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Supreme Court to hear case that threatens existence of consumer protection agency

The U.S. Supreme Court will hear arguments next term about whether Consumer Financial Protection Bureau, set up after the 2008 financial crisis to protect consumers from predatory lending practices, is funded constitutionally.
Anna Moneymaker
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The U.S. Supreme Court will hear arguments next term about whether Consumer Financial Protection Bureau, set up after the 2008 financial crisis to protect consumers from predatory lending practices, is funded constitutionally.

The Supreme Court agreed on Monday to take up a case that could threaten the existence of the Consumer Financial Protection Bureau and potentially the status of numerous other federal agencies, including the Federal Reserve.

A panel of three Trump appointees on the Fifth Circuit Court of Appealsruled last fall that the agency's funding is unconstitutional because the CFPB gets its money from the Federal Reserve, which in turn is funded by bank fees.

Although the agency reports regularly to Congress and is routinely audited, the Fifth Circuit ruled that is not enough. The CFPB's money has to be appropriated annually by Congress or the agency, or else everything it does is unconstitutional, the lower courts said.

The CFPB is not the only agency funded this way. The Federal Reserve itself is funded not by Congress but by banking fees. The U.S. Postal Service, the U.S. Mint, and the Federal Deposit Insurance Corp., which protects bank depositors, and more, are also not funded by annual congressional appropriations.

In its brief to the Supreme Court, the Biden administration noted that even programs like Social Security and Medicare are paid for by mandatory spending, not annual appropriations.

"This marks the first time in our nation's history that any court has held that Congress violated the Appropriations Clause by enacting a law authorizing spending," wrote the Biden administration's Solicitor General Elizabeth Prelogar.

A conservative bête noire

Conservatives who have long opposed the modern administrative state have previously challenged laws that declared heads of agencies can only be fired for cause. In recent years, the Supreme Court has agreed and struck down many of those provisions. The court has held that administrative agencies are essentially creatures of the Executive Branch, so the president has to be able to fire at-will and not just for cause.

But while those decisions did change the who, in terms of who runs these agencies, they did not take away the agencies' powers. Now comes a lower court decision that essentially invalidates the whole mission of the CFPB.

The CFPB has been something of a bête noire for some conservatives. It was established by Congress in 2010 after the financial crash; its purpose was to protect consumers from what were seen as predatory practices by financial institutions. The particular rule in this case involves some of the practices of payday lenders.

The CFPB was the brainchild of then White House aide, and now U.S. Senator Elizabeth Warren. She issued a statement Monday noting that lower courts have previously and repeatedly upheld the constitutionality of the CFPB.

"If the Supreme Court follows more than a century of law and historical precedent," she said, "it will strike down the Fifth Circuit's decision before it throws our financial market and economy into chaos."

The high court will not hear arguments in the case until next term, so a decision is unlikely until 2024.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Nina Totenberg is NPR's award-winning legal affairs correspondent. Her reports air regularly on NPR's critically acclaimed newsmagazines All Things Considered, Morning Edition, and Weekend Edition.

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