Supreme Court Rejects Challenge to CFPB

The U.S. Supreme Court on Thursday rejected an attempt by payday lenders and their credit union allies to dismantle the Consumer Financial Protection Bureau through a lawsuit that challenged its funding and governance.

The 7-2 opinion on the CFPB required the court to interpret 16 words in the Constitution’s Appropriations Clause: “No money shall be drawn from the treasury, but in consequence of appropriations made by law.”

CUNA and NAFCU filed a brief in July 2023 supporting the suit brought by payday lenders that said CFPB rules are invalid because the agency’s funding violates the Constitution’s Appropriations Clause.

During oral arguments before the court on Oct. 3, 2023, justices from Clarence Thomas to Brett M. Kavanaugh of the conservative majority to Sonia Sotomayor and Ketanji Brown Jackson of liberal minority voiced skepticism about a 2022 ruling by the Fifth Circuit supporting payday lenders’ arguments that the CFPB was violating the Appropriations Clause.

Indeed, Justice Thomas, one of the most conservative members on the court, wrote the ruling, which was joined by Kavanaugh, Sotomayor, Jackson, John G. Roberts Jr, Elena Kagan and Amy Coney Barrett. Conservative justices Samuel A. Alito and Neil M. Gorsuch submitted a dissenting opinion.

“The Bureau’s funding statute satisfies the requirements of the Appropriations Clause,” Thomas wrote. “The (payday lenders) associations’ three principal arguments for why the Bureau’s funding mechanism violates the Appropriations Clause are unpersuasive.”

Congress created the CFPB through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the wake of the Great Recession. Congress ordered that the CFPB be funded by a capped amount of the Federal Reserve System’s annual funds in a way that gave the Fed no control over its disbursement. In fiscal year 2023, the CFPB received $721.2 million of the $750.9 million allowed by the cap.

The CFPB issued a statement saying the ruling “upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system.”

“For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement,” the CFPB said. “The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”

Leaders of credit union trade groups that had sided with the payday lenders’ suit said they were disappointed with the ruling.

“We strongly believe that the CFPB’s current funding structure denies any accountability to Congress and ultimately the consumers it is tasked with serving,” Jim Nussle, president/CEO of America’s Credit Unions, said. The group is the product of the merger of CUNA and NAFCU in January.

“The CFPB has the ability to shape the entire financial services marketplace with its actions, but has chosen to pursue overreaching regulatory burdens as a result of its broad powers,” Nussle said. “America’s Credit Unions will continue to advocate for accountability and transparency at the bureau.”

The Defense Credit Union Council President/CEO Anthony Hernandez said the group “will continue to work with members of Congress to help pass common-sense reform legislation like establishing a five-member commission to run the agency to improve transparency and accountability.”

“This would prevent much of the regulatory overreach credit unions have experienced recently from the agency,” Hernandez said.

At least one group with credit union ties supported Thursday’s decision.

The Center for Responsible Lending (CRL) said the ruling was a win for consumers. CRL is the policy arm of the Durham, N.C., nonprofit group operating two credit unions: Self-Help Credit Union ($1.8 billion in assets, 89,114 members as of March 31) and Self-Help Federal Credit Union ($2.1 billion, 100,837 members).

CRL lawyer Nadine Chabrier said the ruling “enables the immensely popular Consumer Financial Protection Bureau to keep doing its job as a watchdog agency that protects Americans’ wallets from predatory financial firms.”

“The Supreme Court’s ruling provided a welcome dose of common sense as it rejected an unprecedented, reckless argument that could have destabilized a housing market that undergirds our economy and invited challenges to funding for most of the federal government, including Medicare and the Federal Reserve.”

One issue in the payday lenders’ original 2018 suit was swept away by an earlier Supreme Court ruling that said the CFPB’s single-director governance was unconstitutional. Congress changed the agency’s governance to comply.

Payday lenders filed an amended complaint in 2020 that included an argument the CFPB was unconstitutional because it was not funded by an annual appropriation by Congress. After the Fifth Circuit’s ruling, the CFPB asked the Supreme Court to review the case. The court agreed in February 2023.

READ MORE: The Supreme Court’s official decision.