On October 19, 2022, the 5th Circuit Court ruled that the CFPB’s funding mechanism is unconstitutional because it violates the Appropriations Clause, and the Constitution’s structural separation of powers while also invalidating the Payday Lending Rule. 

This ruling calls into question the legal validity and applicability of rules that the CFPB has issued. The ruling has potential implications for other federal agencies funded outside the congressional appropriations process. 

In response to this ruling, the Solicitor General appealed this decision and petitioned the Supreme Court to determine whether the 5th circuit court erred in its decision. The Supreme Court will announce on Friday, February 17th whether it will grant a writ of certiorari, an agreement among 4 justices to hear this case. 

Initially, Congress created the CFPB through the Dodd-Frank Act and established the agency in response to the 2008 financial crisis and the Great Depression. The agency’s goal is to provide consumer protection in the financial sector and entities in the financial services industry including banks, credit unions, securities firms, payday lenders, and debt collectors. 

To protect it from political influence,  the CFPB was set up to receive funding through a request from the Director of the Federal Reserve rather than through the congressional appropriations process. The Federal Reserve and the Federal Deposit Insurance Corporation are also funded outside of the congressional appropriations process.  This decision would potentially call into question the constitutionality of these entities as well. 

Political opponents of the CFPB and their allies in the financial services industry have had an agenda to destroy it since its creation in 2010. This agenda has moved forward in right-wing courts like the 5th circuit court, where Trump-appointed Judge Cory Wilson made this ruling. 

Recently, I have been working with Americans for Financial Reform to advocate our support for the CFPB among legislative offices. Kimberly Fountain, consumer financial justice organizer for Americans for Financial Reform recently said “A broad coalition of organizations came together over a decade ago to support the creation of the CFPB…That same set of groups, and more, is ready to defend the CFPB from legal and political attacks so it can continue to do its excellent work.”

We believe that the 5th circuit decision is not in the best interest of consumers and the public. In fact, polling data shows that 79% of bipartisan voters support the mission of the CFPB and its effort to protect Americans from abusive and fraudulent financial products. 

In the past decade, the CFPB has won over $13.5 billion in relief for about 175 million consumers in the form of restitution or canceled debts, and $1.8 billion in civil penalties that can compensate victims even if the company that defrauded them cannot. Currently, under Director Rohit Chopra’s leadership, the agency’s work has saved consumers $1 billion each year from overdraft charges, and it is working to reduce “junk fees”. The 5th circuit ruling calls into question virtually every CFPB action since the agency’s inception in 2011. 

The CFPB’s work protects individuals from predatory lenders and punishes bad actors who discriminate against people of color. NHRC believes that we should support the constitutionality and sustainability of the CFPB, and we will keep weighing in with members on this issue. Please email me if you would like to be involved in this advocacy campaign. 

Best Regards,

Cristy Villalobos-Hauser