Government’s Consumer Watchdog Agency Fends Off Supreme Court Challenge

The Consumer Financial Protection Bureau (CFPB), the government’s consumer watchdog agency, has survived an attempt to de-fund it using the Supreme Court.

In a 7-2 ruling handed down Thursday, the high court found that the agency’s funding mechanism is constitutional, rejecting arguments by payday lenders, who challenged the agency’s authority in an attempt to overturn a regulation limiting how often they can try to withdraw funds from a borrower’s bank account. 

A ruling against the CFPB could have unleashed what one legal expert described as “pandemonium” in the financial services industry. It could have thrown the bureau’s existing regulations into doubt, unleashed a flood of lawsuits, and removed consumer protections that have been established over the last decade and a half. 

Writing for the majority, Justice Clarence Thomas said the CFPB’s unique funding mechanism did not conflict with the Appropriations Clause of the constitution, which gives Congress control over the federal budget, stating “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

When Congress created the bureau in 2010 in the wake of the Great Financial Crisis, lawmakers placed it within the Federal Reserve system, which is funded by its own operations apart from the overall federal budget. That makes it different from most other federal agencies, which run on taxpayer dollars and whose funding is decided by Congress each year as part of the budget process.

How Did This Case Get to The Supreme Court?

The Community Financial Services Association of America, and the Consumer Service Alliance of Texas, trade groups representing payday lenders, had argued otherwise. They had gone to court in Texas to overturn a 2017 CFPB rule that forbade them from repeatedly trying to draw funds from borrowers’ preauthorized bank accounts after two failed attempts—a practice that racked up overdraft fees for the borrowers. 

The case made its way to the conservative-leaning Supreme Court, which heard arguments last year. It was one of several cases that the court is currently considering that could weaken the authority of federal financial regulators. 

In a dissenting opinion, Justice Samuel Alito, also signed by Justice Neil Gorsuch, lamented that the ruling allows the bureau to “bankroll its own agenda without any congressional control or oversight.”

The bureau said the decision would allow it to carry on its activities regulating consumer financial services.

“Today’s decision is a resounding victory for American families and honest businesses alike, ensuring that consumers are protected from predatory corporations and that markets are fair, transparent, and competitive,” the agency said in a press release.