Supreme Court to hear challenge to consumer agency

WASHINGTON — The U.S. Supreme Court said Monday that it will take up a Republican-led challenge to the Consumer Financial Protection Bureau, a case that could threaten how the consumer watchdog agency functions. It is the second time in three years that the justices will be examining the federal agency, which was created after the 2008 financial crisis.

The case will not be heard before October. That's when the court begins its next term.

Late last year, a federal appeals court — the U.S. Court of Appeals for the Fifth Circuit — ruled that the agency’s funding structure was unconstitutional, threatening its ability to function. The Biden administration asked the high court to review that decision, which it has now agreed to do.

The administration said the lower court’s ruling “calls into question virtually every action the CFPB has taken” since its creation. The decision “threatens to inflict immense legal and practical harms on the CFPB, consumers, and the nation’s financial sector,” the administration said.

Since the bureau was created more than a decade ago by the Dodd-Frank Act, it has varied in its aggressiveness. During the Obama administration, it used its muscle to collect fines from banks and credit card companies; during the Trump administration, it drastically scaled back enforcement actions. Republicans have argued that the agency has unchecked power.

The case the justices agreed to hear centers on the agency's funding. Unlike a majority of agencies, the CFPB does not get its funding from the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve. The agency’s budget is capped at 12% of the total operating expenses of the Federal Reserve System. In the 2022 fiscal year, the agency received about $640 million.

The case the justices will hear began when two associations sued over the agency’s Payday Lending Rule. They argued in part that the agency’s funding structure violated the Constitution, improperly insulating the agency from congressional supervision. A trial court ruled against the associations, but the appeals court agreed that the funding structure was unconstitutional. Other courts that had previously looked at the agency’s funding structure found no issue.

In urging the justices to take the case, a group of 16 mostly Republican-led states called the CFPB “a failed experiment in administrative governance.”

Just three years ago, in 2020, the high court dealt with a different challenge to the agency. That case involved the agency’s structure. The justices ultimately ruled that Congress had improperly insulated the head of the bureau from removal. The justices said that the agency could continue to operate but that its director had to be removable by the president at will.

The CFPB was the brainchild of U.S. Sen. Elizabeth Warren of Massachusetts, a former Democratic presidential candidate.