Appeals court rules CFPB funding structure unconstitutional

An appeals court has ruled that the Consumer Financial Protection Bureau is unconstitutionally funded. The Oct. 19 ruling, written by a three judge panel in the U.S. District Court for the Western District of Texas, invalidates the bureau’s 2017 payday lending rule limiting the collection options for payday lenders. 

The lawsuit challenging the payday lending rule and the CFPB’s funding structure was filed in 2018 by the Community Financial Services Association of America and Consumer Service Alliance of Texas on behalf of payday lenders and credit access businesses. 

The judges wrote that the CFPB’s funding structure violates the Constitution’s Appropriations Clause because it draws funding from the Federal Reserve instead of Congress.  

“In between, Congress gave the director its purse containing an off-books charge card that rings up [un]appropriated monies,” the judges wrote. “Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.” 

Though the Office of the Comptroller of the Currency, National Credit Union Administration and Federal Housing Finance Agency are all self-funded, the judges wrote that the CFPB’s “perpetual self-directed, double-insulated funding structure goes a significant step further.” 

As reported by American Banker, the CFPB is expected to appeal the ruling, and has two options to do so. They can ask for a hearing before the full Fifth Circuit panel of judges, or submit a request for the Supreme Court to hear the case.

“There is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills,” CFPB spokesperson Sam Gilford said, according to Politico. 

“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,” Gilford added. “The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”