The funding for the U.S. Consumer Financial Protection Bureau, which is meant to protect consumers in the financial sector, was deemed unconstitutional Wednesday by a federal appeals court.
Democratic Sen. Elizabeth Warren of Massachusetts, who was the driving force behind the agency’s creation, declared the judges’ ruling was “lawless and reckless.”
In the wake of the Great Recession that began in 2008, the CFPB was created by Congress and then-President Barack Obama as a financial watchdog, NPR reported.
It emerged from a 2007 paper by Warren when she was a professor at Harvard University. She proposed it as a financial version of the Consumer Product Safety Commission.
“This agency was Elizabeth’s idea, and through sheer force of will, intelligence and a bottomless well of energy, she has made, and will continue to make, a profound and positive difference for our country,” Obama said in July 2011 when he appointed the agency’s first director, according to The New York Times.
The intent of the CFPB was to protect Americans from being taken advantage of by banks, loan structures, credit card companies and the financial sector in general, according to NPR.
But GOP leaders and Wall Street lenders have been fighting the agency for years, arguing that it has too much unchecked power, according to CNN.
For example, the CFPB had made banks return more than $12 million to consumers at the time of the 2017 report.
“Republicans argue it’s a ‘rogue’ agency because it’s not funded by Congress, and it’s run by a single director who can’t be fired by the president at will,” CNN said at the time.
That issue was at the heart of the ruling Wednesday by the three-judge panel of the 5th U.S. Circuit Court of Appeals.
The judges said that because the CFPB receives its funding from the Federal Reserve and not from Congress, the funding structure is unconstitutional, Politico reported.
The three judges behind the decision, Judge Cory Wilson, Judge Don Willett and Judge Kurt Engelhardt were appointed to the 5th Circuit by former President Donald Trump — a fact that rankled Warren.
To stay within the parameters of the Constitution and pursue its purpose, the judges said, the CFPB would have had to be funded by congressional appropriations legislation.
Instead, when Democrats set up the agency in the 2010 Dodd-Frank law, they arranged for its funding to come from the Fed, claiming that it needed to be a few steps removed from direct congressional control to protect it from political pressure.
The 5th Circuit judges said that “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.”
“While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not,” the ruling said. “Instead, each year, the Bureau simply requisitions from the Federal Reserve an amount ‘determined by the Director to be reasonably necessary to carry out’ the Bureau’s functions.”
The judges indicated the CFPB setup lacked accountability even when compared with other self-funded bodies, such as the Federal Deposit Insurance Corp.
“Even among self-funded agencies, the Bureau is unique,” the ruling said. “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer. And none of the agencies cited above ‘wields enforcement or regulatory authority remotely comparable to the authority the [Bureau] may exercise throughout the economy.'”
Warren decried the court’s decision and the judges behind it on Wednesday.
“This is a lawless and reckless decision. @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,” the senator tweeted.
This is a lawless and reckless decision. @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. https://t.co/rktOfC46R5
— Elizabeth Warren (@SenWarren) October 19, 2022
The CFPB did not immediately announce whether it would appeal the decision, Politico reported.
However, agency spokesman Sam Gilford defended the agency’s setup, saying that “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,” he said. “The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”
Meanwhile, Republicans hailed the ruling as necessary and long-overdue.
“Congress should have never given up its appropriations power when establishing the CFPB,” Sen. Cynthia Lummis of Wyoming tweeted. “It needs the same Congressional oversight as every other government agency. This includes being funded through the normal appropriations process, not through the Fed.”
Congress should have never given up its appropriations power when establishing the CFPB. It needs the same Congressional oversight as every other government agency. This includes being funded through the normal appropriations process, not through the Fed. https://t.co/BtGnuKPy3w
— Senator Cynthia Lummis (@SenLummis) October 20, 2022
“This is a welcomed & long-overdue ruling. The Fed never should have been tapped as a source of funding for the CFPB, especially when the Fed is suffering losses on its assets,” Sen. Bill Hagerty of Tennessee tweeted.
This is a welcomed & long-overdue ruling. The Fed never should have been tapped as a source of funding for the CFPB, especially when the Fed is suffering losses on its assets. https://t.co/DybAYQcAm3
— Senator Bill Hagerty (@SenatorHagerty) October 20, 2022
Sen. Pat Toomey of Pennsylvania said the CFPB “has been an unconstitutional and unaccountable agency since its inception.”
I’ve long argued that the CFPB should be subject to Congressional appropriations. As the Constitution requires, the people’s representatives shall determine how their tax dollars are spent. I’m glad to see the court agrees.
— Senator Pat Toomey (@SenToomey) October 20, 2022
“I’ve long argued that the CFPB should be subject to Congressional appropriations. As the Constitution requires, the people’s representatives shall determine how their tax dollars are spent. I’m glad to see the court agrees,” he said.
This article appeared originally on The Western Journal.
