Quiver Quantitative - The U.S. Supreme Court has upheld the Consumer Financial Protection Bureau's (CFPB) funding mechanism, marking a significant victory for the Biden administration and a setback for the agency's conservative critics. In a 7-2 decision, the Court reversed a lower court ruling that had declared the CFPB’s funding structure unconstitutional. The lower court had argued that drawing money from the Federal Reserve instead of from budgets passed by Congress violated the Constitution's appropriations clause.
Conservative Justice Clarence Thomas, who authored the majority opinion, asserted that the CFPB’s funding design complies with the Constitution. "Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes," Thomas wrote. He concluded that the statute providing the bureau’s funding meets these constitutional requirements. This decision supports the CFPB's ongoing role in regulating the financial industry, particularly in curbing predatory lending practices.
Market Overview: -The U.S. Supreme Court delivers a victory to the Consumer Financial Protection Bureau (CFPB) by upholding its funding mechanism in a challenge from the payday loan industry.
Key Points: -The 7-2 decision reverses a lower court ruling that deemed the CFPB's funding structure unconstitutional. -Justice Thomas' majority opinion argues that the CFPB's reliance on the Federal Reserve for funding complies with the appropriations clause. -The CFPB, established post-2008 financial crisis, has recovered $19 billion for consumers and aims to prevent predatory lending practices.
Looking Ahead: -This ruling safeguards the CFPB's ability to regulate consumer finance and protects its existing regulations. -The decision sets a precedent for other agencies like the FDIC and Fed that utilize similar funding structures. -Consumer advocates celebrate protection from predatory lending, while conservatives may remain critical of the agency's power.
The CFPB was established under the Dodd-Frank Act, signed into law by President Barack Obama in 2010, in response to the 2007-2009 financial crisis. The agency has provided $19 billion in relief to consumers, including a notable $3.7 billion settlement with Wells Fargo (NYSE:WFC) (WFC) in 2022. Despite its achievements, the CFPB has faced strong opposition from conservatives and business groups, who argue that it wields excessive power and imposes onerous regulations on financial institutions.
The case originated from a lawsuit filed by the payday loan industry challenging a 2017 CFPB regulation aimed at preventing unfair and abusive practices. The Supreme Court's ruling overturns the decision by the 5th U.S. Circuit Court of Appeals, which had sided with the payday lenders and invalidated the regulation based on the funding structure issue. The Biden administration warned that invalidating the CFPB's funding arrangement could jeopardize other similarly structured agencies, including the Federal Deposit Insurance Corporation and the Federal Reserve Board. This ruling ensures that the CFPB can continue its mission to protect consumers without disruptions to its funding mechanism.
This article was originally published on Quiver Quantitative