- A federal appeals court ruled the Consumer Financial Protection Bureau’s funding as unconstitutional.
- The agency currently receives funding through the Federal Reserve, rather than Congress.
- Sen. Elizabeth Warren, who helped create the agency, called the ruling a “reckless decision.”
A court shaped by Republicans just ruled against a key consumer agency Massachusetts Sen. Elizabeth Warren helped shape.
On Wednesday, the Fifth Circuit Court of Appeals ruled that the Consumer Financial Protection Bureau (CFPB)’s funding structure is unconstitutional because the Federal Reserve funds the agency, rather than requiring funding approval through Congressional legislation.
Under former President Barack Obama, Warren helped create the CFPB with the key idea that it would function as an independent agency without political influence so it could conduct oversight as effectively as possible, and this ruling could fundamentally change that.
“This is a lawless and reckless decision,” Warren wrote on Twitter. “@CFPB has returned billions of dollars to Americans by doing its job, and its funding is clearly constitutional. Extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike.”
“This reckless decision could stop the CFPB from enforcing rules that prevent debt collectors from harassing you,” she added. “Rules to stop banks opening fake accounts or closing your account without asking. Rules to stop financial firms charging you outrageous junk fees.”
—Elizabeth Warren (@SenWarren) October 19, 2022
A three judge panel in the Fifth Circuit — all appointed by former President Donald Trump — wrote in a ruling that “Congress did not merely cede direct control over the Bureau’s budget by insulating it from annual or other time limited appropriations. It also ceded indirect control by providing that the Bureau’s self-determined funding be drawn from a source that is itself outside the appropriations process – a double insulation from Congress’s purse strings that is ‘unprecedented’ across the government.”
The CFPB has not yet indicated whether it will appeal the decision. A spokesperson for the agency said in a statement that there’s “nothing novel or unusual about Congress’s 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,” the spokesperson said.
Over the past decade, the CFPB has helped oversee big banks, and particularly, the student-loan industry. At the end of September, for example, the agency released a report with extensive findings of potentially illegal actions by student-loan companies, including hampering borrowers’ access to targeted loan forgiveness programs and income-driven repayment plans. And in March, the agency hit a student-loan company with a $1 million fine for “making deceptive statements” to borrowers with privately-held student loans regarding their repayment options.
Mike Pierce, executive director of advocacy group Student Borrower Protection Center and former regulator at the CFPB, said in a statement that for over a decade, “the CFPB has taken on big fights with powerful financial companies and stood up for working people.”
“Because the Bureau has been so effective, it has become a favorite punching bag for Wall Street and their army of lawyers and bought-and-paid-for judges,” he said. “Today’s decision has nothing to do with fairness or justice—this is a raw game of reactionary politics played by people who want to keep families trapped in debt.”