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The Supreme Court confronts the CFPB Story-level




The Supreme Court building.


Patrick Semansky/Associated Press

The Supreme Court is doing a vital job of constitutional cleansing, and on Monday it got another chance when it agreed to hear a challenge to the funding scheme of the Bureau of Consumer Financial Protection (CFPB v. Community Financial Services Association)

Before becoming a senator, Elizabeth Warren designed the CFPB to be insulated from the political branches. Most regulatory agencies rely on annual appropriations from Congress. But the CFPB gets its funding at the request of the Federal Reserve, which is also not subject to appropriations since it is financed by its portfolio income.

The Court ruled that the Dodd-Frank Act limit on the president’s ability to remove the director at will was unconstitutional in Seila Law (2020). Justices Clarence Thomas and Neil Gorsuch separately argued that “multiple provisions of the law combine to cause constitutional harm.”

A panel of the Court of Appeals for the Fifth Circuit held in October that “this double insulation of the budget strands of Congress” violates the purchasing power of Article I of the Constitution that rests with Congress. As Alexander Hamilton warned, uniting the economic power of Congress with the executive power of the executive “would destroy that division of powers on which political liberty rests, and furnish one body with all the means of tyranny.” The CFPB “is the epitome of unifying money and sword in the executive,” Judge Cory Wilson wrote for the Fifth Circuit panel.

This means that Congress cannot use annual appropriations to limit regulatory overhang. The Dodd-Frank Act even specifies that Fed “derivative funds” “shall not be subject to review by the House and Senate Appropriations Committees.”

The Biden Administration says the Fifth Circuit ruling “threatens to inflict immense legal and practical damage on the CFPB, consumers, and the nation’s financial sector.” Ms Warren warned Monday that upholding the Fifth Circuit’s decision would throw “our financial markets and our economy into chaos.”

That is alarmism. What he really fears is a political check on unrestricted regulatory power. The Court has an opportunity to put a rogue agency in its rightful constitutional lane.

Magazine editorial report: Paul Gigot interviews Supreme Court specialist Ilya Shapiro. Images: AFP/Getty Images Composition: Mark Kelly

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It appeared in the February 28, 2023 print issue as ‘The Justices Take On the CFPB’.

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