
Support for the agency has remained largely partisan, with Republicans clamoring for the agency's defunding.
"As Republicans have said for years, the CFPB's unconstitutional funding structure improperly insulates it from Americans' representatives in Congress," Rep. Patrick McHenry, Chairman of the House Committee on Financial Services, said in a statement. "Director Chopra is returning the CFPB to its Obama-era regulation by enforcement approach that harms both consumers and our economy."
The agency became a prime target for the GOP when they retook the House in January. McHenry, who now runs the House Financial Services Committee, has hinted at seeking stronger oversight for CFPB for months now.
And CFPB policies that are under the committee's microscope likely include the way that the agency's unfair deceptive and abusive acts and practices (UDAAP) guidelines interrogate banks, Bloomberg Law's Evan Weinberger noted in November.
And that's on top of a longer context of Republicans challenging the CFPB's funding and decision making.
In 2017, the then-head of the CFPB, Richard Cordray, stepped down after the then-head of the House Financial Services committee, Rep. Jeb Hensarling, repeatedly attacked Cordray's oversight of the agency.
"Right now, we have one unelected, unaccountable individual who can basically wake up and decide that any credit card, any mortgage is, quote, unquote, 'abusive.'" Hensarling told NPR at the time. "No one person, whether it be Mick Mulvaney or Richard Cordray, should have that much power in a democracy."