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As the U.S. Supreme Court prepares to hear oral arguments over the CFPB’s funding mechanism, Sen. Elizabeth Warren, D-Mass.—one of the creators of the agency—warned that a decision in the case could have huge implications for other regulators, including the NCUA.
The Supreme Court is considering a CFPB appeal of a ruling in a suit filed by the Community Financial Services Association of America challenging the agency’s funding scheme. The CFSA contended that the funding is unconstitutional because it does not rely on the annual appropriations process. Instead, the agency is funded through the Federal Reserve.
The conservative Fifth Circuit Court of appeals agreed with the association and struck down the agency’s payday loan rule. The CFSA represents payday lenders.
The court is scheduled to hear oral arguments in the case on Oct 3.
Warren Speech
In a speech at a session held by the progressive Center for American Progress, Warren said that no financial regulator is funded through the appropriations process. That could mean that the NCUA’s funding scheme and those of other financial regulators are unconstitutional as well, she noted. The NCUA is funded through fees paid by credit unions.
Warren added that Medicare and Social Security also are not funded by appropriations.
“The circuit court’s decision is radical,” Warren said. And referring to the gridlock plaguing Capitol Hill, Warren added, “House Republicans are wreaking havoc without taking the financial regulators off the field.”
CFPB Critics
House Republicans have been highly critical of the strict regulatory regime adopted by CFPB Director Rohit Chopra.
Warren said that the financial community is targeting the CFPB because it is an effective agency that helps consumers.
“The CFPB is under attack because it is good at what it does,” Warren said.
However, credit union trade groups have questioned whether the CFPB has exceeded its authority in issuing some rules. The groups also have said that the CFPB should be converted into a commission annually funded by Congress.
Center’s Report
The Center for American Progress issued a report Thursday echoing Warren’s assertion about the possible impact on other agencies.
“If affirmed, the 5th Circuit’s ruling could have cascading effects on agencies funded outside of the annual congressional appropriations process, depending greatly on the specific rationale adopted by the court,” the center said. “These programs could even include Medicare and Social Security, which have permanent appropriations outside the annual appropriations process and generally only require congressional intervention if amended or repealed, although these agencies would likely be affected to a lesser extent given their entitlement authority.”
And the center singled out agencies that are funded outside of the appropriations process, including the NCUA.
“The 5th Circuit’s use of a strained interpretation of the appropriations clause to hold the operation of nearly the entire agency unconstitutional is wholly novel and entirely contravenes Supreme Court precedents,” the center’s report stated.
Another progressive, Joe Gaeta, director of oversight and engagement at Democracy Forward, agreed that a ruling against the CFPB could place other agencies at risk.
“Where does it end?” he asked at news conference Wednesday. And he added, “What other agencies will be at risk?”
NCUA
