Senior Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
October 02, 2023
The Consumer Financial Protection Bureau (CFPB) sits in an unusual position—powerful enough to regulate almost every facet of America’s consumer finance, yet strangely unaccountable to Congress.
Indeed, it has no need to go to Congress to fund its activities, for it has a perpetual mechanism for acquiring funds directly from the Federal Reserve. This constitutional oddity can't go unaddressed.
The U.S. Supreme Court holds oral argument on Oct. 3 in the case CFPB v. Community Financial Services Association to determine if the CFPB's funding method is unconstitutional. The Court will also consider revoking a rule from that funding era.
Reasons to rule against CFPB funding method
Here are four reasons the Court should hold the CFPB’s funding mechanism unconstitutional:
- Troubling precedent: Last October, the 5th Circuit Court ruled that the CFPB's funding mechanism is unconstitutional. This decision is now under review by the Supreme Court. If the Court agrees, it could lead to a profound reckoning for the CFPB's oversight by Congress.
- Lack of oversight: The CFPB is like a referee in a game that’s not really being watched by the coaches or the league. It gets its money straight from the Federal Reserve, skipping the typical step where Congress checks and balances a government agency's budget. When no one's keeping an eye on the referee, there's more chance the referee will make calls that aren't fair.
- Unprecedented authority: The CFPB isn't just a paper tiger—it's a regulatory lion with a vast scope. This agency can regulate virtually every corner of consumer finance. No other U.S. financial regulator enjoys such unbridled power and financial independence from Congress.
- Ideological agendas over reason: This isn't theoretical. We've seen real-world consequences of this lack of oversight. Take the example of the recent CFPB proposal to limit late fees on credit cards. Sounds like consumer protection, right? But look closer. This action hurts responsible consumers by making them subsidize the costs of those who make late payments. All of this is happening without the usual checks and balances.
Checks and balances are the solution
How do we fix this? It's simple. Put the CFPB under congressional budget oversight. This would involve subjecting the agency to the traditional appropriations process.
The U.S. Supreme Court has a unique opportunity to correct this glaring constitutional flaw. It can do so in a way that minimally disrupts the CFPB's operations but finally brings it under the purview of our democratic system.
Congress created this problem and Congress can fix it. In the meantime, the Supreme Court should restore the balance of power and uphold the constitutional principle that no agency should be above the law. It's time to correct this now.