US Consumer Protection Watchdog’s Funding Is Unconstitutional, Court Rules

Oct 19 (Reuters) – A federal appeals court ruled on Wednesday that the U.S. Consumer Financial Protection Bureau’s funding apparatus is unconstitutional, invalidating a system Democrats designed to insulate the agency from seeking congressional appropriations.

The New Orleans-based 5th US 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 of the US Constitution.

That ruling by a three-judge panel appointed by then-President Donald Trump, a Republican, in the process vacated a 2017 regulation the agency passed aimed at combating “unfair and abusive” practices in the payday lending industry.

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The Community Financial Services Association of America sued in 2018 to challenge the rule, which prevented lenders from making another attempt to withdraw money from an account where two consecutive attempts had failed, unless consumers consented.

“Even among self-funded agencies, the Bureau is unique,” U.S. District Judge Cory Wilson wrote. “The Bureau’s perpetual self-governing, double-insulated funding structure goes a significant step beyond that enjoyed by the other proposed agencies.”

A CFPB spokesman said there was “nothing new or unusual about Congress’ decision to fund the CFPB outside of annual spending bills.”

The bureau could ask the entire 5th Circuit to reconsider the case or take it to the U.S. Supreme Court.

Several other courts have held 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 the presidency of Democrat Barack Obama, 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 gave the CFPB director, who could only be fired for cause, was unconstitutional.

“Extreme right-wing judges question every rule the CFPB enforces to protect both consumers and businesses,” U.S. Sen. Elizabeth Warren, the Massachusetts Democrat who proposed the creation of the CFPB, wrote on Twitter.

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Reporting by Nate Raymond in Boston; Editing by Stephen Coates and William Mallard

Our standards: Thomson Reuters Trust Principles.

Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at

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