Even some conservative justices have expressed skepticism about the argument that the agency, which was created after the 2008 financial crisis to regulate mortgages, auto loans and other consumer finance, was financed in a way that violated the Constitution.
The CFPB case is one of several major challenges federal regulators are hearing this semester as courts have been open to restrictions on their operations for more than a decade. The CFPB, the brainchild of Sen. Elizabeth Warren, D-Mass., has long been opposed by Republicans and their financial backers.
But the court’s majority appeared ready to reject sweeping arguments made by attorneys for payday lenders, whose challenges to CFPB rules prompted a Supreme Court case. The agency’s ruling will also quell concerns about the effectiveness of actions taken by the CFPB since its inception.
Unlike most federal agencies, the Consumer Bureau does not rely on Congress for its annual budget process. Instead, it is funded directly by the Federal Reserve and currently has an annual limit of about $600 million.
In a novel ruling, a federal appeals court in New Orleans held that the funding violated the Constitution’s Appropriations Clause because it improperly shielded the CFPB from congressional oversight.
Attorney Noel Francisco, representing the lenders, said Tuesday he supported the ruling and said Congress could not hand over so much power to executive branch agencies. “This is a permanent delegation, pick your own number,” said Francisco, who served as the Trump administration’s top Supreme Court lawyer.
But several judges rejected his argument.
“Congress could change it tomorrow. Nothing about this is permanent,” Justice Brett Kavanaugh said.
Judge Elena Kagan said Francisco’s argument “runs counter to 250 years of history.”
When Deputy Attorney General Elizabeth Prelogar, the Biden administration’s top lawyer, defended the CFPB, Judge Samuel Alito was the most aggressive questioner.
While the U.S. Chamber of Commerce and some other business interests support payday lenders, mortgage bankers and others regulated by the CFPB have warned the court to avoid broad rulings that could disrupt the market.
Three years ago, the court heard another CFPB case, ruling Congress improperly blocked the bureau chief from being removed from office. The justices said the president can replace the director at will but allow the agency to continue operating.
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