Landmark Supreme Court Decision Upholds Funding for Consumer Financial Protection Bureau
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The Consumer Financial Protection Bureau (CFPB) has been protecting the rights of consumers to protect fairness in business against wrongful charges from money lenders, insurance companies, banks, airlines, home mortgage companies, credit card providers, junk fees, and more for thirteen years.
An independent bureau of the Federal Reserve Board, it was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed in 2011 in the wake of the near-complete financial meltdown of major banks and securities management firms which climaxed in 2008 and 2009. Since its inception, it has returned to consumers a total of over $20.2 billion in direct financial relief, and indirectly protected the public from predatory and unjustified charges worth much more.
As authorized by the 2011 Act, the consumer protection agency is funded out of profits generated by the Federal Reserve Board, which itself makes money through the operation of its Federal Reserve banking network and fees paid into the Fed from U.S. financials. It is that means of paying for the CFPB which was the target of the legal actions which were just ruled on by the U.S. Supreme Court on May 16.
The case against the CFPB was filed by the Community Financial Services Association of America Ltd. (CFSA). The CFSA represents the payday loan industry, a collective of moneylenders which allow individuals desperate for short-term funds to take out loans guaranteed by future paychecks they will be receiving from their employers. The industry, considered by many one of the most predatory of lending groups, has been harshly criticized for charging excessive fees and usurious interest rates as common practices for many of those lenders. They have also been a major target of the Consumer Financial Protection Bureau’s investigations and directives, upending the high profitability of these types of institutions and protecting millions of everyday Americans in the process.
The CFSA was not the first to attack the CFPB for what they do, nor was it the first to challenge how it receives the government funding it needs to operate. But it was the first to secure a ruling from any Court of Appeals, the level of court just below the U.S. Supreme Court in the appeals process, which said how the watchdog agency received its funding and how much money it was receiving was in violation of the U.S. Constitution’s Appropriation Clause.
If the decision of the 5th Circuit Court of Appeals were to have been upheld, the first casualty would have been the CFPB itself. Without an approved source of funding, it would have immediately had to suspend operations, pending passage of a new law in Congress which would reinstate its money. Under the terms of the 5th Circuit’s decision, that new law would most likely have to secure funding for the agency as a line item in the annual budget. Besides that getting such a law passed in the currently highly politically polarized Congress would be near impossible for now, it would also mean that the fate of the CFPB would depend on an annual political debate for the indefinite future, rather than allowing it to simply operate and do its job without fear of partisan budget cuts.
Legal experts also note that if the CFSA challenge were to stand, the legal precedent of funding certain federal line items out of profits and payments received in the normal course of how the government operates could pave the way for legal challenges to other major government outlays which are not stipulated in annual spending bills produced by Congress. Examples of the items which could be challenged in the same way include the operation of the U.S. Postal Service, the U.S. Mint, and even Social Security.
The Supreme Court ruled by a vote of 7-2 to uphold the funding mechanism for the CFPB.
Justice Clarence Thomas wrote the majority opinion in the case. With numerous past legal precedents cited to bolster his case, Thomas declared that the 5th Circuit’s interpretation of the Appropriations Clause was ill-founded.
“An appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes,” he wrote. “The statute that provides the Bureau’s funding meets these requirements.”
In their dissent, conservative Justices Neil M. Gorsuch and Samuel A. Alito Jr. said letting the funding method operate in this way would make it too easy for an agency such as the Consumer Financial Protection Bureau to operate without any serious Congressional oversight.
They said that allowing the agency to operate this way would make it possible for the CFPB to “bankroll its own agenda”.
“There is apparently nothing wrong with a law that empowers the Executive to draw as much money as it wants from any identified source for any permissible purpose until the end of time,” Justice Alito wrote.
Legal experts say one side benefit of the decision released this week is that this could put a stop to the many ongoing legal assaults on the CFPB’s authority. Though legitimate legal challenges to the specifics of CFPB will continue, the fundamental integrity of the agency has a better chance of remaining intact, barring extreme actions by a future president by executive decree.
It is a major victory for an important federal agency which continues to fight for the rights of consumers despite the pressures of lobbyists and legal threats. Just since March of this year, the Consumer Financial Protection Agency actions produced hundreds of millions of benefits for the everyday public, including:
A ban on excessive credit card late fees, effective lowering the average rate from $32 to $8.
Removal of certain records on disputed medical payments from credit reports created by agencies such as Experian, Equifax, and TransUnion.
Issuance of new rules regarding how credit card companies manage their lucrative rewards programs for consumers, often to the detriment of consumers themselves.
Distribution of $384 million to 191,000 consumers the company Think Finance fraudulently duped into thinking they must repay their loans from that company in advance. CFPB sued the company on behalf of consumers to secure that money, and then paid them directly.
Last fall the Consumer Financial Protection Bureau also ordered Bank of America to pay out over $200 million to consumer for damages associated with charging illegal fees, opening fake credit card and bank accounts without consumers’ permissions and then charging them fees for not paying them, and withholding credit card rewards.
John Coleman, former deputy general counsel for the CFPB and now an attorney who handles cases related to financial industry regulations, declared the decision a good one which will help consumers for the long haul.
“This is likely the last of the existential threats to the CFPB,” Coleman said in an interview after the Supreme Court ruling was announced. “Those who disagree with CFPB’s exercise of its authority will now have to resort to typical means to check that exercise, including the courts, Congress and the ballot box.”