U.S. Sen. Elizabeth Warren (D-Massachusetts), who was instrumental in the formation of the Consumer Financial Protection Bureau (CFPB) prior to joining the Senate, blasted an appeals court ruling earlier this week that the funding mechanism for the agency is unconstitutional.
The CFPB is tasked with creating rules and regulations that govern the financial sector. According to its website, the agency is “dedicated to making sure you are treated fairly by banks, lenders and other financial institutions.”
On Wednesday, a three-member panel of judges from the 5th U.S. Circuit Court of Appeals ruled in a case brought forward by a payday lending company that the agency has an unconstitutional funding mechanism because its budget comes from the Federal Reserve rather than through appropriations created by Congress.
“Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers,” the judges wrote.
The ruling, if allowed to stand, would essentially sideline the CFPB, making it nearly impossible for it to function unless Congress — likely too bitterly divided to agree on a solution — changes how the agency is funded.
All three judges on the panel were appointees of former President Donald Trump. Notably, one of the judges who took part in the case — Judge Cory Wilson — also received thousands of dollars from Wall Street bankers when he was a candidate for political office in 2018.
The CFPB did not say how it planned to react to the ruling, but it’s likely that an appeal is imminent, either to the entire 5th U.S. Circuit Court or directly to the Supreme Court. Officials from the agency vehemently disagreed with the ruling, noting that other agencies have similar means of receiving funds.
“There is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills,” agency spokesperson Sam Gilford said.
Other financial agencies — including the Federal Deposit Insurance Corporation and the Federal Housing Finance Agency — are like the CFPB in that they do not rely on regular appropriations from Congress in order to operate. The 5th Circuit panel’s decision also goes against previous Supreme Court decisions.
Nothing in the Constitution prevents Congress from funding agencies in a variety of ways. Congress could fund an agency through an annual appropriation, or a five-year appropriation, or a 500-year appropriation. It may also authorize the agency to collect fines or fees to fund its operations.
Warren crafted the idea for the CFPB in 2007, six years prior to becoming a U.S. senator. Warren has condemned the 5th Circuit ruling.
“This is a lawless and reckless decision,” Warren tweeted. “@CFPB has returned billions of dollars to Americans by doing its job, and its funding is clearly constitutional. Extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike.”
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