So… happy Monday everyone.
More HUGE news for you this morning.
The Supreme Court just granted cert to review whether or not the CFPB is unconstitutionally funded–and this is a huge deal.
For the uninitiated, the CFPB is the primary regulator for banks and finance companies that extend credit to consumers. The organization was created as part of the Dodd Frank Act following the financial meltdown in 2008. It is funded in a really weird way–ironically drawing life from fees it assesses on the banks it regulate by way of the treasury–and not in the normal way government agencies are funded, i.e. via appropriations bills.
Well the Fifth Circuit–a federal appeals court in Texas– held last year that the funding mechanism violates the Constitution’s appropriations clause–and I think they got it right. This means–per the Fifth Circuit anyway–the CFPB is dead because it has no funding to Act. I wrote all about it a while back:
THE CFPB IS DEAD (FOR NOW)!: Fifth Circuit (Correctly) Holds the CFPB’s Funding Was Unconstitutional–Strikes Down Pay Day Lending Rules (and A Lot More)
Rather than try to fix this issue through legislation, the Biden administration has decided to appeal this issue to SCOTUS and le me be the first to say–this is going to blow up in their face. I predict the Supremes–especially this Supreme Court– aligns with the Fifth Circuit and concludes (correctly) that the CFPB’s funding mechanism is, in fact, illegal.
Big gamble here by Biden. The Fifth Circuit’s ruling was mostly shrugged at by regulated institutions, but a Supreme Court ruling striking down the CFPB might really erode much of the hard work the agency has put in over the years. And the fact that cert. is now pending means any enforcement activities being pursued by the CFPB currently should be immediately put on ice. Plus–and I cannot overstate this–the Supremes are very likely to find that the Fifth Circuit got it right. So… no more CFPB.
Why take that shot? I don’t get it. Just fix the funding mechanism and move on.
This is all quite remarkable. It was just two weeks ago, after all, that we reported on the CFPB’s advisory opinion on mortgage comparison websites and pingposts and I reminded everyone that the CFPB was still dead. See:
Well now, it seems, the CFPB may end up really dead.
We’ll keep an eye on this for you.