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Supreme Court May Cripple the CFPB

The current Supreme Court is always keen on overturning laws signed by Democratic presidents. It may soon get a chance to hugely weaken one of them. The upcoming case is about the Consumer Financial Protection Bureau, whose job is to ride herd on businesses that mislead or scam consumers on financial matters (e.g, predatory lending where the loan conditions are deeply hidden in a massive contract). It was the brainchild of Sen. Elizabeth Warren (D-MA) and was signed into law by Barack Obama. Warren was also the first director of the agency (this was before she was a senator). A recent poll showed that 80% of Americans approve of the organization, but that doesn't matter if five or six members of the Supreme Court do not approve of it.

Going after scammy businesses requires a big staff of investigators and lawyers, and that costs money. A typical investigation the CFPB did is one in which Wells Fargo unlawfully repossessed vehicles, froze accounts, and charged overdraft fees even when customers had sufficient funds in their accounts. The CFPB collected so much evidence of the bank's wrongdoing that in December it agreed to pay $3.7 billion rather than go to trial. That took a lot of legwork.

Congress created the CFPB, so the Court can't just kill it off outright. It's opponents, namely the banks, payday lenders, credit card companies, and other financial players, know that. So their goal is: Defund the CFPB. Consequently, the legal case hinges on its funding mechanism. Most federal agencies get an annual appropriation from Congress. The CFPB gets its funding from the Federal Reserve. The conservative U.S. Court of Appeals for the Fifth Circuit has already ruled that this funding is unconstitutional. Republicans hope the Supreme Court will uphold the Fifth Circuit. If the decision is sustained, the CFPB will still exist on paper, but won't have much money to hire staff to actually look for scams and prosecute cases. For the financial firms, this will do until a future Republican trifecta eliminates the Bureau entirely.

But wait. The CFPB is small potatoes. Many other federal agencies are also funded by various methods other than an annual appropriation from Congress. If the Supreme Court rules that Congress does not have the authority to pass laws funding agencies by any mechanism other than by an annual appropriation, then a huge number of Executive agencies will be effectively defunded. Also not funded by annual appropriation? Congress itself. It's set up that way so it can keep working on the annual budget when, inevitably, it fails to pass the annual budget in time. So, maybe it will have to shut down.

Needless to say, there is nothing in the Constitution stating how Congress must fund agencies, so it might seem odd that the Supreme Court suddenly discovered that only one mechanism is constitutional. If Congress decided that some other mechanism was appropriate, where does the Court get the power to say Congress can't do that? Answer: We have six votes saying we have the power. The case is known as CFPB v. CSFA. (V)

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