Supreme Court Agrees to Consider CFPB Funding Issue

Case is being closely followed by credit union trade groups.

The U.S. Supreme Court on Monday agreed to review a federal appeals court ruling that found the CFPB’s funding mechanism was unconstitutional and, as a result, its payday lending rule was illegally adopted.

However, the court did not indicate that it will consider the case on an expedited basis—leaving in place for the time being the uncertainty surrounding the agency and its actions.

Background and Context

The Consumer Financial Services Association of America and its Texas affiliate had sued the agency over the payday rule, arguing that since the CFPB does not go through the annual appropriations process, its funding scheme was unconstitutional. The CFPB is funded by the Federal Reserve.

The Fifth Circuit Court of Appeals agreed with the association, which represents the payday lending industry, and the court also voided the agency’s payday lending rule.

The CFPB and the White House had asked the high court to consider the case on an expedited basis, saying that the appeals court ruling creates uncertainty surrounding all agency actions since it was created in Dodd-Frank.

However, the court did not indicate that it would consider the case on a fast-track basis, meaning it may be argued this fall.

CFPB Reaction

CFPB Director Rohit Chopra said at CUNA’s Governmental Affairs Conference on Monday that he was pleased the Supreme Court has accepted the case.

“At the end of the day we actually want there to be certainty about rules that were written 10 years ago, safe harbors put into place,” he said. “We don’t want a situation where financial institutions all over the country are getting sued because of a lack of clarity of actions.”

Credit Union Stance

Credit union trade groups and congressional Republicans have long argued that the CFPB should be subject to the annual appropriations process and that the agency should be governed by a commission, opposed to a single director.

“It’s been clear for some time that there are serious flaws with the CFPB’s current structure and we have long supported Congressional action to restore accountability and oversight,” said CUNA President/CEO Jim Nussle. “The Supreme Court agreeing to hear the case on constitutionality highlights the urgency of this issue.”

A key Republican agreed.

“As Republicans have said for years, the CFPB’s unconstitutional funding structure improperly insulates it from Americans’ representatives in Congress,” House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C., said, following the ruling. “This problem is compounded when the Bureau is led by a rogue regulator, as it is now. Director Chopra is returning the CFPB to its Obama-era regulation by enforcement approach that harms both consumers and our economy.”

He added his committee is committed to legislation that would change the structure of the CFPB.

Democratic Support for the Bureau

On the other side of Capitol Hill, and the other side of the political spectrum, Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, said he is committed to ensuring that the agency remain independent.

“Congress created the CFPB so that consumers could have an agency dedicated to one thing: fighting for their interests, not Wall Street’s,” he stated. “The CFPB’s funding structure is constitutional and the CFPB should be allowed to continue its crucial work.”