The Supreme Court will review the constitutionality of the Consumer Financial Protection Bureau’s (CFPB) funding mechanism.
Lower courts have split on the issue of whether the CFPB’s funding through annual transfers by the Federal Reserve violates the Constitution’s Appropriations Clause, which establishes Congress’s power of the purse.
In a brief, unsigned order on Monday, the court announced it will take up the case, indicating at least four justices agreed to do so.
The CFPB was created after the 2008 financial crisis to enforce consumer financial laws, and a coalition of 16 Republican attorneys general want the justices to affirm a lower court decision deeming the funding scheme from the Federal Reserve unconstitutional.
The Biden administration says that lower court decision calls into question virtually every action the CFPB has taken since it was created.
The administration is backed by Democratic attorneys general in 21 states and Washington, D.C., who want to reverse the ruling and deem the CFPB’s funding a valid use of Congress’s appropriations power.
“The CFPB’s critical work administering and enforcing consumer financial protection laws will be frustrated,” the Biden administration wrote in its brief. “And because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well.”
Two associations of companies regulated by the CFPB’s payday lending rule, which limits the amount of times and ways a payday lender can attempt to collect on a loan, sued over the rule in 2018 on multiple grounds.
A three-judge panel on the 5th U.S. Circuit Court of Appeals last October vacated the rule, because it deemed the agency’s funding mechanism unconstitutional and found a nexus between it and the payday lending rule.
“For the most part, the Plaintiffs’ claims miss their mark,” the court ruled. “But one arrow has found its target: Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers.”
That decision disagreed with a separate case from the D.C. Circuit Court of Appeals and multiple federal trial courts.
Splits between circuit courts are a top reason the Supreme Court agrees to take up cases, and its review of the CFPB decision will bring renewed attention to the future of the agency, which Republicans have targeted.
“The Supreme Court’s actions today support what the industry has been saying for months, that there is confusion in the marketplace that must be addressed,” Leah Dempsey, lobbyist for ACA International, a trade group that represents debt collectors, said in a statement.
“This baseless lawsuit is the crown jewel in a long-running, highly organized effort by greedy industries and right-wing politicians in their pocket to take out the CFPB because it works so well to protect consumers from abuse,” Liz Zelnick, director of economic security and corporate power at watchdog group Accountable.US, said in a statement.
–Updated at 10:51 a.m.