Supreme Court to Hear CFPB Funding Case
January 1, 2021
Last week, the U.S. Supreme Court announced it will review a lower court decision that held the Consumer Financial Protection Bureau (CFPB) is unconstitutionally funded. The Supreme Court will hear the case in its next term, which begins October 2023.
For CREFC members, the CFPB administers the Home Mortgage Disclosure Act (HMDA), which mandates multifamily lenders collect and report data on their apartment loans. The CFPB also is taking an increased role in renter protection.
Why it matters: If the Court agrees the funding is unconstitutional, it could force major changes at the CFPB by subjecting it to the Congressional appropriations. That could make the agency more accountable to Congress.
- As designed in Dodd-Frank, the CFPB requests its annual budget from the Federal Reserve.
- The idea was to insulate the regulator from political pressure of congressional funding.
- Other regulators such as the FDIC, OCC, and Fed are also funded outside of congressional appropriations. The SEC is subject to appropriations.
- The CFPB Director originally was removable only for cause, but a Supreme Court decision found that structure unconstitutional.
Our thought bubble: Some CFPB foes are predicting SCOTUS could use the case to invalidate the agency and its previous actions. But even if the Court finds the funding mechanism unconstitutional, the agency and its regulations are likely to survive.
In previous cases where an agency’s structure (ex. CFPB and FHFA) has been found unconstitutional, the remedy has been to make the director removable by the president. While the funding case could be different, a likely outcome is that Congress will have to pass funds annually for the CFPB.
The bottom line: The case is important for the regulator, but Congress’ power of the purse over the CFPB is less likely to have as dramatic of an impact as changing the director with each presidential administration.
What’s next: A Supreme Court hearing is likely to occur in Q4 of 2023, but a decision not announced until the first half 0f 2024.
Contact David McCarthy (firstname.lastname@example.org) with questions.