Supreme Court appears hesitant to upend Consumer Financial Protection Bureau

The Supreme Court justices at oral arguments Tuesday appeared hesitant to upend the Consumer Financial Protection Bureau (CFPB) by finding the agency’s funding mechanism unconstitutional.

The case marks one of the biggest legal threats to the CFPB since its inception just over a decade ago, but the high court’s liberals and several conservatives voiced skepticism over two lender trade associations’ arguments that the funding setup violates Congress’s power of the purse.

“I think we’re all struggling to figure out then what’s the standard you would use,” conservative Justice Amy Coney Barrett probed the attorney representing the trade associations.

The agency, first envisioned by Sen. Elizabeth Warren (D-Mass.), was established as part of the Dodd-Frank Wall Street reform law to crack down on predatory lending and enforce consumer protection laws in the wake of the 2008 financial crisis.

Rather than receiving its funding through the annual appropriations process, the agency receives up to a capped amount, adjusted only for inflation, from the Federal Reserve, which receives earnings from interest earned on its government securities. The CFPB received $641.5 million in fiscal 2022, below that year’s cap of $734 million.

Republicans have long lamented that the funding mechanism means Congress has little control over the independent agency.

Conservative Justice Brett Kavanaugh noted lawmakers could still pass a bill changing the mechanism, repeatedly saying during Tuesday’s argument that “Congress could change it tomorrow.”

The trade associations’ argument even received some skepticism at times from conservative Justice Clarence Thomas.

“I get your point that this is different, it is unique, that it’s odd, that they’ve never gone this far,” Thomas said. “But not having gone this far is not a constitutional problem. It may be a problem with analogues, but it doesn’t prove your case. And I think we just need you to give us a finer point than we’ve had.”

The case arises from a 2018 lawsuit filed by two associations of companies regulated by the CFPB over its payday lending rule, which limits the amount of times and ways a payday lender can attempt to collect on a loan.

A panel of three Trump-appointed judges on the 5th U.S. Circuit Court of Appeals last year rejected some of their arguments but vacated the rule after finding the CFPB’s funding structure unconstitutional, creating a split with other federal courts. The Justice Department then appealed the case to the Supreme Court.

Noel Francisco, the attorney representing the associations, said Congress would need to provide a more fixed amount to the CFPB for the setup to be constitutional.

“Because Congress has not determined the amount that this agency should be spending. Instead, it is delegated to the director the authority to pick his own appropriation subject only to an upper limit that’s so high it’s rarely meaningful,” Francisco said.

Francisco also sparred with the court’s liberals at times, who also accused Francisco of changing his proposed legal test throughout the argument.

“You’re just flying in the face of 250 years of history,” said liberal Justice Elena Kagan.

“I don’t know what you want,” liberal Justice Sonia Sotomayor told Francisco.

Conservative Justice Samuel Alito appeared to sympathize with Francisco’s position, raising concerns that the Justice Department’s argument — Congress only needs to specify the funding’s source and purpose — would have little limitation.

The Justice Department warned the high court that a broad ruling against them would have “sweeping consequences,” including calling into question every action the agency has taken since its founding and the setup of other financial regulators like the Federal Deposit Insurance Corporation and the Federal Reserve Board.

“The 5th Circuit’s decision in this case is the first time any court in our nation’s history has violated the Appropriations Clause by enacting a statute providing funding,” U.S. Solicitor General Elizabeth Prelogar told the justices.

Striking down the CFPB’s funding mechanism would mark a long-sought win for Republicans, who have lamented that Congress has little control over the independent agency.

Among those backing the associations before the Supreme Court include former House Speaker John Boehner (R-Ohio), 132 current Republican members of Congress, various banking and business groups and Mick Mulvaney, the CFPB’s former acting director under then-President Trump.

The case has also attracted the attention of all 50 state attorneys general, with 23 Democratic state attorneys general and D.C.’s attorney general backing the Justice Department and 27 Republican state attorneys general backing the associations.

The Republican coalition also asked to participate in Tuesday’s oral argument alongside the associations, but the justices previously rejected the request.

The Supreme Court three years ago ruled that the CFPB’s leadership structure was unconstitutional, but the justices left the agency in place.