The conservative-dominated Fifth Circuit Court of Appeals ruled Wednesday that the Consumer Financial Protection Bureau’s funding structure is unconstitutional, a decision that Sen. Elizabeth Warren—one of the agency’s architects—decried as “lawless and reckless.”
“The CFPB has returned billions of dollars to Americans by doing its job, and its funding is clearly constitutional,” Warren (D-Mass.) wrote on social media. “Extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike.”
“If it stands, it will go down in history as one of the most anti-consumer court rulings in history.”
The 39-page ruling was handed down by a Fifth Circuit panel composed entirely of judges selected by former President Donald Trump, who pulled the already-conservative appeals court even further to the right during his four years in the White House. The court is often actively sought out by right-wing lawyers and corporate interests looking for a friendly audience.
Wednesday’s decision, which stems from a case brought by payday lending groups, deems the CFPB’s structure unconstitutional because it receives funding through the Federal Reserve System rather than Congress, a design that was aimed at ensuring the watchdog agency’s independence.
“Congress’ decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers,” the three-judge panel wrote.
While the case focused specifically on the bureau’s Payday Lending Rule, the panel’s decision could have sweeping implications for the CFPB’s ability to issue any rules aimed at shielding consumers from corporate abuses.
As Public Citizen president Robert Weissman said in a statement Wednesday, the “dangerously misguided and outrageous decision jeopardizes the most important consumer protection agency created in the last 50 years and the rules, guidelines, enforcement actions, and consumer education that the Consumer Financial Protection Bureau has issued and undertaken.”
“The Fifth Circuit’s decision ignores the long-established and long-accepted practice of funding financial regulatory agencies, and the prior review of many other courts, in order to decree that the funding mechanism of the CFPB is unconstitutional,” Weissman continued. “If upheld, this decision is a gift to scammers and rip-off artists, payday lenders, and big banks.”
“If it stands,” he added, “it will go down in history as one of the most anti-consumer court rulings in history.”
Wall Street-friendly Republicans who have been hostile to the CFPB since its inception in the wake of the 2008 financial crisis predictably hailed the Fifth Circuit’s ruling.
Rep. Patrick McHenry (R-N.C.), the top Republican on the House Financial Services Committee and a major recipient of bank cash, said he was “glad to see” the decision and said he hopes to bring the consumer bureau “under the appropriations process,” where it would be vulnerable to cuts from a hostile GOP.
The CFPB, currently led by consumer champion Rohit Chopra, is expected to appeal the decision. In a statement to Politico, bureau spokesperson Sam Gilford said that “there is nothing novel or unusual about Congress’ decision to fund the CFPB outside of annual spending bills.”
“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 Gilford. “The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”
The Fifth Circuit ruling comes as Chopra is facing a corporate onslaught over his actions as CFPB chief, which have included fines against big banks and policy changes aimed at challenging unlawful discrimination in the consumer finance market.
In late June, the U.S. Chamber of Commerce—the nation’s largest corporate lobbying organization—launched a campaign to thwart what it described as Chopra’s “ideologically driven agenda to radically change the nature of America’s financial services industry.”
Vishal Shankar, a researcher at the Revolving Door Project, said last month that “America’s biggest corporate lobbying group is furious that its lawbreaking members are no longer getting a free pass for predatory and illegal behavior.”
“The Chamber is spending six figures to lie to consumers about Chopra’s record, without being upfront about their own executives’ ties to corporate criminals,” Shankar added. “They think the American people love surprise fees and hate seeing white-collar crooks held accountable. They are dead wrong on both counts.”