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The CFPB – Not Dead Yet

In a recent blog, we considered whether we were witnessing the slow death of the Consumer Financial Protection Bureau.  After listening to the arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd. before the Supreme Court last week, we can say with some confidence that no, we are not.

Although the opinion is likely several months away, and there is no guarantee that a decision will mirror oral argument, it’s not looking good for the challengers of the CFPB’s funding mechanism.  The Fifth Circuit held that the challengers had a valid argument against the Bureau’s Payday Lending Rule because Congress does not appropriate the funds to operate the CFPB as part of the annual budget process.  A similar argument was made against the Bureau’s Small Business Lending Rule in a recent case in the Southern District of Texas, leading that court to enjoin enforcement of the Rule until the Supreme Court decides the issue.

After the financial crisis of 2008 and 2009, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the CFPB and its funding structure.  It receives up to a capped amount from the earnings of the Federal Reserve System, but it is not a separate line item in the annual Congressional budget.

Solicitor General Elizabeth Prelogar, in defense of the CFPB, maintained that numerous government functions are funded by standing orders independent of traditional appropriation by Congress.  This is a trend that goes back to the very first Congress, which established a standing order for the Customs Service. Former Solicitor General Neal Francisco, on behalf of the payday lenders, tried to invoke Hamilton’s warnings against tyranny, arguing that in the non-traditional funding structure of the CFPB, Congress was giving away its power of the purse.

It’s not a good sign when a Supreme Court Justice opens with, “I’m trying to understand your argument, and I’m at a total loss.” Although we expected Justice Sotomayor to come to the defense of the CFPB, that’s a hard hit, and she wasn’t the only one.  Justice Barrett said she was struggling to understand Francisco’s standard, and she asked him to define the limit—how much is too much to be funded outside of budget appropriation? Justice Kavanaugh asked how it can be an unconstitutional funding structure if Congress has the power to change it at any time.

Following the argument, CFPB Director Rohit Chopra has made public statements in defense of the Bureau.  He has argued financial markets are much better off, thanks to the CFPB. Even if the Court surprises us and upholds the Fifth Circuit, which could temporarily roil the markets, the laws and regulations enforced by the CFPB will remain, unless and until they are repealed.

While we await the Court’s opinion in this case, it certainly looks like reports of the death of the CFPB were greatly exaggerated.  The attorneys at Dalton & Tomich have the experience and knowledge to advise your organization regarding its rights, remedies, and compliance with state and federal laws and regulations.

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