Supreme Court Upholds Consumer Protection Agency Against Conservative and Payday Lending Industry Opposition
In a recent decision, the Supreme Court upheld the existence of the federal consumer watchdog agency established post the 2008 financial crisis, rejecting challenges from the payday lending sector. This ruling safeguards consumer-friendly banking regulations and ensures the agency's continued operation in its current capacity.
The Supreme Court decided on Thursday that the federal watchdog established after the 2008 financial crisis can remain as it is. This decision disregarded arguments from the payday lending industry that could have put at risk many years of consumer-friendly banking rules.
Justice Clarence Thomas authored the majority opinion for a 7-2 court.
The Biden administration scored a win with the ruling, as they successfully argued that the Consumer Financial Protection Bureau's funding should not be invalidated. This decision would have undone important regulations on mortgages, car loans, and credit cards that aim to protect consumers from financial scams. The bureau was established by Congress in 2010 for this purpose.
Republicans have historically held doubts about the agency, which was first proposed by Democratic Sen. Elizabeth Warren of Massachusetts.
The payday lending groups took legal action against a 2017 rule by the bureau. The rule aimed to stop repeated attempts to withdraw payments from accounts after two failed tries due to insufficient funds, which could lead to extra banking fees for borrowers.
Although most of the industry's arguments were unsuccessful in lower courts, the 5th US Circuit of Appeals in New Orleans sided with one claim. The appeals court stated that the agency's funding went against a fundamental principle that only Congress has the power to allocate funds. As a result, the conservative appeals court overturned the payday lending rule. In 2022, the Biden administration appealed to the Supreme Court.
Instead of relying on annual appropriations from Congress, the CFPB is funded by the combined earnings of the Federal Reserve system each year, up to approximately $600 million. This unique setup was designed to protect the bureau's independence from the influence of the current political party in control of Congress.
According to Thomas, specifying the funding source and purpose is sufficient control for Congress to create and finance an administrative agency, despite potential constitutional limitations.
CNN Supreme Court analyst Steve Vladeck believes that the recent ruling is another example of the high court rejecting controversial opinions from the 5th Circuit. According to Vladeck, a professor at the University of Texas School of Law, the decision serves as a clear rebuke of the 5th Circuit's support of a new constitutional theory that could have had serious consequences. This is not the first time this term that the Supreme Court has disagreed with the 5th Circuit, indicating that the appeals court in New Orleans is leaning too far to the right even for the Supreme Court.
Justice Samuel Alito disagreed with the majority's opinion, stating that he believed the agency was given too much freedom. He expressed his dissent in a statement joined by Justice Neil Gorsuch. Alito mentioned that the funding structure of the CFPB provides it with an unusual level of financial independence, which goes against the purpose of the appropriations clause. He even compared the agency's financial autonomy to that of a Stuart king, emphasizing the excessive freedom given to the CFPB.
Four years ago, during the Trump administration, the Supreme Court ruled against the bureau. They found that the bureau's leadership structure went against the principle of separation of powers. This was because the president was not allowed to remove the director, which was meant to protect the agency from political bias.
This story has been updated with more information.
Editor's P/S:
The Supreme Court's decision to uphold the Consumer Financial Protection Bureau (CFPB) is a significant victory for consumer protection. The agency's unique funding structure ensures its independence from political influence, which is crucial for protecting consumers from predatory lending practices and other financial scams. The court's rejection of the payday lending industry's arguments is a clear affirmation of the CFPB's important role in safeguarding the financial well-being of Americans.
The 5th Circuit's support for a controversial constitutional theory that could have weakened the CFPB is concerning. The Supreme Court's rebuke of this theory suggests that the 5th Circuit is out of step with the rest of the federal judiciary. It is important for the 5th Circuit to adhere to established legal principles and avoid issuing rulings that could undermine the rule of law and harm consumers.
