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CFPB’s Future Hangs in the Balance as Supreme Court Agrees to Hear High-stakes Legal Challenge

  • Written by Steel Rose

As predicted, the Supreme Court agreed to review Community Financial Services Association of America v. CFPB, concerning how the watchdog agency is funded. The U.S. Court of Appeals for the Fifth Circuit determined in October that the CFPB’s funding was unconstitutional—a decision that led to the CFPB petitioning the Supreme Court to review. But given the high court’s current conservative makeup, that review could end up affirming the Fifth Circuit’s ruling, and doing considerable if not existential damage to the agency. It’s hard to state the importance of a case that “threatens the very existence of the CFPB,” says Alan Kaplinsky, senior counsel at Ballard Spahr and the former longtime practice leader of the firm’s Consumer Financial Services Group. “If the Supreme Court agrees with the Fifth Circuit [determination], it throws a cloud over everything the CFPB has done since it became operational in 2011. All of its regulations—and it’s issued a massive amount of regulations and enforcement orders—would be invalid. It would be a mess,” Kaplinsky says.

 At the heart of the issue is the fact that the CFPB receives its funding from the Federal Reserve system rather than through congressional appropriations like most, but not all, other U.S. government agencies. Kaplinsky says the Dodd-Frank Act purposefully stipulated that the CFPB receive its funding through channels outside of Congress, so as to keep it apolitical, but that’s been challenged as “improper delegation of authority,” with the CFPB’s critics arguing that it should attain funding through congressional appropriations each year.

“There is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills,” the CFPB told Fast Company when reached for comment. “Other federal financial regulators and the entire Federal Reserve System are funded that way, and programs such as Medicare and Social Security are funded outside of the annual appropriations process. The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”

If the Supreme Court does affirm the Fifth Circuit’s decision, it could create chaos for the agency (and potentially others). Kaplinsky says he doesn’t think the CFPB will collapse or vanish, but the legitimacy of its previous actions would be thrown up in the air, and it would likely require a bipartisan congressional action to make sure it can still function. Kaplinsky thinks that the conservative-leaning court will affirm the Fifth Circuit’s decision, with wide-ranging effects for everyone from payday loan lenders to big, multinational banks. Editor Note: This story was extracted from a story posted at; to read the complete story, click here.