Court rules CFPB funding unconstitutional, CU Trades applause decision


CFPB headquarters in Washington, DC (Source: Shutterstock)

A three-judge panel of the 5th U.S. Circuit Court ruled late Wednesday that the CFPB’s funding structure is “particularly unconstitutional” in that the bureau receives its funding through the Federal Reserve instead of the federal appropriations process. Congress that other federal agencies are required to adhere to.

The decision is seen as a victory for lenders and many financial institutions who have opposed the CFPB regulator since its inception in 2010, saying the structure was unconstitutional.

The panel of judges concluded that placing CFPB funding outside of the Congressional appropriations process violates the constitutional structure of the separation of powers. Other federal financial regulators, such as the NCUA, must go through Congress to receive funding.

In the court ruling, Judge Cory Wilson wrote, “Even among self-funded agencies, the Bureau is unique. The Office’s perpetually self-managed, double-insulated funding structure goes a step further than that enjoyed by the other proposed agencies.

The justices also wrote, “An expansive executive agency isolated (no, double-insulated) from the purse strings of Congress, expressly exempt from budget scrutiny, and headed by a single director removable at the pleasure of the president is the epitome of leadership. unification of the stock exchange and the sword in the executive – an abomination which the editors warned would “destroy that division of powers on which political liberty is founded”.

In a statement late Wednesday, CUNA President and CEO Jim Nussle said, “Today’s court decision is consistent with CUNA’s longstanding position that funding for the CFPB goes through the process. standard assignment. Clearly, this is the most appropriate route from the very beginning of the CFPB, as it would provide additional oversight from Congress and incentivize the bureau to focus its attention on bad actors causing real harm to consumers.

Judges also struck down the CFPB’s 2017 small-dollar loan rule, which plaintiffs in the case allege was issued illegally.

A statement from the NAFCU reads: “Furthermore, using the payday rule as an example, the Court agreed that the plaintiffs had clearly shown that the unconstitutional funding of the CFPB had caused harm.

“The Court ruled that the payday loan rule issued by the CFPB is invalid not because the CFPB did not have the authority to write it, but because it was enacted using funds so granted. unconstitutional.”

It is unclear at this time whether the CFPB will appeal the decision.

READ MORE: The full ruling from the United States Court of Appeals for the Fifth District.

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