ON WEDNESDAY, THE 5th CIRCUIT COURT OF APPEALS, in a three-judge panel, ruled that the Obama-era Consumer Financial Protection Bureau is unconstitutional. The case, brought by high-interest-rate “payday lenders,” got a regulation promulgated by the financial watchdog agency tossed as well as a ruling that the funding mechanism for the agency “violates the Constitution’s structural separation of powers.” The decision can be read here.
The CFPB was created under the Obama administration after the financial crisis of 2007-09 (known as the “Great Recession”) and widely viewed as the brainchild of Sen. Elizabeth Warren’s (D-Mass.) that she developed when she was a professor at Harvard University. It sought to protect Americans from illegal or unethical practices of banks, student loans, credit card companies, and other financial entities. While Congress had approved funding the bureau, the CFPB wanted to appear devoid of political influence, and so in an unprecedented arrangement, received its funding from the Federal Reserve, which is what violates the Constitution. Social Security and Medicare also are funded outside of Congressional annual appropriations, too.
Warren has been described as “having a hissy fit” over the decision, calling it “lawless and reckless.” Adding insult to her injury is the fact that the three judges were Trump appointees: Cory Wilson, Don Willett, and Kurt Engelhardt. It is expected the CFPB will seek a stay as it appeals to the full 5th Circuit Court, and, if necessary, to the Supreme Court. The bureau’s claim is the Federal Deposit Insurance Corporation and Federal Reserve do not get their funding through Congress, either, and is outside the appropriations process, using assessments from banks for funding. Opponents would surely point out the mandates and missions are quite different , it’s unaccountable, and it operates as a rouge agency because it’s not funded by Congress.
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