U.S. consumer protection watchdog’s funding unconstitutional, court rules

19 Oct (Reuters) – A federal appeals court ruled on Wednesday that the US Consumer Finance Agency’s funding apparatus is unconstitutional, faulting a system used by Democrats to keep the agency from needing congressional funds.

The New Orleans-based 5th US Circuit Court of Appeals ruled that the CFPB’s independent funding from the Federal Reserve rather than from budgets passed by Congress violated the principles of separation of powers in the US Constitution.

That ruling, by a panel of three judges appointed by former Republican President Donald Trump, overturned an ordinance the agency passed in 2017 aimed at addressing “unfair and abusive” practices in the payday loan industry.

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The Community Financial Services Association of America sued in 2018 to challenge the rule that prevented lenders from making a new attempt to withdraw money from an account after two consecutive attempts had failed, unless consumers consented.

“Even among self-funded agencies, the Bureau is unique,” wrote US Judge Cory Wilson. “The Bureau’s ongoing self-directed, doubly-funded funding structure goes a significant step beyond that of the other agencies on offer.”

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A CFPB spokesman said in a statement there was “nothing new or unusual about Congress’ decision to fund the CFPB outside of annual spending bills.” It could ask the entire 5th Circuit to reconsider the case or appeal to the US Supreme Court.

Trade group officials did not respond to requests for comment.

The ruling was the latest in a series of legal challenges to the CFPB created by Congress in 2010 by passing the Dodd-Frank Act during the administration of former Democratic President Barack Obama in response to the 2008 financial crisis.

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Republicans have long opposed the agency. In another 2020 case, the Supreme Court ruled that the protections Congress originally afforded to the CFPB director, who could only be fired for cause, was unconstitutional.

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Reporting by Nate Raymond in Boston; Adaptation by Stephen Coates

Our standards: The Thomson Reuters Trust Principles.

Nate Raymond

Thomson Reuters

Nate Raymond reports on federal jurisdiction and litigation. He can be reached at [email protected]


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