The Consumer Finance Protection Bureau (CFPB) was created in 2010 as a mechanism for financial reform. It was part of the Dodd-Frank law that took a hatchet to the lending practices of banks and other financial institutions, making it harder and more expensive for consumers and banks to engage in loans.
The way the CFPB is funded has been controversial from the start. It receives funding from the Federal Reserve rather than appropriations legislation passed by Congress. Now, a three-judge panel of the 5th U.S. Circuit Court of Appeals has ruled that the funding method is unconstitutional.
A particular target of the regulators over the years has been the “payday lenders.” A rule governing those small loan companies was also vacated.
“Congress’s 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 judges wrote.
The appeals court ruling marked the latest victory for the finance industry, which has fought for years in Congress and the courts to blunt the CFPB’s reach and limit its ability to police financial services. Republican lawmakers have also worked for years to stifle the CFPB and revamp its structure, arguing the agency lacks accountability.
“Even among self-funded agencies, the Bureau is unique,” Judge Cory Wilson wrote Wednesday. “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer.”
The purpose of having the Federal Reserve fund a federal agency was to “protect” the CFPB from “political pressure.” In fact, it made the Finance Bureau virtually bulletproof and ensured that no matter who was president, Democrats would have a huge say in agency policy.
The CFPB Wednesday declined to say whether it would appeal the decision to the full 5th Circuit. CFPB spokesperson Sam Gilford said “there is 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,” Gilford added. “The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”
Yes, but Medicare and Social Security are still responsible to Congress for their performance. The CFPB gets a virtual free pass from Congress and is beholden to no one.
It’s high time this agency was reined in.
Join the conversation as a VIP Member