Supreme Court Sides With Consumer Financial Protection Bureau, Spurning a Conservative Attack

WASHINGTON — The Supreme Court on Thursday rejected a conservative-led attack that could have undermined the Consumer Financial Protection Bureau.

The justices ruled 7-2 that the way the CFPB is funded does not violate the Constitution, reversing a lower court and drawing praises from consumers. Justice Clarence Thomas wrote the majority opinion, splitting with his frequent allies, Justices Samuel Alito and Neil Gorsuch, who dissented.

The CFPB was created after the 2008 financial crisis to regulate mortgages, car loans and other consumer finance. The case was brought by payday lenders who object to a bureau rule that limits their ability to withdraw funds directly from borrowers' bank accounts. It's among several major challenges to federal regulatory agencies on the docket this term for a court that has for more than a decade been open to limits on their operations.

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The CFPB, the brainchild of Democratic Sen. Elizabeth Warren of Massachusetts, has long been opposed by Republicans and their financial backers. The bureau says it has returned $19 billion to consumers since its creation.

Outside the Supreme Court following the decision, Warren said, “The Supreme Court followed the law, and the CFPB is here to stay.”

President Joe Biden, a fellow Democrat who has taken steps to strengthen the bureau, called the ruling “an unmistakable win for American consumers.”

Unlike most federal agencies, the consumer bureau does not rely on the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve, with a current annual limit of around $600 million.

The federal appeals court in New Orleans, in a novel ruling, held that the funding violated the Constitution’s appropriations clause because it improperly shields the CFPB from congressional supervision.

Thomas reached back to the earliest days of the Constitution in his majority opinion to note that “the Bureau's funding mechanism fits comfortably with the First Congress' appropriations practice.”

In dissent, Alito wrote, “The Court upholds a novel statutory scheme under which the powerful Consumer Financial Protection Bureau (CFPB) may bankroll its own agenda without any congressional control or oversight.”

The CFPB case was argued more than seven months ago, during the first week of the court’s term. Lopsided decisions like Thursday's 7-2 vote typically don't take so long, but Alito's dissent was longer than the majority opinion, and two other justices, Elena Kagan and Ketanji Brown Jackson, wrote separate opinions even though they both were part of the majority.

Consumer groups cheered the decision, as did a bureau spokesman.

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“For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement," bureau spokesman Sam Gilford said in a statement. “The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said the decision upholding the consumer bureau's funding structure would have positive effects across the U.S. economy.

“It’s always nice to see the courts get something right — especially in this tawdry circumstance where payday loan predators sought to wriggle out of basic oversight using absurd distortions of law and fact,” Van Tol said in a statement.

While the U.S. Chamber of Commerce and some other Business interests backed the payday lenders, mortgage bankers and other sectors regulated by the CFPB cautioned the court to avoid a broad ruling that could unsettle the markets.

In 2020, the court decided another CFPB case, ruling that Congress had improperly insulated the head of the bureau from removal. The justices said the director could be replaced by the president at will but allowed the bureau to continue to operate.