CFPB headquarters in Washington, D.C. (Source: Shutterstock)
A three-judge panel of the 5th U.S. Circuit Court ruled late Wednesday that the CFPB's funding structure is "uniquely unconstitutional" in that the bureau receives its funding through the Federal Reserve instead of the congressional appropriations process other federal agencies are required to adhere to.
The ruling is considered a victory for lenders and many financial institutions that have been against the CFPB's regulatory authority since its inception in 2010, believing that the structure was unconstitutional.
The panel of judges found placing the CFPB's funding outside of the congressional appropriations process violates the constitutional structure of separation of powers. Other federal financial regulators, such as the NCUA, must go through Congress to receive funding.
In the court's ruling, Judge Cory Wilson wrote, "Even among self-funded agencies, the Bureau is unique. 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 judges also wrote, "An expansive executive agency insulated (no, double-insulated) from Congress's purse strings, expressly exempt from budgetary review, and headed by a single Director removable at the President's pleasure is the epitome of the unification of the purse and the sword in the executive — an abomination the Framers warned 'would destroy that division of powers on which political liberty is founded.'"
In a statement Wednesday night, CUNA President/CEO Jim Nussle said, "The court's decision today is consistent with CUNA's longstanding position that CFPB funding go through the standard appropriations process. It's been clear this is the most appropriate avenue since the very start of the CFPB, as it would provide additional congressional oversight and incentivize the bureau to focus its attention on bad actors causing real harm to consumers."
The judges also vacated the CFPB's 2017 small-dollar lending rule, which the Plaintiffs in the case argued was issued unlawfully.
A statement from NAFCU read, "In addition, using the payday rule as an example, the Court agreed that the Plaintiffs had clearly showed the unconstitutional funding of the CFPB has inflicted harm.
"The Court ruled that the payday lending rule issued by the CFPB is invalid not because the CFPB lacked the authority to write it, but because it was promulgated using unconstitutionally granted funds."
It's unclear at this time if the CFPB will appeal the ruling.
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Michael Ogden
Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.
