The Supreme Court has agreed to review a case challenging the constitutionality of the Consumer Financial Protection Bureau’s funding mechanism.
The Feb. 27 decision came four months after a three-judge panel in the U.S. District Court for the Western District of Texas ruled that the CFPB’s funding mechanism violated the Constitution’s Appropriations Clause because it draws funding from the Federal Reserve instead of Congress.
The lawsuit challenging the payday lending rule and the CFPB’s funding structure was filed in 2018 by the Community Financial Services Association of America and Consumer Service Alliance of Texas on behalf of payday lenders and credit access businesses. The Biden administration asked the Supreme Court to review the decision.
It is the second time in three years that the court is examining the federal agency. In 2020, the Supreme Court ruled that Congress had improperly protected the head of the bureau from removal.
According to the Associated Press, the case is not expected to be heard before October when the court begins its next term.
Last September, more than three-dozen state attorneys general asked the Supreme Court to take up the case. According to The Hill, a group of 16 Republican-led states urged the justices to affirm the lower court’s decision. A group of 20 Democrat-led states backed the Biden administration’s request that the Supreme Court reverse the decision.
The CFPB’s budget can be a maximum of 12 percent of the total operating expenses of the Federal Reserve. The agency received about $640 million last year.
“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,” said CFPB spokesperson Sam Gilford last fall. “The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”
The American Bankers Association expressed support for the decision, calling it “a step toward resolving longstanding questions surrounding the bureau.
“We have seen the bureau repeatedly ignore legal boundaries established by Congress,” said ABA President and CEO Rob Nichols. “To bolster the CFPB’s accountability, ABA has long advocated for a board or commission structure and for the bureau to be subject to the appropriations process. We hope that the resolution of this case will take heed of these critical issues while ensuring Americans continue to have access to the financial products they want and need, along with the protections they deserve.”