(ConservativeHub.com) – On Tuesday, October 3, the U.S. Supreme Court appeared unconvinced by claims that the funding method for the Consumer Financial Protection Bureau (CFPB) was in violation of the Constitution. The case under review has significant implications for financial regulations introduced after the 2008 economic meltdown, according to a past member of the CFPB’s advisory board.
Lenders are contesting the CFPB’s stance on payday lending, which bars banks from attempting to extract funds from borrowers who have missed two consecutive payments. A part of their argument includes concerns regarding the constitutionality of the agency’s funding
Previously, the Fifth Circuit Court of Appeals had determined that since the CFPB’s funding originates from the Federal Reserve and not directly from Congress, it was unconstitutional. The CFPB challenged this view, labeling the decision as mistaken and sought the Supreme Court’s intervention in November.
Experts believe that if the Supreme Court finds the CFPB’s funding unconstitutional, it could cause significant upheaval in the mortgage and financial sectors.
Established following the 2008 financial crisis, the CFPB has played a pivotal role in overseeing the vast $19 trillion U.S. mortgage market. Its foundational objective, as outlined in the Dodd-Frank Act, was to ensure the financial stability of the U.S.
During the hearing, several justices seemed doubtful about the claims of unconstitutional funding. Joann Needleman of Clark Hill Public Strategies and a past member of the CFPB’s advisory board noted the skepticism displayed by the majority of justices, particularly among conservative members.
Noel J. Francisco, who is opposing the CFPB, argued that the lack of clear limits on the funding the CFPB receives from the Federal Reserve caused concerns. His comments drew criticism from Justice Sonia Sotomayor, who referenced historical instances of Congress allocating non-specific funds to agencies.
During the proceedings, Justice Clarence Thomas sought clarity on Francisco’s stance regarding funding, to which Francisco replied that Congress hadn’t clearly defined the agency’s spending limits. In contrast, Justice Brett M. Kavanaugh insinuated that Congress has the authority to modify the CFPB’s operations if necessary.
Solicitor General Elizabeth Prelogar defended the CFPB’s funding model by highlighting its similarities to the funding models of other regulators, including the Federal Reserve and the Federal Deposit Insurance Corp.
Newsweek reported that legal observers, like Elyse Hicks of Americans for Financial Reform, felt that the challenging group struggled with their arguments. The court’s decision on the matter is anticipated by spring 2024.
According to the outlet, Christopher Peterson, a law professor at the University of Utah, expressed optimism, stating that considering the legal history, there should be a robust majority upholding longstanding precedents.
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