An appeals court
Three judges on the U.S. Court of Appeals for the Fifth Circuit ruled in Community Financial Services Association of America v. CFPB on Wednesday that the CFPB's funding structure violates the Constitution's structural separation of powers. The three judges also invalidated part of the CFPB's 2017 payday lending rule.
The CFPB is expected to appeal, and has two options for doing so. The agency can request a hearing before the full Fifth Circuit panel of judges, known as an en banc review, or it can submit a request to hear the case before the Supreme Court.
The Fifth Circuit's panel decision likely will be stayed while the case moves forward without any immediate effect on the CFPB's operations, but the ruling nonetheless could have broad implications for the agency's future.
"This is a major blow to consumer protection," said Chris Peterson, a law professor at the University of Utah and former advisor to former CFPB Director Richard Cordray. "This is going to make it harder for the bureau to do its work in the short term and it's potentially devastating in the long term because the way that Congress set up the funding has been called into question."
The CFPB responded by saying: "There is nothing novel or unusual about Congress's decision to fund the CFPB outside of annual spending bills," according to a statement.
"Other federal financial regulators and the entire Federal Reserve System are funded that way, and programs such as Medicare and Social Security are funded outside of the annual appropriations process. The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers."
The three-judge panel, all appointed by then-President Donald Trump, blamed Congress in its 39-page decision for creating an agency "unique across the myriad independent executive agencies across the federal government," because "it is not funded with periodic congressional appropriations."
The Dodd-Frank Act created the CFPB as an independent agency within the Federal Reserve System. The bureau is funded through up to 12% of the Fed's operating expenses. If the case ultimately goes before the Supreme Court and the court finds that the CFPB's funding structure is unconstitutional, then the agency would be subject to the annual appropriations process.
The three-judge panel delivered a victory to payday lenders by also vacating the CFPB's 2017 small-dollar lending rule. The case was filed by the Community Financial Services Association of America and the Consumer Service Alliance of Texas that in 2018
