The Supreme Court rejected a challenge on Thursday that could have paved the way for a consumer protection regulator to be dismantled.
The court ruled by 7-2 vote that the unconventional way the Consumer Financial Protection Bureau (CFPB) receives funding is constitutional, dealing a blow to the business interests who brought the challenge. Two trade associations for financial services firms had argued that it is illegal for the agency to be funded directly by the Federal Reserve instead of the congressional appropriations process.
“For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement,” CFPB said of the ruling. “The Supreme Court has rejected their radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”
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Justices Neil Gorsuch and Samuel Alito dissented, while the rest of the justices on the court affirmed that the agency can be funded by the Fed rather than through standard appropriations. The ruling is a victory for the Biden administration, while free-market groups have expressed disappointment with the outcome.
Congress established the CFPB via the 2010 Dodd-Frank Act, a major piece of legislation intended to reform the financial industry after the mortgage meltdown of the late 2000s and the subsequent economic crisis.
“Although there may be other constitutional checks on Congress’ authority to create and fund an administrative agency, specifying the source and purpose is all the control the Appropriations Clause requires,” Justice Clarence Thomas wrote in the majority opinion.
The ruling may set a precedent wherein a federal agency can “bankroll its own agenda without any congressional control or oversight,” Alito wrote in the dissenting opinion.
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Iain Murray, the director of the Competitive Enterprise Institute’s Center For Economic Freedom, expressed similar sentiments about the ruling.
“Sadly, the Court has given the green light to Congress to abrogate its own power of the purse. We can expect future Congresses to come up with ever more inventive ways to allow the executive branch to fund its whims,” Murray said. “The only hope for responsible government is for Congress to rediscover its own prerogatives and repeal unusual funding mechanisms for executive agencies that exercise more power over American citizens than the Post Office — starting with the CFPB.”
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