Supreme Court to hear challenge to Elizabeth Warren’s Consumer Financial Protection Bureau

The Supreme Court announced Monday it would hear a challenge to the Consumer Financial Protection Bureau in a case that could determine whether Democrats violated the Constitution in creating a “Wall Street cop” after the 2008 financial collapse.

A federal appeals court last year ruled that the CFPB’s ability to write its own budget puts it beyond the reach of Congress in a way that would have shocked the writers of the Constitution, who wanted lawmakers to have the power of the purse.

Other federal courts, however, have upheld the CFPB’s funding and produced conflicting rulings that the justices will now get a chance to sort out.

The case reaching the high court involves the CFPB’s Payday Lending Rule, which restricted lenders’ ability to go into consumers’ accounts to collect on missed payments.

The U.S. Court of Appeals for the 5th Circuit ruled that the CFPB gets its money from the Federal Reserve instead of from Congress’ regular annual appropriations. The court did not strike down the entire agency but did strike down the payday rule because it grew out of the illegal funding scheme.

The Biden administration had urged the justices to take the case and settle the issue, saying the agency’s funding is legal.

U.S. Solicitor General Elizabeth Prelogar said Congress did set limits on CFPB’s funding, so even if it doesn’t approve money each year, it has legally funded the agency.

“The court of appeals relied on an unprecedented and erroneous understanding of the Appropriations Clause to hold the CFPB’s statutory funding mechanism unconstitutional,” Ms. Prelogar wrote in asking the justices to hear the case. “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The Appropriations Clause requires nothing more.”

Without comment, the high court decided to take on the case. At least four justices had to agree to hear the case for it to reach the schedule.

The case will likely be heard during the court’s next term, which begins in October. 

The CFPB was created during the Obama administration and charged with policing financial institutions’ behavior.

It was the brainchild of Sen. Elizabeth Warren, Massachusetts Democrat, who at the time was a Harvard University law professor.

She wanted it to be free from political pressure so it could go after powerful interests. That meant installing a single director who couldn’t be fired except for good cause, and giving it independent funding to limit Congress’s power to intervene.

In 2020, the Supreme Court ruled that the installation of an insulated single director ran afoul of the Constitution. The result is that the president can now remove the agency’s director at will.

But the challenge to the funding scheme cuts deeper and could threaten most of the CFPB’s business.

Consumer advocates feared the outcome of the case, given the makeup of the high court, which has six justices appointed by Republican presidents and three appointed by Democrats.

Liz Zelnick, director of corporate power for Accountable.US, said the challenge to the CFPB is being bankrolled by “greedy industries and right-wing politicians.”

“This is all about industry payback to the agency that has successfully recouped billions of ill-gotten dollars on behalf of hard-working families,” Ms. Zelnick said. “Just remember that the special interests and politicians cheering on this lawsuit see the CFPB’s successful defense of consumers as a problem, not the huge benefit to the economy that it is.”