A sign is placed at the construction site of the new headquarters of the Consumer Financial Protection Bureau in Washington, Monday, August 27, 2018.
Andrew Harnik / AP
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Andrew Harnik / AP
A sign is placed at the construction site of the new headquarters of the Consumer Financial Protection Bureau in Washington, Monday, August 27, 2018.
Andrew Harnik / AP
A federal appeals court has ruled that the funding structure of the nation’s most powerful financial watchdog, the Consumer Financial Protection Bureau, is unconstitutional.
In a case brought by a short-term lender group, a three-judge panel of the 5th U.S. Court of Appeals introduced a CFPB rule governing those high-interest lenders and ruled that the way the organization is funded, “violates the Constitution. separation of powers structure.”
“Three judges, all appointed by President Trump, have decided to deprive the agency of funding,” said Chris Peterson, a law professor at the University of Utah and a former enforcement attorney at the CFPB. Assembly voted for.
The office was created by the Obama administration and Congress in the wake of the financial crisis and the Great Depression to better protect everyday Americans from being scammed by banks, student loan and credit card companies, and other financial companies. It has returned billions of dollars to consumers it says have been treated unfairly.
However, to protect it from political influence, the bureau receives funding from the Federal Reserve, not Congress. It was part of its structure that the court found violated the Constitution.
“While the majority of law enforcement agencies rely on annual funding, the Bureau does not,” the judge wrote. “Wherever the line is drawn between a constitutionally and unconstitutionally funded agency, this unprecedented arrangement crosses it.”
Peterson says the CFPB isn’t the only one that doesn’t receive annual funding as determined by Congress — the Federal Reserve and the Federal Deposit Insurance Corporation are both funded in other ways.
“The CFPB will likely ask to stay while it seeks an appeal against the entirety of Track 5…and then possibly the U.S. Supreme Court,” Peterson said.
In the meantime, he said, that raises doubts about all the other kinds of rules the office makes, because at least in the area of circuit 5 – Texas, Louisiana and Mississippi – the rules Other CFPBs could be challenged with similar lawsuits.
“There will be a lot of confusion about whether the rules regarding mortgages, debt collection, credit cards are still viable rules in the Fifth Round.”
If the ruling does eventually go into effect, that means the office will need to get an annual budget approved by Congress, which Peterson said would leave it vulnerable, “bankers, who short-term lenders and collection agencies, who have been extremely effective in lobbying Congress to undermine consumer protection.”
The CFPB did not immediately respond to a request for comment.
