WASHINGTON — The Supreme Court agreed Monday to resolve a legal challenge brought by business groups that threatens the federal agency charged with protecting consumers from illegal financial services practices.
The justices will hear an appeal from a Biden administration opposing a lower court ruling last year that said the mechanism allowing the Consumer Financial Protection Bureau to be funded directly by the Federal Reserve is unconstitutional.
The challengers, two trade groups representing the lenders, argue that the agency should be funded with an appropriation approved by Congress.
Although the Biden administration had asked the court to fast-track the case, it will be decided in the court’s next term, which begins in October and ends in June 2024.
The bureau, which enforces consumer protection laws on issues such as mortgages, credit cards and student loans, was established as part of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act. The funding structure was designed to protect it from political influence, with Republicans opposed to its creation.
Republican and business interests have sought to weaken the bureau since it was created. It has faced various legal challenges, with the Supreme Court ruling in 2020 that a separate provision that protected the agency’s single director from removal by the president at any time during his five-year term was unconstitutional.
The irony of that decision was that President Joe Biden had given free rein to appoint its director, Rohit Chopra, after he takes office in 2021.
In the latest case, the Community Financial Services Association of America and the Consumer Service Alliance of Texas filed suit in 2018 to overturn a regulation that outlawed payday loans.
A federal judge ruled in favor of the bureau because it diluted the original regulation. As it currently stands, the rule — which is not in effect — repeatedly demands lenders withdraw loan repayments from a consumer’s bank account when there are insufficient funds.
But the 5th US Circuit Court of Appeals based in New Orleans ruled in October 2022 for the challengers. Rejecting the regulation, it concluded that the funding mechanism was an illegal injunction of Congress’s responsibility for appropriate funding based on the apportionment of the Constitution. Government powers.
Solicitor General Elizabeth Prologer, representing the bureau, said in court papers that the appeals court’s decision “threatens to inflict enormous legal and practical harm on both the agency, consumers and the financial sector”. This is partly because it “calls into question every action taken by the CFPB,” she said.
Lenders urged the court not to take the case, saying there were “numerous legal flaws” with the payday rule and that because the regulation is not in effect, the appeals court’s ruling has limited effect.
New York and 20 other Democratic-leaning states filed a brief supporting the bureau, while Republican-led West Virginia joined 15 other states in filing a brief supporting the challenge.