News Release: Legal Experts on Supreme Court Case Threatening CFPB, Fed & Others


Sept. 19, 2023

William Pierre-Louis, Jr.

READOUT of Media Conversation with Legal Experts on CFPB v. CFSA

Washington, D.C. – Americans for Financial Reform, the Constitutional Accountability Center, and the Center for Responsible Lending held a press call on Wednesday, Sept. 13, to preview one of the most important cases coming before the Supreme Court this term: CFPB v CFSA, a constitutional challenge to the funding structure of the Consumer Financial Protection Bureau (CFPB). Oral arguments in the case are scheduled for Oct. 3.

The Supreme Court’s ruling on whether to overturn the decision of the Fifth Circuit Court of Appeals has implications not only for the last 12 years of consumer protection rules and enforcement actions and the industries the CFPB oversees. It could also affect numerous federal agencies and programs, including the Federal Reserve, the FDIC, Medicare, and Social Security, that – as with the CFPB – Congress chose to fund outside of the annual appropriations process. 

A memo for reporters on the case is here. Full video of the briefing is here. Please contact us if you’d like to speak to one of these experts. Below are excerpts from the Sept. 13 call:

Elyse Hicks, Policy Counsel, Americans for Financial Reform spoke about the motivations of those who seek to curtail or even shutter the CFPB and the vulnerable consumers they prey on.

“Payday lenders historically have preyed on those who are low-income, BIPOC communities. They charge upwards of 300% for those loans. So the CFPB comes in to basically say you’re not allowed to prey on the most vulnerable of the socioeconomic system. So they didn’t like the payday rule, they don’t like the regulations that come into play that make it harder to pad their bottom line. And what they want is for the CFPB not to exist at all.

“The lower socioeconomic system or the people with bad credit or low-income or BIPOC communities, you’re digging them into a deeper hole. You’re not allowing them to save money or climb the socioeconomic ladder when you keep preying on them at very high interest rates.”

Nadine Chabrier, Senior Policy Counsel, Center for Responsible Lending, summarizes the implications of the Fifth Circuit’s ruling and the urgency for the Supreme Court to overturn it.

“The Consumer Financial Protection Bureau is asking the court to declare its funding structure constitutional and overturn the Fifth Circuit Court of Appeals’ opinion. Why? Because the Fifth Circuit’s opinion has no basis in the constitution’s texts, case law or history, as the Second Circuit concluded…This case represents an unprecedented interpretation of the appropriations clause that could upend not only financial regulators, but many government agencies and programs.

“The decision could not only invalidate an important protection against predatory lending, but could also undermine the CFPB ability to enforce the law through its enforcement powers. CFPB has won $17.5 million in restitution or canceled debts for 200 million people. These actions assisted homeowners who were defrauded by their lenders, depositors forced to pay illegal overdraft fees, borrowers facing racial discrimination, and people with inaccurate information on their credit reports.”

Brianne Gorod, Chief Counsel, Constitutional Accountability Center, co-author of the amicus brief on behalf of professors of history and constitutional law, spoke about how the Constitution’s Appropriations Clause gives Congress the power to decide how to fund federal agencies, as it did when it created the CFPB.

“For any judge or justice who professes to follow the text and history of the Constitution, this should be an incredibly easy case. Indeed, as the Second Circuit Court of Appeals noted after the Fifth Circuit’s decision, in an opinion written by a judge appointed by President Trump, it could find “no support” for the Fifth Circuit’s decision in the text and history of the Constitution.”

“The Appropriations Clause does not restrain Congress but rather empowers Congress to restrain the other branches by preventing unauthorized spending from the Treasury. It does not empower the judiciary to control Congress by second-guessing its funding decisions.”

“When Congress decides that an agency should have dedicated funding or indefinite appropriations, it is not ceding its “power of the purse,” as the Fifth Circuit claimed—it is exercising that power. Were the Court to conclude otherwise, it would not only be taking a position at odds with the text and history of the Constitution, it would be aggrandizing its own power to the detriment of Congress.”

Aziz Huq, Frank and Bernice J. Greenberg Professor of Law at the University of Chicago, noted plenty of other agencies also have funding outside of annual appropriations. An adverse ruling on the CFPB’s funding structure risks implicating all of these agencies, the work they’ve done and the rules they have set that keep our economy upright. 

“The originalist context of the Appropriations Act reveals several instances in which Congress immediately after the creation of the nation employed funding structures that are parallel to the one used for the CFPB in other contexts. The Roberts Court has looked to that early history as evidence of the meaning of the Constitution…

What the Fifth Circuit said is that the appropriations for the CFPB were unconstitutional because they were, and I quote, ‘Perpetual, self-directed and double insulated.’ It’s deeply unpersuasive on its face. There are a multiplicity of important federal agencies, particularly in the financial domain…all of which have funding streams that are uncapped…

The fifth Circuit’s ruling, were it to be affirmed by the Supreme Court, particularly in the context of a looming government shutdown, would first create an immense amount of uncertainty about the basic architecture of our financial system, and second, create potentially worse a vacuum at the core of that financial system that would have debilitating consequences for the national economy and for the US’ global position.

Amias Gerety, former Acting Assistant Treasury Secretary, gave an insider’s look at the formation of the CFPB during the Dodd Frank negotiations, affirming that Congress decided how to structure the CFPB’s funding and that concerns never arose about constitutional challenges to that structure. 

“What I want to do is just talk about three dynamics here in the history of Dodd-Frank, which show clearly that the supposed constitutional concerns are really figments of a conservative judicial movement that seeks to undermine the administrative state in general rather than long historical concerns around the constitutional funding provisions. 

“The administration was well aware of the possibility of constitutional challenges in general and was explicitly not concerned about constitutional challenges on the CFPB’s funding. That’s the first point. 

“Secondly, that the funding structure and the governance structure for the CFPB originated solely within Congress and so was a creature and a function of congressional deliberation. 

“And then thirdly…that double insulation is not a true statement about the CFPB’s functioning. It was not a true statement at the time the law was passed. It is not a true statement today. So let me go through these quickly in turn.

“The CFPB is funded with the same mechanism that the Federal Reserve is funded with, but it is not funded by the Federal Reserve System. And I think this is an important history because it underlies that there was a conservative talking point about double insulation that has no legal reality, that in fact there is a fiction that the CFPB is governed by the Federal Reserve Board and that fiction has no legal or legislative historical reality. 

“And then I think the last piece which others have stated, but I do want to underscore is…there is an argument by the Fifth Circuit that the funding is perpetual and self-directed, but unlike many other agencies or programs inside the federal government. For example, when I was at the Treasury, there was a little known but hugely important program called the Terrorism Risk Insurance Program…And unlike something like the Terrorism Risk Insurance Program, the CFPB’s funding is explicitly capped and not only is it explicitly capped, but it’s explicitly capped in a manner that underscores congressional authority…there is an explicit statement that if the CFPB’s needs go beyond that cap, they must come back to Congress and have those needs met through new appropriations. 

“As we look at this history, we see very clearly that there were not constitutional concerns at the time, that the manner of funding was as an expression of Congressional authority, and that the mechanism is simultaneously not as purely ministerial as others have pointed out. The CFPB is not governed by the Federal Reserve Board. And as Congress created this mechanism of funding, they explicitly maintained their authority to govern the funding above a permanent minimum.”

JP Schnapper-Casteras, author of the amicus brief in the case on behalf of military organizations, spoke about the “enduring connection between consumer protection and operational readiness.” He also notes that a bad ruling on the CFPB could call into question the elements of the VA’s funding that are also outside of annual appropriations.

“Consumer protection matters to the military community. I’ll just highlight four key reasons why: The first is financial readiness… the idea that to be operationally ready to go out in the battlefield service members and their families need to be financially stable.

“The second reason why consumer protection and the CFPB in particular matters for the military community today is because of the real world problems that the CFPB helps combat and that matter to the military. So, for example, predatory loan practices were a major concern of Congress. They’ve been a major concern of the CFPB and they crop up all over the country and repeatedly target members of the military and their families…For example, just as of July of 2022, last summer, there were 286,000 complaints by service members, veterans and their families to the CFPB…

“The third reason that the CFPB matters to the military community is just its actual enforcement record…There’s voluminous evidence of all the different statutes that the CFPB enforces to the benefit of service members. The prime one is the Military Lending Act, but as we go through the recent year’s actions in more detail, it’s also under the Electronic Fund Transfer Act, the Truth inLending Act, Fair Credit Reporting Act, et cetera…

“The fourth point is what would happen under the Fifth Circuit ruling; bottom line, gutting the CFPB would be deeply problematic for the military community for active duty reservists, veterans, and their families. It would halt the enforcement of a number of important laws and regulations that specifically protect service members. It would undermine service members’ financial readiness at the end of the day, and that has consequences for mission readiness and for national defense. 

“The VA relies on a tapestry of different funding mechanisms like other federal agencies: mandatory funding, discretionary funding, advance funding, multi-year funding, as well as some funds derived from non-Treasury sources, just like this case. And so the Fifth Circuit’s reasoning here seems to call into question some of those means of congressional funding and the implication being that perhaps certain aspects of how the VA is funded and run would also be imperiled by the logic here.”

Armen Meyer, Chairman of Board, Policy Committee, American Fintech Council, spoke about the “regulatory clarity” businesses and markets rely on and which the CFPB provides. Pulling the rug out with an adverse ruling would be bad for business and the economy:

“Let’s be clear about what is happening here: This effort by old-style lenders to destroy CFPB regulations is serious. But it is not serious business. It’s anti-business. If successful, it will derail investment in innovation, harm the economy, and advantage companies who are not serious about creating products that are good for consumers…Any legal logic that strikes down this payday regulation would, scarily, essentially imply striking down all the CFPB-issued regulations. Three points here:

“The mortgage markets would be decimated if CFPB mortgage regulations were struck down, perhaps as bad as what we saw with the global financial crisis 15 years ago…Responsible lenders want the regulatory stability that recent CFPB regulations have provided, from guiding proper product structure to requiring licensing of mortgage originators.

“Beyond mortgages, to the entire lending market, without CFPB issuances we’d go back several years in time to not fully knowing if artificial intelligence, for example, algorithms are covered by laws that prevent discrimination in lending. AI and machine learning algorithms are clearly covered today, due to CFPB guidance, at members of industry’s request. So the industry now has more regulatory clarity to invest in these algorithms to produce more affordable financial products, which we don’t want to lose.

“Third, and worst of all, going way back in time … Let’s remember that Dodd Frank caused the CFPB to reissue many consumer regulations. Many of these go back to the 1970s, so these rules are now in jeopardy too. These regulations include the nation’s first data privacy protections and regulations governing fee transparency in personal savings accounts. We are now in the 21st century…but the Supreme Court is being asked to consider sending us back to a regulatory environment that existed before personal computers and ATMs.”