By John Kruzel
WASHINGTON (Reuters) -The U.S. Supreme Court on Tuesday heard arguments in a challenge to the funding structure of the Consumer Financial Protection Bureau (CFPB) that President Joe Biden’s administration argued threatens the agency’s ability to function and risks market disruption.
It was the first of several cases the justices are tackling during their new nine-month term that began this week that could curb the power of federal agencies.
The CFPB’s funding design draws money each year from the Federal Reserve instead of from budgets passed by lawmakers. Challengers to the CFPB – trade groups representing the high-interest payday loan industry – argued that the agency’s funding structure violates a constitutional provision giving Congress the power of the purse.
The Supreme Court’s 6-3 conservative majority has rolled back the power of federal agencies including the Environmental Protection Agency in important rulings in recent years.
Some of the conservative justices on Tuesday echoed the industry’s concerns that the CFPB’s funding mechanism violated the U.S. Constitution’s “appropriations clause,” which vests spending authority in Congress.
Conservative Justice Clarence Thomas asked whether the agency’s setup “eviscerates the kind of exacting control that Congress usually exercises in the appropriations process.”
U.S. Solicitor General Elizabeth Prelogar, who argued on behalf of the Biden administration, cautioned that a ruling against the CFPB could endanger entities that are similarly funded outside the regular appropriations process.
The court’s three liberal justices pressed the challengers on the repercussions of deeming the CFPB’s funding structure unconstitutional.
“It sure seems that on your view, the Federal Reserve would also be unconstitutional,” liberal Justice Elena Kagan said.
The CFPB was established by Democratic-backed legislation signed by former President Barack Obama in 2010 to curb predatory lending following the 2008 global financial crisis. The agency has delivered $16 billion of relief to American consumers as a result of the agency’s 300-plus enforcement actions from 2012-22 including a $3.7 billion settlement last year with Wells Fargo.
The Biden administration is appealing a decision by the New Orleans-based 5th U.S. Circuit Court of Appeals, which last October ruled that the CFPB’s funding structure violated the Appropriations Clause. The decision also invalidated a CFPB regulation opposed by payday lenders that stops lenders from trying to charge a borrower’s bank account after two unsuccessful attempts due to insufficient funds.
Many conservatives and their Republican allies have long opposed the CFPB, which critics see as part of an unwieldy “administrative state,” the network of administrative agencies responsible for the array of federal regulations that affect businesses and individuals.
The agency’s supporters have urged the justices to uphold the CFPB’s funding mechanism, saying that a ruling against the agency would leave consumers vulnerable to deceptive and abusive practices, and could place its existing rules on shaky legal ground.
Source: Reuters/Reporting by John Kruzel; Editing by Will Dunham
