Elizabeth Warren’s controversial financial agency is unconstitutional, court rules

Democrats blocked CFPB from demanding congressional appropriations

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Cole Carnick • October 20, 2022 11:45 a.m.

By Nate Raymond

(Reuters) – A federal appeals court ruled on Wednesday that the U.S. Consumer Financial Protection Bureau’s funding apparatus was unconstitutional, blaming a Democratic system designed to prevent the agency from seeking appropriations from Congress.

The 5th United States Circuit Court of Appeals, based in New Orleans, has ruled that independent funding of the CFPB by the Federal Reserve rather than by budgets passed by Congress violates the separation of powers principles of the American Constitution.

The ruling, by a three-judge panel appointed by then-President Donald Trump, a Republican, overturned a 2017 settlement passed by the agency aimed at addressing ‘unfair and abusive’ practices in the industry. payday loans.

The Community Financial Services Association of America filed a lawsuit in 2018 challenging the rule, which prohibited lenders from making another attempt to withdraw funds from an account where two consecutive attempts had failed unless consumers consent to it.

“Even among self-funded agencies, the Bureau is unique,” wrote U.S. Circuit Judge Cory Wilson. “The Bureau’s perpetually self-managed, double-insulated funding structure goes a step further than that enjoyed by the other proposed agencies.”

A CFPB spokesperson said there was “nothing new or unusual in Congress’s decision to fund the CFPB outside of annual expense bills.”

The bureau could ask the full 5th Circuit to reconsider the case or take it to the U.S. Supreme Court.

Several other courts have ruled the funding of the CFPB constitutional, a point the 5th Circuit acknowledged but disagreed with.

The ruling marked the latest in a series of legal challenges against the CFPB, which Congress created in 2010 through the passage of the Dodd-Frank Act under President Barack Obama, in response to the 2008 financial crisis. .

Republicans have long opposed the agency. The Supreme Court ruled in 2020 in a separate case that the protection Congress originally gave the CFPB director, who could only be fired for cause, was unconstitutional.

“Far-right judges question every rule the CFPB enforces to protect consumers and businesses,” US Senator Elizabeth Warren, a Democrat from Massachusetts who proposed the creation of the CFPB, wrote on Twitter.

(Reporting by Nate Raymond in Boston; Editing by Stephen Coates and William Mallard)

Geraldine L. Melton