Rule of Law

Existential Threat to CFPB Spotlights Massive Stakes of New Supreme Court Term

“How the court rules, and the relief it orders, will have enormous implications for the future of the agency, the validity of its past rules and enforcement actions, and its ability to continue protecting consumers.”

The corporate forces that have been gunning for the Consumer Financial Protection Bureau since its creation more than a decade ago are set to have their moment before the U.S. Supreme Court on Tuesday, with the justices poised to hear a predatory payday lending group’s challenge to the agency’s funding mechanism on the second day of their new term.

The case—Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited—poses an existential threat to the CFPB, which has aggressively pursued corporate criminals under the leadership of director Rohit Chopra, who has been dubbed “Wall Street’s most hated regulator.”

Depending on the scope of the Supreme Court’s decision, the outcome of the case could have consequences that reach far beyond the consumer agency’s budget, potentially throwing the U.S. mortgage market into chaos and undermining other regulatory agencies and federal programs—including Medicare and Social Security.

“How the court rules, and the relief it orders, will have enormous implications for the future of the agency, the validity of its past rules and enforcement actions, and its ability to continue protecting consumers against fraud and abuse in the sale of a broad range of financial products and services, from payday loans to mortgages and credit cards,” Stephen Hall, legal director and securities specialist at Better Markets, said Monday.

“The case also threatens the viability of other critically important agencies that have essentially the same funding structure that fuels the CFPB, including the Federal Reserve and the other banking regulators,” Hall added.

Last year, 5th Circuit Court of Appeals—a federal panel composed entirely of judges appointed by former President Donald Trump—ruled that the CFPB’s funding structure is unconstitutional. Unlike other federal agencies, the CFPB’s funding comes from the Federal Reserve system, not congressional appropriations, making it less subject to annual political fights and right-wing austerity sprees.

The CFPB appealed the ruling, which was authored by a judge who received donations from the banking industry when he was a Mississippi state lawmaker.

As The New York Times observed Sunday, the 5th Circuit didn’t just take aim at the CFPB’s funding mechanism.

“It concluded that all actions taken by the bureau in its 12-year existence should be ‘rewound,'” the newspaper reported. “If the Supreme Court agrees that the bureau’s funding is improper, it could, at minimum, force the agency to rely on congressional appropriations. Or the court could follow the 5th Circuit’s suggestion and obliterate everything the agency has done to date.”

The plaintiffs in the case, which brought their challenge in response to a CFPB rule targeting the abusive activities of payday lenders, contend that the bureau’s funding structure violates the Constitution’s appropriations clause because it falls outside the annual congressional appropriations process—a claim that legal experts say is both “wrong” and “incredibly dangerous.”

Such reasoning, if accepted by the U.S. Supreme Court, “would invite challenges to a host of other federal financial regulators and could wreak havoc on the nation’s economy,” Brianne Gorod, Brian Frazelle, and Alex Rowell of the Constitutional Accountability Center argued last year.

“And nothing in the law requires this result: The decision is at odds with constitutional text and history, Supreme Court precedent, and long-standing historical practice,” they added.

Last week, the watchdog group Americans for Financial Reform (AFR) stressed that “all bank regulators and numerous other agencies and programs likewise rely on funding outside annual appropriations, such as Social Security and Medicare.”

“If the Supreme Court does not turn back this unprecedented interpretation of the Constitution, it will put all of these government agencies at the mercy of the increasingly unpredictable annual appropriations process,” said Elyse Hicks, consumer policy counsel at AFR. “The gears behind important financial regulatory and rulemaking work would grind to halt any time Congress reached a budgetary impasse. The judiciary too could find itself unable to meet its financial obligations during a government shutdown.”

“Justices Thomas and Alito are shamelessly thumbing their noses at judicial ethics, living the high life on GOP billionaires’ dime.”

The Supreme Court is set to hear the case in the midst of a corruption crisis largely stemming from the activities of two right-wing justices: Samuel Alito and Clarence Thomas.

Throughout 2023, ProPublica and other outlets have published a number of bombshell stories detailing the undisclosed gifts the two judges have received from billionaires who have had business before the Supreme Court.

Vishal Shankar, a senior researcher at the Revolving Door Project, noted in The American Prospect on Monday that “hedge fund billionaire Paul Singer—who took Alito on a luxury Alaska fishing trip—holds at least $90 million in financial companies overseen by the CFPB.”

Shankar also pointed to Thomas’ ties to the Horatio Alger Association, an elite circle that the justice has granted extraordinary access to the Supreme Court.

“According to a review of the Alger Association’s members conducted by the Revolving Door Project, at least 18 Alger members have either previously expressed an interest in weakening the CFPB or stand to gain from the court gutting the bureau,” Shankar wrote, specifically naming Chamber of Commerce CEO Tom Donohue, Berkshire Hathaway executive Gregory Abel, and John Canning, co-founder of the private equity firm Madison Dearborn Partners.

CFPB v. CFSA is one of a number of cases before the Supreme Court that pose major threats to democracy, fundamental freedoms, and basic government functions, advocates say.

“The court is set to rule on a series of issues critical to our rights and our democracy, from gun violence prevention to the rights of Americans with disabilities, from racist gerrymandering to the ability of the government to protect consumers and enact the will of democratically elected representatives,” the Just Majority coalition said in a statement Monday.

“While we do not know how any individual case will be decided,” the coalition added, “we know we urgently need structural court reform, including a binding code of ethics and Supreme Court expansion, to make sure the court considers the rights of all Americans, not just billionaires who can buy special access.”

One of the pending cases, Loper Bright Enterprises v. Raimondo, threatens to gut the federal government’s ability to constrain the destructive activities of fossil fuel companies and other corporations. The plaintiffs in the case have seen vocal support from right-wing, industry-backed groups, including the Cato Institute—which was co-founded by the billionaire oil tycoon Charles Koch.

Last month, ProPublica revealed that Thomas has attended at least two Koch network donor events during his tenure on the Supreme Court.

“The Roberts court is unchecked and unbalanced,” Brett Edkins, managing director of policy and political affairs at Stand Up America, said Monday. “Justices Thomas and Alito are shamelessly thumbing their noses at judicial ethics, living the high life on GOP billionaires’ dime. While they bask in luxury, the court’s conservative supermajority is ruthlessly stacking the deck in favor of the wealthy and powerful, while chipping away at the freedoms of everyday Americans.”

“As this term begins,” said Edkins, “it’s clear that it’s time for a shake-up.”