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Biden Asks Supreme Court to Overturn Fifth Circuit’s CFPB Ruling

By David Baumann - November 16, 2022

Petition cites appeals court’s ‘unprecedented’ and ‘erroneous’ understanding of Appropriations Cause.


The Biden Administration on Monday asked the U.S. Supreme Court to overturn an appeals court decision that found that the CFPB’s funding scheme was unconstitutional.

“The court of appeals relied on an unprecedented and erroneous understanding of the Appropriations Clause to hold the CFPB’s statutory funding mechanism unconstitutional,” the administration said, in a petition filed with the high court.

“No other court has ever held that Congress violated the Appropriations Clause by passing a statute authorizing spending,” the petition states.

Context

A panel of judges on the Fifth Circuit Court of Appeals ruled that the process for funding the CFPB was unconstitutional since the agency is not subject to the annual appropriations process. Instead, the agency draws its funding from the Federal Reserve.

And in deciding that the funding was illegal, the appeals court also ruled that the CFPB’s payday loan rule—which was being challenged by associations representing payday lenders—also was illegal.

The administration could have chosen to take the appeal to the full Fifth Circuit but chose to go directly to the Supreme Court. And, considering the implications of the case, officials asked the court to consider it this term.

Inside the Petition

“The CFPB’s critical work administering and enforcing consumer financial protection laws will be frustrated,” the administration wrote. “And because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well.”

Other federal agencies are funded outside the annual appropriations process, according to the administration.

“The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent,” the petition states.

Further, administration officials added, “The CFPB’s funding mechanism is entirely consistent with the text of the Appropriations Clause, with longstanding practice, and with this Court’s precedent.”

Additional Support for the CFPB

Biden Administration officials not the only ones blasting the Fifth Circuit and its ruling.

During a Senate Banking Committee hearing featuring banking regulators, Sen. Elizabeth Warren, D-Mass., called the Fifth Circuit “the Republicans’ go-to court.”

Warren, who is credited with developing the idea of the consumer bureau, said that Congress created independent funding structures for bank regulators to insulate them from political pressure.

Under questioning by Warren, each of the banking regulators—including NCUA Chairman Todd Harper—acknowledged that their agencies are funded outside the appropriations process. The NCUA, for instance, is funded by fees paid by credit unions.

And returning to the Fifth Circuit, Warren added, “The Trump court ruling is not only shockingly dumb it’s also dangerous. That’s what happens when courts play politics instead of following the law.”

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