Funding of US consumer protection watchdog is unconstitutional, court rules

Oct 19 (Reuters) – A federal appeals court ruled on Wednesday that the U.S. Consumer Financial Protection Bureau’s funding apparatus is unconstitutional, criticizing a system designed by Democrats to insulate the agency from requiring appropriations congressional.

The US Court of Appeals for the Fifth Circuit based in New Orleans ruled that the independent funding of the CFPB through the Federal Reserve instead of the budgets approved by Congress violated the separation of powers principles of the United States Constitution.

That ruling, by a three-judge panel appointed by then-President Donald Trump, a Republican, in the process struck down a 2017 regulation the agency adopted to combat “unfair and abusive” practices in the payday lending industry. payment.

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The Community Financial Services Association of America sued in 2018 to challenge the rule, which prohibited lenders from making a new attempt to withdraw funds from an account where two consecutive attempts had failed unless consumers consented.

“Even among self-funded agencies, the Office is unique,” US Circuit Judge Cory Wilson wrote. “The Office’s double-insulated, self-directed, perpetual funding structure goes a significant step beyond that enjoyed by the other agencies on offer.”

A CFPB spokesman said “there was nothing new or unusual about Congress’s decision to fund the CFPB outside of annual expense bills.”

The office could ask the full Fifth Circuit to reconsider the case or take it to the US Supreme Court.

Multiple other courts have ruled that CFPB funding is constitutional, a point the Fifth Circuit recognized but disagreed with.

The ruling marked the latest in a series of legal challenges to the CFPB, which Congress created in 2010 by passing the Dodd-Frank Act under Democrat Barack Obama in response to the 2008 financial crisis.

Republicans have long opposed the agency. The Supreme Court in 2020 ruled in another case that the protection Congress originally provided to the CFPB director, who could only be fired for cause, was unconstitutional.

“Far-right judges are questioning every rule the CFPB enforces to protect consumers and businesses alike,” US Senator Elizabeth Warren, the Massachusetts Democrat who proposed the CFPB’s creation, wrote on Twitter.