SCOTUS Rules CFPB Funding Mechanism Constitutional

Tristan North - May 20 2024
Published in: Public Policy
| Updated May 20 2024
The Supreme Court of the United States issued a ruling that the current funding mechanism for the Consumer Financial Protection Bureau is constitutional.

On 16 May, the Supreme Court of the United States issued a ruling (No. 22-448) that the current funding mechanism for the Consumer Financial Protection Bureau (CFPB) is constitutional. Members of the court voted 7-2 that the CFPB can continue to receive a majority of its funding through proceeds derived by the U.S. Federal Reserve instead of allocations as determined by the U.S. Congress. The decision in CFPB v. Community Financial Services Association of America (CFSA) reverses a lower court ruling by the U.S. Court of Appeals for the Fifth Circuit. 

The CFSA filed the lawsuit in response to the regulation issued by the CFPB in 2017 on Payday, Vehicle Title, and Certain High-Cost Installment Loans. The regulation limits the ability of a lender to gain access to the account of a borrower after two unsuccessful attempts to withdrawal a loan payment. The CFSA made several arguments against enforcement of the regulation, including that the CFPB did not have the authority to issue the regulation because the funding mechanism for the CFPB violated the Appropriations Clause of the U.S. Constitution. In its decision, the Supreme Court determined that funding from the Federal Reserve draws from the Federal Treasury and thus meets the Appropriations Clause.

Congress created the CFPB in the Dodd-Frank Wass Street Reform and Protection Act in response to the financial crisis of 2008. The Dodd-Frank Act established the CFPB to regulate consumer financial transactions involving consumer protection laws, including those covering real estate transactions such as the Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act, and Homeowners Protection Act. Critics of the CFPB in Congress have also cited the inability for the House of Representatives and Senate to have full oversight of the Bureau due to their inability to make changes through the annual appropriations process. 

Now that the issue of the funding mechanism has been resolved, the CFPB will likely move forward with increased enforcement actions.

Tristan North is the government affairs adviser for WERC.