The US Supreme Court has rejected an attempt to neuter the Consumer Financial Protection Bureau (CFPB). The Community Financial Services Association of America (CFSA), a trade association for payday lenders, brought a case against the CFPB. It claimed that the CFPB’s funding violated the appropriations clause of the US constitution.

The CFPB was created through the Dodd-Frank Act 2010. It is funded by a capped sum provided by the Federal Reserve. Other US federal agencies are funded by Congress.

In a statement, the CFPB said: “For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement. The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.

CFPB delivered $20bn+ in relief to consumers since 2011

“Congress created the CFPB to be the primary federal watchdog protecting consumers from predatory and abusive practices in the financial sector. Since the CFPB opened its doors in 2011, it has delivered more than $20bn in consumer relief to hundreds of millions of consumers and has handled more than 4 million consumer complaints.”

“Today’s decision is a resounding victory for American families and honest businesses alike, ensuring that consumers are protected from predatory corporations and that markets are fair, transparent, and competitive.”

CFPB: ‘funding structure nor novel or unusual’

“This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole. As we have done since our inception, the CFPB will continue carrying out the vital consumer protection work Congress charged us to perform for the American people.”

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‘Supreme Court did the correct thing’: Lynyak

Dorsey & Whitney partner Joseph Lynyak said: “The Supreme Court today did the correct thing by rejecting the extremely narrow reading of the Appropriations Clause. The alternative would have thrown congressional funding into a tailspin—particularly considering that Congress has been unable to fulfil its duty to fund the government using the current understanding of the scope of the Appropriations Clause.

“Had the Supreme Court ruled otherwise, the constitutionality for practically all of the banking agencies would have been directly placed at risk, including immediate challenges to a host of agency past and current actions. Because the lower court opinion voided the CFPB’s authority due to the alleged unconstitutional funding by Congress, arguably all CFPB actions since its creation would have been nullified.

“The Court, through the majority opinion by Justice Thomas, held that the Appropriations Clause required a simple and straightforward test. That Congress authorise expenditures from a specific source of public monies for a designated purpose. (Justice Thomas analysed the issue from an historical perspective.) Justice Kagan agreed with the majority opinion, but emphasised that flexibility was afforded Congress when making an appropriation, and that the funding for the CFPB clearly fell within the scope of the test approved by the Court.”