The existence of the U.S. Consumer Financial Protection Bureau (CFPB) and potentially other federal agencies is being challenged at the Supreme Court.
The backdrop: On Tuesday, the Supreme Court hears a major case that could determine the existence of the CFPB, created in response to the 2008 financial crisis.
* Since its inception, the CFPB has established vital consumer protections in the financial realm, winning $17.5 billion in restitution for nearly 200 million Americans.
* Its survival is being challenged by payday lenders who argue that the agency’s funding is unconstitutional as it is sourced from the Federal Reserve, which is in turn funded by bank fees.
Key arguments: The case hinges on whether Congress’s power of the purse has been violated by the CFPB’s funding mechanism.
* Helgi Walker, who represents 21 former members of Congress opposed to the CFPB, argues that the Constitution requires government spending to be accordingly approved by Congress, which isn’t the case for the CFPB, according to her.
* The Biden administration counter-argues that Congress lawfully funds the agency with a capped amount each year from the combined fees earned by the federal reserve system.
Potential implications: If the Supreme Court rules against the CFPB, it may also affect various government agencies not funded by annual appropriations, such as the Federal Reserve and the Federal Deposit Insurance Corp.
* According to Sen. Elizabeth Warren, a potential adverse decision could “wreck the financial security of millions of families and turn our economy upside down,” possibly endangering Social Security and Medicare too.
* Several groups, including the mortgage bankers, homebuilders, and realtors associations warn against creating potential “chaos” in the housing market if the CFPB’s protections are dismantled.
* Military and veterans organizations also side with the CFPB due to its enforcement of laws aimed at protecting the financial well-being of servicemembers and their families.
The decision’s outcome remains to be seen but may have far-reaching impacts on financial regulatory mechanisms and agencies in the U.S.
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