Supreme Court Preserves Senator Warren’s Consumer Financial Protection Bureau, Rejecting Arguments Its Funding Method Is Unconstitutional

‘The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay,’ the bureau crows.

AP/Jacquelyn Martin, file
Senator Warren during a Senate Banking Committee hearing, September 22, 2022. AP/Jacquelyn Martin, file

WASHINGTON — The Supreme Court on Thursday ruled that the federal finance agency inspired by Senator Warren, the Consumer Financial Protection Bureau, does not violate the Constitution.

The CFPB faced a legal challenge arguing that its funding method, which does not flow through the standard Congressional appropriations process, was valid under the constitution.

The justices’ 7-2 ruling reversed a lower court and drew praises from consumer groups. Justice Clarence Thomas wrote the majority opinion, splitting with his frequent allies, Justices Samuel Alito and Neil Gorsuch, who dissented.

The CFPB was created after the 2008 financial crisis to regulate mortgages, car loans and other consumer finance. The case was brought by payday lenders who object to a bureau rule that limits their ability to withdraw funds directly from borrowers’ bank accounts. 

It’s among several major challenges to federal regulatory agencies on the docket this term for a court that has for more than a decade been open to limits on their operations.

The CFPB, the brainchild of Ms. Warren of Massachusetts, has long been opposed by Republicans and their financial backers. The bureau says it has returned $19 billion to consumers since its creation.

Unlike most federal agencies, the consumer bureau does not rely on the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve, with a current annual limit of around $600 million.

The Fifth Circuit of the United States Court of Appeals, based at New Orleans, in a novel ruling, held that the funding violated the Constitution’s appropriations clause because it improperly shields the CFPB from congressional supervision.

Justice Thomas reached back to the earliest days of the Constitution in his majority opinion to note that “the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice.”

In dissent, Justice Alito wrote that “the Court upholds a novel statutory scheme under which the powerful Consumer Financial Protection Bureau (CFPB) may bankroll its own agenda without any congressional control or oversight.”

The CFPB case was argued more than seven months ago, during the first week of the court’s term. Lopsided decisions like Thursday’s 7-2 vote typically don’t take so long, but Justice Alito’s dissent was longer than the majority opinion, and two other justices, Elena Kagan and Ketanji Brown Jackson, wrote separate opinions even though they both were part of the majority.

Consumer groups cheered the decision, as did a bureau spokesman.

“For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement,” bureau spokesman Sam Gifford said in a statement.

He said the Nine “rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”

The president and chief executive of the National Community Reinvestment Coalition, Jesse Van Tol, said the decision upholding the consumer bureau’s funding structure would have positive effects across the economy.

“It’s always nice to see the courts get something right — especially in this tawdry circumstance where payday loan predators sought to wriggle out of basic oversight using absurd distortions of law and fact,” Mr. Van Tol said in a statement.

While the U.S. Chamber of Commerce and some other business interests backed the payday lenders, mortgage bankers and other sectors regulated by the CFPB cautioned the court to avoid a broad ruling that could unsettle the financial markets.

In 2020, the court decided another CFPB case, ruling that Congress had improperly insulated the head of the bureau from removal. The justices said the director could be replaced by the president at will but allowed the bureau to continue to operate.

Associated Press


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