Why The Consumer Financial Protection Bureau Is At Risk Of Being Completely Dissolved
Consumer Financial Protection Bureau receives funding from the Federal Reserve, and if deemed unconstitutional, the agency could be dissolved.
The fate of the Consumer Financial Protection Bureau will be determined by the Supreme Court. The news follows a 2022 lower court decision that stated that the mechanism which allows the agency to be funded by the Federal Reserve is unconstitutional. Depending on the new ruling, the status of several government agencies could be in jeopardy.
The original ruling, made by a panel on the Fifth Circuit Court of Appeals, said funding obtained by the Consumer Financial Protection Bureau is unconstitutional because the Federal Reserve is essentially funded by bank fees. Despite the agency being regularly audited and reporting to Congress, the court said it was insufficient, NPR reports.
According to the Fifth Circuit Court, Congress has to appropriate the funding has to be appropriated annually. If this process is ignored, everything the Consumer Financial Protection Bureau does will be deemed unconstitutional. The justices will be presented with an appeal from the Biden administration contesting the challengers – two trade groups representing financial lenders, NBC News reports.
The Biden administration previously asked the Supreme Court to fast-track the case. However, it will only be decided in the next legal term. It begins in October 2023 and ends in June 2024. The ruling could have significant implications as the Consumer Financial Protection Bureau isn’t the only agency funded similarly.
The Federal Reserve is funded not by bank fees. The United States Postal Service, the U.S Mint, and the Federal Deposit Insurance Corporation are also not funded in other ways and not by congressional appropriations. In its brief about the Consumer Financial Protection Bureau, the Biden administration stated that Social Security and Medicare are also paid for by “mandatory spending, not appropriations.”
“This marks the first time in our nation’s history that any court has held that Congress violated the Appropriations Clause by enacting a law authorizing spending,” Solicitor General Elizabeth Prelogar wrote via NPR on behalf of the Biden administration. The Consumer Financial Protection Bureau has bothered conservatives for some time.
The goal of the agency, which was established by Congress after the financial crash in 2010, is to protect consumers from the “predatory practices” of financial institutions. The ruling in the current case involves the practices of some payday lenders. The agency was created by Senator Elizabeth Warren.
Earlier this week, she issued a statement saying the “constitutionality of the Consumer Financial Protection Bureau has previously and repeatedly” been upheld by the lower courts. “If the Supreme Court follows more than a century of law and historical precedent, it will strike down the Fifth Circuit’s decision before it throws our financial market and economy into chaos,” Warren said via NPR.
The Conservative lawmakers who have opposed the modern administrative state have challenged similar laws before. They believe appointed heads of agencies can only be “fired for cause.” The Supreme Court has agreed in recent years, striking down several existing provisions. As a result, a lower court decision may invalidate the entire mission of the Consumer Financial Protection Bureau.