Supreme Court upholds CFPB funding structure

The court's decision overturned a lower court ruling, confirming that the CFPB's funding mechanism does not violate the Constitution. The CFPB, established in the aftermath of the 2008 financial crisis to oversee consumer finance sectors such as mortgages and car loans, faced this legal challenge from payday lenders. These lenders opposed a bureau rule restricting their ability to withdraw funds directly from borrowers' bank accounts. This case is one of several major challenges to federal regulatory agencies under consideration this term. 

Created by Senator Elizabeth Warren, the CFPB has faced consistent opposition from Republicans and financial industry backers according to apnews.com. The bureau reports having returned USD 19 billion to consumers since its inception. Unlike most federal agencies, the CFPB is funded by the Federal Reserve, bypassing the annual congressional budget process and capping its funding at approximately USD 600 million annually.

Previous rulings 

The federal appeals court in New Orleans had previously ruled that this funding arrangement violated the appropriations clause of the Constitution, arguing it shielded the CFPB from congressional oversight. However, Justice Clarence Thomas referenced historical practices to justify the funding mechanism. In dissent, Justice Samuel Alito criticised the funding structure for lacking congressional control. 

The case, argued over seven months ago, resulted in a longer dissenting opinion from Alito and additional concurring opinions from Justices Elena Kagan and Ketanji Brown Jackson, despite their alignment with the majority. 

Following the decision, consumer advocacy groups expressed support, highlighting the ruling's importance for maintaining consumer protection. Some business groups, including the US Chamber of Commerce, had supported the payday lenders, while others in the mortgage banking sector advised against a ruling that could destabilise financial markets. 

This ruling follows a 2020 Supreme Court decision which allowed the CFPB to continue operating but permitted the president to replace its director at will, modifying the bureau's structural independence without affecting its functions.