State AGs Battle Over CFPB Constitutionality

Republican and Democratic officials contest bureau’s legality and future.

State attorneys general from both parties agree that the U.S. Supreme Court should consider whether the CFPB’s current funding scheme is legal.

But that’s where the agreement ends.

The state officials vehemently disagree over the process for funding the agency, which draws money from the Federal Reserve and is not subject to the annual appropriations process.

Republican attorneys general—no fans of the bureau—want the Supreme Court to consider the case and decide the agency should be funded by annual appropriations.

Democrats, on the other hand, say the funding process is fine.

Background

In October, a three-judge panel from the Fifth Circuit Court of Appeals ruled that the process for funding the CFPB was unconstitutional.

The Community Financial Services Association of America had filed suit against the agency, challenging its payday lending rule. The association represents payday lenders.

And in deciding that the funding process was illegal, the appeals court ruled that the payday rule also was illegal, a decision that could call into question all CFPB rules and examinations since the agency was created in Dodd-Frank.

Republican Stance

In a brief filed with the Supreme Court, the Republicans say the constitutionality question is causing confusion.

“So now much of the country’s financial industry sits in a state of regulatory limbo, wondering whether the CFPB can continue as a going concern without congressional intervention,” they wrote.

They added that since the agency is freed from budgetary concerns, CFPB officials have repeatedly demonstrated indifference to oversight from just about anyone.

States, they said, need “to know what role federal regulators will play—or not—in this critical area.”

The brief was filed by the attorneys general from the states of West Virginia, Alabama, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia.

Democrats’ Position

Democratic attorneys general had a different view of the bureau.

“For over a decade, the CFPB has served as a valued enforcement and regulatory partner to the States, which have historically served at the forefront of efforts to protect consumers against fraudulent and abusive practices,” the state officials wrote in their brief.

They went on to warn that the court of appeals’ reasoning could jeopardize many of the agency’s actions to the detriment of consumers and financial services providers.

“The CFPB’s regulations offer nationwide consumer financial protections and target areas where the States may face challenges in regulating fraudulent and abusive practices, such as here when payday lenders seek to move online in attempting to escape state regulation,” the brief stated.

They added, “Losing the CFPB’s important contributions would seriously impair the States’ efforts to combat fraud and abuse in the consumer marketplace.”

The brief was filed by the attorneys general from New York, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington, and Wisconsin, and the District of Columbia.