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WILL THE SUPREME COURT’S CONSERVATIVES BRING OUT THE ‘BULLDOZER’ ON THE CONSUMER
PROTECTION AGENCY?

By Joan Biskupic, CNN
Updated 5:24 PM EDT, Tue October 3, 2023
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The US Supreme Court Building on October 03, 2022 in Washington, DC.
Anna Moneymaker/Getty Images
CNN  — 

When the Supreme Court ruled against the federal agency that protects consumers
from financial scams in 2020, it let the agency keep operating, opting for “a
scalpel rather than a bulldozer in curing the constitutional defect.”

The question now is whether the justices are ready to employ the bulldozer as
part of the conservative supermajority’s drive to limit regulatory power.

In recent years, the Supreme Court has moved aggressively against the executive
branch, invalidating rules for power-plant carbon emissions, Covid-19
precautions and student loan forgiveness. The court has agreed to hear a series
of new cases in the 2023-24 term that could reinforce its anti-regulatory
direction.

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CFPB: What it does and why its future is in question

Tuesday’s case tested the funding structure of the Consumer Financial Protection
Bureau, which Congress established in the wake of the 2008 financial crisis to
oversee laws that target predatory lending and other financial abuse. Millions
of Americans lost their homes, jobs or savings in that Great Recession.

A ruling against the CFPB this time has the potential to unravel more than a
decade of actions by the agency. The decision could also open the door to
challenges to other agencies, such as the Federal Reserve, that received
separately authorized funding, rather than traditional annual appropriations
from Congress.

During contentious oral arguments on Tuesday some conservative justices, notably
Clarence Thomas and Samuel Alito, expressed skepticism for the CFPB funding
structure. But most justices, across the ideological divide, openly struggled
with limits the court might put on Congress as it creates and funds independent
agencies.

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At bottom, a majority appeared to resist the core of the challengers’ attack on
the consumer-protection agency – which might, when the justices ultimately rule,
once again spare it.

Additional regulatory cases will be heard in the new 2023-24 session. They cover
when judges must defer to agency interpretations of their statutory power (a
theory of deference arising from the 1984 case of Chevron v. Natural Resources
Defense Council) and whether the Securities and Exchange Commission can use
in-house administrative law judges to resolve civil-penalty disputes without
violating the constitutional right to a jury trial.

The Supreme Court of the United States on Thursday, Oct. 6, 2022 in Washington,
DC.
Kent Nishimura/Los Angeles Times/Getty Images

Major Supreme Court cases to watch in the new term

As conservative justices warn of an expanding bureaucracy overtaking businesses
and individual lives, liberal justices highlight agency expertise to address
societal concerns including the environment, public health and consumer choices.

Writing for the majority in the first CFPB case, Chief Justice John Roberts
derided the bureaucracy with a line he’d first expressed in a 2010 controversy
over regulatory authority: “One can have a government that functions without
being ruled by functionaries, and a government that benefits from expertise
without being ruled by experts.”

Dissenting Justice Elena Kagan countered by referring to the “financial
chicanery” the CFPB was intended to address, saying, “Diverse problems of
government demand diverse solutions. They call for varied measures and mixtures
of democratic accountability and technical expertise, energy and efficiency.”


JUSTICES GRAPPLE WITH RADICAL IMPLICATIONS OF TUESDAY’S ARGUMENTS

That 2020 case tested the CFPB leadership structure. Tuesday’s dispute could
more fundamentally unsettle CFPB operations because it challenges the bureau’s
overall funding and every decision made under that funding system.

Rather than finance the CFPB through annual appropriations, Congress, as a way
to safeguard the bureau’s independence, specified that it receive funding from
the combined earnings of the Federal Reserve System each year, up to a statutory
cap of about $600 million, adjusted for inflation.

RELATED: CFPB: What it does and why its future is in question

Groups representing payday lenders targeted that funding arrangement as they
sued over a CFPB rule that would limit a lender’s ability to obtain loan
repayment through preauthorized account access.

The challengers cited the Constitution’s appropriations clause, which says, “no
Money shall be drawn from the Treasury, but in Consequence of Appropriations
made by law.” The 5th US Circuit of Appeals, in the decision now before the
justices, agreed with the challengers. The 5th Circuit ruled that the
Constitution gives Congress “exclusive power over the federal purse” and that
Congress cannot cede that power.

US Solicitor General Elizabeth Prelogar, representing the CFPB, stressed Tuesday
that no other court has limited Congress’ appropriation power in that manner,
nor imposed such retrospective relief, which would call into question virtually
every action the CFPB has taken in the 12 years since it was established.

She said the text and history of the appropriations clause leaves it to Congress
to determine the source of appropriations once spending authority is designated.
Congress has provided such lump-sum appropriations to numerous agencies, she
said, including the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the Office of the Comptroller of the Currency.

Prelogar rejected concerns that Congress had ceded appropriations authority to
the executive branch. “The court is looking at a statute,” she told the
justices, “that Congress itself enacted that set up this funding mechanism for
the CFPB, which is similar in kind to the way that Congress has funded other
financial regulatory agencies.”

Thomas responded, “You don’t think this kind of eviscerates the kind of exacting
control that Congress usually exercises in the appropriations process?”

Prelogar said Congress has the latitude to decide whether funding is made
annually or essentially indefinitely, until a future Congress decides otherwise.

“You have a very aggressive view of Congress’s authority under the
appropriations clause,” Roberts said to the solicitor general. “And it struck me
that the reason you would want to defend that is because it gives them more
power to give away,” including to executive agencies.

Prelogar contended that CFPB’s funding is “actually far more constrained than
many Congress has enacted throughout history,” because Congress set a cap on
what the bureau could draw each year.

Alito questioned whether there were any limits to the government’s theory,
asking Prelogar whether Congress could give any independent agency “up to $1
billion adjusted for inflation” to use as it wanted.

She brushed aside the billion-dollar figure as unlikely but said that, in fact,
many agencies are funded with such standing appropriations, “particularly in the
financial regulatory space.”

Noel Francisco, representing the payday lender associations, said that if
Congress can authorize the CFPB to spend whatever it deems reasonably necessary,
up to a designated cap, “then it can authorize the president to spend whatever
he deems reasonably necessary as long as he doesn’t exceed $10 trillion.”

Francisco, formerly the Trump administration US solicitor general, represents
the Community Financial Services Association of America, which objects to the
CFPB rule regulating lenders’ attempts to withdraw loan repayments from bank
accounts.

“At a bare minimum, the appropriations clause requires Congress to determine how
much the government should be spending,” he said.

“Where do you get that from? … A fixed amount? It can’t do by a cap? It has to
be a fixed amount?” asked Justice Ketanji Brown Jackson, saying the
Constitution’s appropriations clause held no such requirement.

Kagan observed that Congress had throughout history varied funding methods,
sometimes employing annual line-item appropriations, sometimes not. “So you’re
just flying in the face of 250 years of history,” she told Francisco.

Such sharp comments from liberal justices might have been expected, but Justices
Brett Kavanaugh and Amy Coney Barrett were also skeptical. Those conservatives
often find themselves in the middle of the bench and could be critical votes in
this case as well.

Kavanaugh homed in on Francisco’s argument that Congress had essentially granted
“perpetual” financing to the consumer-protection agency.

“The word ‘perpetual,’” Kavanaugh said, “I’m having trouble with because it
implies that it’s entrenched and that a future Congress couldn’t change it. But
Congress could change it tomorrow and there’s nothing perpetual or permanent
about this.”

A decision in the case of CFPB v. Community Financial Services Association of
America is likely by June when the justices recess for the summer.


CASE HISTORY

The payday lending groups first sued in 2018 over a 2017 rule that would
prohibit attempts to withdraw payments from accounts after two consecutive tries
have failed due to insufficient funds. (Repeated withdrawal attempts can subject
borrowers to extra banking fees.)

A US district judge upheld that regulation and rejected the claim that the
bureau’s funding mechanism impinged the Constitution’s appropriations clause.
The judge said the statute authorizing the agency to receive certain funding met
the constitutional demand.

When the 5th US Circuit of Appeals reversed and ruled against the CFPB, it said
the Constitution gives Congress “exclusive power over the federal purse” and
Congress cannot cede that power.

“The Appropriations Clause … does more than reinforce Congress’s power over
fiscal matters,” the appellate panel wrote last year. “(I)t affirmatively
obligates Congress to use that authority to maintain the boundaries between the
branches and preserve individual liberty from the encroachments of executive
power.”

The 5th Circuit, which also declared all prior CFPB rules invalid, has produced
some of the most sweeping rulings against the Biden administration over the past
three years.

But the circuit has also experienced reversals at the Supreme Court, and judging
from Tuesday’s arguments, it may be that the high court finds the 5th Circuit
has again gone too far.

This story has been updated with additional reporting.


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By clicking “Accept All” you agree to these purposes. For more information, to
provide or withdraw consents for processing your personal data, click “Manage
Cookies+.” Additionally, you may exercise your preferences for consent at a
vendor level in the “Vendors” link. These settings are accessible on a site or
app specific basis, at any time through the ‘Manage Cookies+’ link located at
the footer of webpages or in application settings. We work in coordination with
an industry framework which will signal your preferences to our participating
vendors. Vendors

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MANAGE COOKIES+

We process your personal data to personalize content and ads, measure the
delivery of such content and ads, to provide social media features, to extract
insights about our properties and as otherwise specified in our Privacy Policy.
We share this information with our Affiliates and Vendors on the basis of
consent. You may exercise your right to consent to a specific purpose below.
Additionally, you may exercise your preferences for consent at a vendor level in
the “Vendors” link under each purpose. These choices will be signalled to our
vendors participating in the Transparency and Consent Framework.
Privacy Policy
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PLEASE NOTE: CONSENT TO STORE AND/OR ACCESS INFORMATION ON A DEVICE IS REQUIRED
TO CUSTOMIZE AND IMPROVE YOUR EXPERIENCE

STORE AND/OR ACCESS INFORMATION ON A DEVICE

Store and/or access information on a device

Cookies, device identifiers, or other information can be stored or accessed on
your device for the purposes presented to you.

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SELECT BASIC ADS

Select basic ads

Ads can be shown to you based on the content you’re viewing, the app you’re
using, your approximate location, or your device type.

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SELECT PERSONALISED ADS

Select personalised ads

Personalised ads can be shown to you based on a profile about you.

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CREATE A PERSONALISED ADS PROFILE

Create a personalised ads profile

A profile can be built about you and your interests to show you personalised ads
that are relevant to you.

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SELECT PERSONALISED CONTENT

Select personalised content

Personalised content can be shown to you based on a profile about you.

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CREATE A PERSONALISED CONTENT PROFILE

Create a personalised content profile

A profile can be built about you and your interests to show you personalised
content that is relevant to you.

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MEASURE AD PERFORMANCE

Measure ad performance

The performance and effectiveness of ads that you see or interact with can be
measured.

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MEASURE CONTENT PERFORMANCE

Measure content performance

The performance and effectiveness of content that you see or interact with can
be measured.

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APPLY MARKET RESEARCH TO GENERATE AUDIENCE INSIGHTS

Apply market research to generate audience insights

Market research can be used to learn more about the audiences who visit
sites/apps and view ads.

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DEVELOP AND IMPROVE PRODUCTS

Develop and improve products

Your data can be used to improve existing systems and software, and to develop
new products

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ENSURE SECURITY, PREVENT FRAUD, AND DEBUG

Always Active

Your data can be used to monitor for and prevent fraudulent activity, and ensure
systems and processes work properly and securely.

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TECHNICALLY DELIVER ADS OR CONTENT

Always Active

Your device can receive and send information that allows you to see and interact
with ads and content.

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MATCH AND COMBINE OFFLINE DATA SOURCES

Always Active

Data from offline data sources can be combined with your online activity in
support of one or more purposes

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LINK DIFFERENT DEVICES

Always Active

Different devices can be determined as belonging to you or your household in
support of one or more of purposes.

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RECEIVE AND USE AUTOMATICALLY-SENT DEVICE CHARACTERISTICS FOR IDENTIFICATION

Always Active

Your device might be distinguished from other devices based on information it
automatically sends, such as IP address or browser type.

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STRICTLY NECESSARY COOKIES

Always Active

These cookies are necessary for the website to function and cannot be switched
off in our systems. You can set your browser to block or alert you about these
cookies, but some parts of the site will not work.

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