Appeals court says CFPB structure unconstitutional


A sign stands on the construction site of the new headquarters of the Consumer Financial Protection Bureau in Washington, Monday, August 27, 2018.

Andrew Harnick/AFP


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Andrew Harnick/AFP


A sign stands on the construction site of the new headquarters of the Consumer Financial Protection Bureau in Washington, Monday, August 27, 2018.

Andrew Harnick/AFP

A federal appeals court has ruled unconstitutional the funding structure of the nation’s most powerful financial watchdog, the Consumer Financial Protection Bureau.

In a case brought by a payday lending group, a three-judge panel of the Fifth Circuit of the U.S. Court of Appeals overturned the CFPB regulation governing those high-interest lenders and ruled that the way the office is funded, “violates the Constitution’s structural separation of powers.”

“Three justices, all appointed by President Trump, have decided to withdraw funding for that agency that Congress itself voted for,” says Chris Peterson, a law professor at the University of Utah and a former CFPB law enforcement attorney.

The office was set up by the Obama administration and Congress in the wake of the financial crisis and the Great Recession to better protect ordinary Americans from being deceived by banks, student loan companies, credit card companies, and other financial firms. It has returned billions of dollars to consumers who were deemed unfairly treated.

To protect it from political influence, the office receives its funding from the Federal Reserve, not Congress. It was that part of its structure that the court said violated the constitution.

“While the vast majority of executive agencies rely on annual appropriations for funding, the office does not,” the judges wrote. “Wherever the line is between a constitutionally funded and unconstitutionally funded agency, this unprecedented arrangement straddles it.”

Peterson says the CFPB is not unique as an agency that does not receive its annual funding determined by Congress — both the Federal Reserve and the Federal Deposit Insurance Corporation are funded in other ways.

“The CFPB will likely seek a stay as it pursues an appeal to the entire Fifth Circuit … and potentially to the United States Supreme Court afterwards,” Peterson says.

Meanwhile, he says he’s raising skepticism about all sorts of other rules the bureau has set, because at least in the Fifth District — Texas, Louisiana and Mississippi — other CFPB rules can be challenged with similar lawsuits.

“There will be a lot of confusion about whether the rules related to mortgage loans, debt collection, and credit cards, are even rules applicable anymore in the Fifth Circuit.”

If the ruling is eventually enforced, it could mean that the bureau would need to get an annual budget approved by Congress, which Peterson says would make it vulnerable to “banks, payday lenders, and debt collection agencies that are incredibly effective in lobbying Congress to weaken the consumer.” protection”.

The CFPB did not immediately respond to a request for comment.

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